Q3 2023 BWX Technologies Inc Earnings Call

Ladies and gentlemen, welcome to D. W X technologies.

<unk> 2020 feet earnings conference call at this time, all participants are listen only mode.

Following the companies to pay it remarks, we will conduct a question to answer session instructions will be given at that time.

Now I'd like to turn the call over to our House Chase Jacob says would be W. S. T Vice President of Investor Relations. Please go ahead.

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

Today's call, we will reference the third quarter of 2023 earnings presentation that is available on the investors section of the BWXT website.

You 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.

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 web site.

Now like to turn the call over to Iraq.

Thank you Jason good evening to everyone.

Afternoon, we reported solid third quarter results that were slightly ahead of our expectations.

There was highlighted by robust, 13% organic revenue growth with double digit revenue growth in both segments.

EBITDA grew 6% compared to the same quarter last year is higher revenue in government operations and solid revenue and margin performance and commercial operations were offset by lower margin and our government operations segment, and some growth and corporate expense.

As we forecast the last quarter, although higher sequentially government operations margins were somewhat compressed by the onboarding of new team members and less favorable product mix, while commercial operations margins benefited from operational improvements and medical profitability adjusted earnings per share declined.

3% to 67 cents is higher EBITDA was offset by non operating items.

Her all and consistent with what we have experienced throughout 2023, the combination of steady advancements in our core franchises in incremental increases from new growth sectors is producing strong organic top line growth even in these challenging and unpredictable economic times, coupled with our focus on operational excellence and functional.

Continuous improvement, we expect to produce good financial performance and strong cash flow throughout the remainder of 2023 and 2024 based on our year to date performance and our expectations for the fourth quarter, we are narrowing or 2023 adjusted earnings per share guidance to $2.90.

To $2.95, the midpoint of which is slightly higher than where we started the year.

Our guidance assumes approximately 8% year over year adjusted EBITDA growth and is Rob will detail in his remarks, we are pleased to have a similarly positive outlook for 2024 anchored again by solid organic growth at the top and bottom line. Our preliminary review is that we can grow revenue EBITDA in earnings at a mid single digit.

Right in 2024 and continued to drive improved free cash flow.

Last quarter I provided a detailed update on some of the major secular themes driving or demand outlook, including the impacts of the great power competition and D carbonization of the grid as.

As we begin to turn the page on 2023 I expect the same themes to remain key drivers of the increased application of nuclear solutions and our key national security clean energy and nuclear medicine and markets.

Looking through that lens.

Let's step through through the drivers of our segment results, including key wins in each segment starting with the government operations segment, we had a strong third quarter with 13% organic revenue growth driven by an increase enable propulsion volume and strong growth that nuclear fuel services and microreactors on.

On the demand outlook are enable propulsion business prospects remain robust underpinned by the 30 year Shipbuilding plan, which supports the government's strategy to bulk up our strategic force capabilities, including a recapitalization of the U S. Navy nuclear fleet on top of the consistent procurement of Virginia class submarines. The current shipbuilding plan.

For 10 years of cereal procurement of Columbia class submarines, beginning in 2026 and the potential for the Ford class aircraft carrier to move to four year ordering centers beginning of 2028, where you are.

Also anticipating incremental demand for submarines, resulting from the office Trilateral security agreement signed a little more than one year ago to that and Australia as recent announcement to invest $3 billion into the U S Naval manufacturing industrial base.

Is it positive step in helping to increase U S submarine production not only to meet our country's needs, but I'll also to support incremental demand from our key allies, including Australia, and the United Kingdom. However.

However, even as orcus efforts mature our primary focus continues to be fully supporting naval reactors, just last week, we announced that $300 million reward for the manufacturing of naval nuclear fuel through mid 2025, we expect to finalize the other elements of our next multiyear pricing agreement, including reactors in key.

<unk> to the propulsion package in the coming months.

Within our non naval propulsion government business, which which now comprise about 20% of the segments total revenue.

Up from about 15% in just two years ago. We're also seeing nice growth in emerging opportunities leading this growth of course, our micro reactor programs within the advanced technologies Division of the segment during the third quarter. We book the initial portion of our 200 million dollar contract for the Draco project. The first demonstration of a new.

Clear thermal rocket engine in space BWXT will manufacture the reactors hardware and complex fuel.

And assemble the reactor in our Lynchburg facility.

For delivering the fully fueled subsystem for spacecraft integration <unk>.

Programs like Draco, and Pele are progressing well and others that we are pursuing.

Show show, how our investments and talent and infrastructure are driving growth beyond our core and enabling BWXT to offer the U S government breakthrough nuclear solutions for applications, and all national security domains, including C land in space.

Our wins with government customers are also creating opportunities to develop microreactors for novel commercial applications.

Some of our nuclear technology appears are taking more significant and open ended profit risks to enter these nascent markets.

WMC is taking a page out of the Navy's history books.

Some of you will know early naval investments in the 19 fifties led directly to the first commercial nuclear power reactor and shipping for Pennsylvania.

We believe this model is still sensible today as we can leverage government program funding and experience too advanced novel commercial nuclear concepts, while investing modest modest amounts of capital to further development of nuclear solutions for maritime remote power or other industrial applications in that vein, we recently announced.

List early stage contracts with the <unk>, Wyoming Energy authority stemming from our involvement in the advanced reactor development program to assess the potential for Microreactors at mining sites in the state.

We also announced a relationship with Crowley to explore the use of the micro reactor on a barge that can be used for backup an emergency power another.

Another part of the government operations segment that is sometimes overlooked is our special materials business. While most of our investors are aware of the strength of our nuclear fuel services franchise.

Over the past several years, we have methodically assembled the broader portfolio based on our strengths and technical capabilities, and radiochemical processing and special materials handling and accountability.

Given the reduction of Cold War era infrastructure and other capacity constraints within the government Laboratory complex BWXT has worked with its government customers to pilot and scaled back up production systems for special nuclear materials. This special materials franchise includes uranium down ballooning, where and we.

Have converted highly enriched stockpile material into lower enrich material under a current contract since 2018, a try so coated fuel line, we stood up in 2021 and the uranium metal processing line at our nuclear fuel facility.

That began production last year, the objective of which is to return valuable national security material to the stockpile for later use in naval fuels or other national security applications. We further expanded this unique line of business in late August by securing NSA contract to recycle scrap material.

From the Y 12 National security complex into high essay low enriched uranium or halos feedstock material. This material is an important stopgap stores for much needed Hey, Lou for the advanced reactor development program that requires have higher assay nuclear fuels to support.

Prototype development.

We are in regular discussions with the department of energy the National Nuclear Security administration.

And other government agencies about where BWXT can be of assistance in supporting their missions. Some more to come on this special materials processing platform is it blossoms into a larger business line within the government operations segment looking.

Looking ahead to 2024, we believe these demand trends will continue to support growth.

And our government operations segment, however, as we laid out at our November 2021, Investor day, the wall and the ordering cadence for the Ford class aircraft carrier in 2024, and 2025 create some headwinds that we expect to overcome the next two years.

Turning to commercial operations revenue in this segment and grew 10% with high single digit growth in commercial nuclear and another quarter of robust double digit growth and medical.

Backlog in the segment, which is almost entirely related to our commercial nuclear business lines was up sequentially for a third consecutive quarter and is up 14% over last year. This highlights the robust demand we are seeing in the market, which will continue for the next several years given demand for nuclear power in Canada and around the world.

As we discussed in more detail last quarter, the Ontario government is seeking to double the scale. The power grid by 2050 to meet projected demand and is fully committed to using nuclear to satisfy a large portion of this demand. This is evidenced by three recent developments <unk>.

Including Ontario power generation commitment to build for B W. R. X 300, small modular reactors at Darlington side life's extensions of existing plan set that Pickering side and the potential for new large scale power reactors at the Bruce power nuclear generating station.

Among many others.

We see international momentum as well, we have talked about the potential for new nuclear in Europe in countries like the UK, Poland and Romania, as they seek to add clean baseload power and to improve their energy security postures, just in September Canada announced export financing of $3 billion Canadian dollars to be used for the construction.

Section of two can do reactors at the churn of vote, a nuclear power station in Romania.

Are strong position as a fuel and equipment provider in the candy reactor market and our role is immersion supplier of large critical equipment to the <unk> markets positions as well the benefit from such projects in the global market.

And BWXT medical revenue growth in our base diagnostic and contract drug manufacturing businesses continues to accelerate growing approximately 30% in the quarter. We expect this trend to continue as demand for isotopes that just trying to <unk> in germanium using cardiac and cancer imaging studies remains strong while we.

<unk> the rising tide of demand for newer therapeutic isotopes likely <unk>. It is worth noting that are proprietary actinium generators are now being used exclusively by Bayer for late stage human clinical trials in Europe.

As it relates to our Tech 99 product development. Our team is diligently working to respond to the questions and data request that we received from the FDA. This summer. We have conducted several successful test runs of Tech 99 generator production with the radiative material using the target delivery system at the LPGA Darlington side and.

We continue to work toward commercialization of the product next year.

We're all our commercial operations segment is poised for continued solid growth in 2024 with improving profitability based upon a better mix in commercial nuclear and higher profitability and medical.

I would also like to take a moment to discuss a few of the initiatives we have in place to sharpen our business execution and improve the day to day operational functionality of our company last.

Last quarter I discussed it on top of the significant financial capital we invested in the business over the last several years. We've also made significant investments in human capital throughout the organization and to ensure we have the people systems and processes to skillfully manage the strong growth we see ahead.

Not only are we focused on capturing growth, but we are intent on honing our business through the use of AI and automation throughout the organization more efficient operational effectiveness practices, including for example, real time monitoring and reporting on large machine tool utilization and all our major U S plants and enhanced human re.

[noise] sources and financial back office platforms to increase the efficiency of administrative functions. We expect these initiatives to reap to maintain our strong competitiveness in the market is in the markets, we serve and to drive returns on capital.

By sustaining our industry, leading growth solid margin performance and robust free cash flow generation.

In conclusion, as we look at our portfolio and.

And our dual focus on growth and execution I couldn't be more confident in how well our employees.

Our positioning BWXT to serve the nuclear markets around our three key capabilities manufacturing processing and services, mainly for power and propulsion applications. The core of BWXT as our significant experience in manufacturing critical nuclear systems and components handling and processing highly complex materials.

And providing services around these capabilities.

Because of our extensive experience in the nuclear markets unmatched facilities in the US, Canada, and the UK and our deep technical expertise, we are uniquely positioned to benefit from the trans driving our markets. We're focused on taking these power and propulsion solutions to meet the demands of our distinguish customers and the national security clean.

Energy and nuclear medicine markets.

Before I turn the call over to Rob to discuss the third quarter financial results in more detail and.

And to discuss our updated 2000 twenty-three guidance and preliminary 2024 outlook I would like to take a moment to express my gratitude to the men and women.

BWXT for their hard work and dedication and supporting the many critical missions carried out by the customers we serve.

It is widely known that the U S has deployed to carrier strike groups to the middle East to support Israel led by the USS forward in the U S. S. Eisenhower aircraft carriers, both of which are powered by BWXT reactors.

This is a stark reminder of the importance of the work, we do every day and BWXT and supporting the U S and our most important allies.

With that I will turn the call over to rock.

Thanks for X and good evening everyone.

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

Third quarter revenue was robust $590 million up 13% organically on a consolidated basis with double digit growth in both government and commercial operations.

Adjusted EBITDA was $107 million up 6% year over year is higher revenue was complemented by improved margins and commercial operations, but partially offset by lower margins in government operations and higher corporate EBITDA expense driven by some seasonally stronger healthcare costs.

We still see this corporate EBITDA line coming in at the upper end of the $10 million to $15 million range was fourth quarter coming in more like level. We saw in the second quarter. This year <unk>.

Looking into 2024, we expect corporate EBITDA expense the plan out in the mid teens range and only grow at inflationary rates thereafter.

I will note that despite seasonally lower revenue in.

And the higher corporate expanse adjusted EBITDA was essentially flat compared to second quarter of 2023, reflecting solid underlying performance and our government business better margins and commercial power and improve profitability and medical.

Adjusted earnings per share was 67 compared to 69 in the prior year quarter.

As you can see in the EPS bridge on slide five as has been the case throughout the year the year over year decline was due to non operational items, including lower pension income and higher interest expense.

Are adjusted effective tax rate was 22.6% in the quarter, mainly due to the adjustment of provisions around R&D and certain stock compensation expenses that had a disproportionate impact on the quarter. Nonetheless.

Nonetheless, we still expect a full year tax rate of approximately 24%, meaning the fourth quarter rate will likely be a tad higher than the full year right.

Despite modestly lower net income free cash flow improved to $43 million compared to $25 million in the third quarter of 2022, driven by improve working capital management and lower capital expenditures.

Capex was roughly $31 million in the quarter and consisted of maintenance capex and select growth initiatives, including investments for our Pele and Draco Microreactors programs.

Moving out of the segment results on slide six.

And government operations third quarter revenue was up 13% to $478 million driven by higher naval nuclear component production and micro reactor volume those partially offset by lower long lead material procurement.

Third quarter adjusted EBITDA in the statement was $99 million up 10% from last year is higher revenue is offset by less favorable mix and inefficiencies related to that to new hiring as we continue to expand the size of our workforce to meet growing demand.

<unk> margin and the second was 27%.

Down compared to last year, but up from 19.4% in the second quarter.

This sequential increase was driven by better utilization in onboarding processes as well as nuclear manufacturing improvements, we are attracting world having one of the best years of gross hiring in our history, while also stemming the negative attrition.

Trend, we had we had seen in the wake of Covid.

Going forward, we expect that continued solid performance in government operations with some lingering effects from onboarding timing of projects as well as mix will enable us to hold our underlying margins in this segment relatively steady in 2024.

And commercial operations revenue was up 10% driven by increases in component manufacturing and field service activity and our commercial nuclear business as well as robust BWXT medical revenue growth and partially offset by lower fuel handling volume.

Year to date reported commercial operations revenue is up approximately 7%, despite a 5% currency headwind due to the appreciation of the U S dollar versus the Canadian dollar highlighting.

Highlighting the underlying strength of our commercial nuclear and medical business.

Second quarter commercial operations adjusted EBITDA was up approximately two and a half million dollars to $14 billion driven largely by improve profitability medical.

Similar to the trends we have experienced throughout the year. This was partially offset by the impact of less favorable mixed in commercial nuclear that was skewed toward field service refurbishment activity and less outage work compared to last year.

We expect this mix to remain relatively content in 2024.

Turning now to guidance for the remainder of 2023 and a preliminary outlook for 2024 on slide seven.

We are narrowing or 2023, adjusted EPS guidance to $2.90 to $2 95.

The mid point of which is in line with our previous guidance and slightly above where we started the year.

We are maintaining our operating assumptions for revenue to be up high single digits for more than $2.4 billion with both government operations and commercial operations near the higher end of our forecasted high single digit growth in mid single digit growth guidance respectively.

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

Our full year guidance implies fourth quarter consolidated EBITDA margin to be higher than third quarter, driven by a more meaningful improvement in commercial operations do to improve medical profitability and better commercial nuclear mix as well as slightly improving underlying government performance plus the potential to.

Is a recovery on non nuclear components.

Turning now to our preliminary outlook for 2024.

Overall, we expect to see another year of good operational performance with mid single digit growth in revenue adjusted EBITDA and EPS and continued strong free cash.

Unknown Executive: Ladies and gentlemen, welcome to BWX Technologies, third quarter, 2023 Ernest Conference Call. As with Kine, all participants are in listen only mode. Following the company's prepared remarks, we will conduct a questioning answer session and instructions will be given at that time.

And government operations, we expect modest revenue growth as contributions from our non naval programs, including new micro reactor projects, such as Draco and the expanded special materials franchise that Rex walk through earlier to be partially offset by the adverse impact of the shipbuilding ordering key.

Chase Jacobson: I will now like to turn the call over to our host, Chase Jacobson, with BWXT's Vice President of Investor Relations. Please go ahead. Thank you, Cheryl.

As we have communicated to lull in our aircraft carrier related work in 2024, and 2025 will only be partially offset by growth in Columbia class submarines.

Chase Jacobson: Good evening and welcome to today's call.

Chase Jacobson: Joining me are Rex Geveden, President and CEO and Rob LeMasters, Senior Vice President and CFO. On today's call, we will reference the third quarter, 2023 Ernest presentation that is available on the Investor section of the BWXC website. We will also discuss certain matters that constitute forward-looking statements.

Government EBITDA margins are likely to be modestly lower compared to 2023 as solid underlying performance will be offset by the impacts of revenue mix, particularly as it relates to our cost reimbursed of all microreactors projects and the non-recurring.

Non-recurring recovery benefit we expect in the fourth quarter of 2023.

Chase Jacobson: These statements involve risks and uncertainties, including those described in the State Harbor provision, found in the investor materials and the company's SEC filings. We will frequently discuss non-GAT financial measures, which are reconciled to GAT measures in the appendix of the Ernest presentation that can be found on the Investor section of the BWXC website.

Excluding this benefit government operations should be relatively flat compared to 2023.

And commercial operations, we expect continued strong strong growth driven by both commercial nuclear and medical given favorable market trends and the opportunities that Rex discussed in his remarks.

With this growth, we expect improved EBITDA margin from steady performance in commercial nuclear and improving contributions from BWXT medical.

Rex Geveden: I would now like to turn the call over to Rex. Thank you, Chase, and good evening to everyone. This afternoon we reported solid third quarter results that were slightly ahead of our expectations. The quarter was highlighted by robust 13% organic revenue growth with double-digit revenue growth in both segments. Adjusted EBITDAG grew 6% compared to the same quarter last year as higher revenue and government operations and solid revenue and margin performance and commercial operations were offset by lower margin and our government operations segment and some growth and corporate expense.

Lastly are capital expenditure targets continue to be focused on discipline maintenance capex spending plus wearing an incremental capex to support growing demand for microreactors commercial nuclear and therapeutics.

At this point in time, we expect Capex to remain in line with 2023.

Additionally, we remained focused on working capital efficiencies throughout the organization and and how we contract with our customers and suppliers.

In total we expect these factors to produce another strong year of free cash flow with investors seeing free cash flow growing faster than our mid single digit EBITDA growth.

Rex Geveden: As we forecasted the last quarter, although higher sequentially, government operations margins were somewhat compressed by the onboarding of new team members and less favorable product mix, while commercial operations margins benefited from operational improvements and medical profitability. Adjusted earnings per share declined 3% to 67% as higher EBITDAG was offset by non-operating items. Overall, and consistent with what we have experienced throughout 2023, the combination of steady advancements and our core franchises and incremental increases from new growth vectors is producing strong organic top-line growth even in these challenging and unpredictable economic times.

To sum it up we have had another solid quarter and are well positioned for continued growth in 2024 <unk>.

Demand trends in our business remained strong and while we are not immune to global macroeconomic factors the high priority of our government programs and the underlying secular themes driving our business leave us relatively insulated from changes in government funding pattern and other macro risks.

<unk> discussed we are committed to capturing growth and are taking the initiative to drive more predictable earnings and free cash flow conversion, which combined with our unique assets and technical capabilities will continue to differentiate BWXT from its peers.

Rex Geveden: Coupled with our focus on operational excellence and functional continuous improvement, we expect to produce good financial performance and strong cash flow throughout the remainder of 2023 and 2024. Based on our year-to-day performance and our expectations for the fourth quarter, we are narrowing our 2023 adjusted earnings per share guidance to $2.90 to $2.95, the midpoint of which is slightly higher than where we started the year. Our guidance assumes approximately 8% year-over-year adjusted EBITDAG growth and as Rob will detail in his remarks, we are pleased to have a similarly positive outlook for 2024, anchored again by solid organic growth of the top and bottom line.

And with that we look forward to taking your questions.

At this time I would like to remind everyone in order to ask the question.

Then a number one on your telephone key Paul.

Our first question comes from the line of four or more rebel four line is now open.

Good evening racks, Rob Chase <unk>, it sounds like you've done a great job on all the hiring and or at least from a gross perspective and and dealing with some of the attrition, but is that going to linger in the next year just thinking about the margins at.

Rex Geveden: Our preliminary view is that we can grow revenue, EBITDAG and earnings at a mid-single digit rate in 2024 and continue to drive improved free cash flow. Last quarter, I provided a detailed update on some of the major secular themes driving our demand outlook, including the impacts of the great power competition and decarbonization of the grid. As we begin to turn to page on 2023, I expect these same themes to remain key drivers of the increased application of nuclear solutions in our key national security clean energy and nuclear medicine and markets.

At your government operations.

Yeah, Thanks, Peter Hey, good evening.

Yeah, I'd say due to add a little color to that discussion on hiring.

I think we're doing quite well with talent acquisition.

The other side of the equation that we haven't talked as much about is that.

Sort of reducing the leakage rate with the improvement in attrition, which is.

Markedly improved we're getting back to that range of mid single digit attrition when you're back out retirement and non voluntary separations.

Rex Geveden: Looking through that lens, let's step through the drivers of our segment results, including key wins in each segment. Starting with the government operation segment, we had a strong third quarter with 13% organic revenue growth driven by an increase in naval propulsion volume and strong growth in nuclear fuel services and microreactors. On the demand outlook, our naval propulsion business prospects remained robust underpinned by the 30-year shipbuilding plan which supports the government's strategy to bulk up our strategic force capabilities, including a recapitalization of the US Navy nuclear fleet.

The combination of those two things are pretty powerful for the business Peter I would say that.

In a business like ours, which is growing at the rate our business is growing we're constantly on boarding and hiring and training new people. So there's a there's a bit of of of.

Of a bit of drag related to the growth itself and and so I think we'll see that linger for a period of time would add to that Ron Yes, Yes, just to give you a couple of numbers an update on where we stand third quarter was excellent I think class Court, we talked about how we just saw the building momentum months upon months.

Rex Geveden: On top of a consistent procurement of Virginia class submarines, the current shipbuilding plan calls for 10 years of serial procurement of Columbia class submarines beginning in 2026 and the potential for the Ford class aircraft carrier to move to four year ordering centers beginning in 2028. We are also anticipating incremental demand for submarines resulting from the AUKUS trilateral security agreement signed a little more than one year ago. To that end, Australia's recent announcement to invest $3 billion into the US naval manufacturing industrial base is a positive step in helping to increase US submarine production, not only to meet our country's needs, but also to support incremental demand from our key allies, including Australia and the United Kingdom.

As we look at a third quarter from a from a hiring standpoint on the gross side, we're up almost 30% versus the levels that we brought in and and Q2. So we are still on board and quite a bit.

<unk> talked a little bit about the attrition.

That number has actually gone back to sort of more normalized level of mid single digits. So we're really seeing.

Good performance there. So we both want to bring in new employees only want to retain them longer and also just the overall I'm ordering I think you saw on our.

Margin performance just sequentially, we still have an issue of sort of utilization, but our efficiency has really been quite strong on a per hour basis. If you will release matching with the customers asking for so it's taking a little bit.

Rex Geveden: However, even as AUKUS efforts mature, our primary focus continues to be fully supporting naval reactors. Just last week, we announced a $300 million award for the manufacturing of naval nuclear fuel through mid-2025. We expect to finalize the other elements of our next multi-year pricing agreement, including reactors and key components of the propulsion package in the coming months. Within our non-naval propulsion government business, which now comprise about 20 percent of the segment's total revenue, up from about 15 percent and just two years ago, we're also seeing nice growth and emerging opportunities.

Of a drag on our utilization, but our efficiency is quite quite strong stone pretty proud of that from the team.

I appreciate those details I'm, just and then on the on your comments on the 24 I think we'd all kind of expected what you're kind of just laid out regarding government you know the cadence coming down on the floor.

And that ultimately then eventually Columbia would begin to offset that do we start to see that in 25.

Where the Columbia becomes more of a bigger part of the mix or how do we think about that because we know the schedule really ramps up in the second half of the decade.

Rex Geveden: Leading this growth, of course, our microreactor programs within the advanced technologies division of the segment. During the third quarter, we booked the initial portion of our $200 million contract for the Draco project, the first demonstration of a nuclear thermal rocket engine in space. BWXT will manufacture the reactor's hardware and complex fuel and assemble the reactor in our Lynchburg facility before delivering the fully-fueled subsystem for spacecraft integration. Programs like Draco and Pele are progressing well and others that we are pursuing show how our investments in talent and infrastructure are driving growth beyond our core and enabling BWXT to offer the U.S, government breakthrough nuclear solutions for applications in all national security domains, including the land and space.

Yes, I think both our goal has always been I think we're actually kind of doing slightly better than what I, what I thought they were kind of filling in a little bit of the overall shipbuilding both the carrier law and then the Columbia offset we're having strength around the Microreactors franchise.

Division as well as some of these special materials businesses, we have Ah.

Strong women on the metal front into that providing a little bit of tailwind to fill in both in 2425, So probably too early to look all the way out to 2025, but I'm, hoping that we could surprise you guys to the upside just like we did it I think in 24, we're now seeing a little bit of growth and had you asked me a year.

I'm not sure I would assume that so.

Glad to fill that in I'd also say that the carrier.

Rex Geveden: Our wins with government customers are also creating opportunities to develop microreactors for novel commercial applications. While some of our nuclear technology peers are taking more significant and open-ended profit risks to enter these nascent markets, BWXC is taking a page out of the Navy's history books. As some of you will know, early naval investments in the 1950s led directly to the first commercial nuclear power reactor in Shippingport, Pennsylvania, we believe this model is still sensible today, as we can leverage government program funding and experience to advance novel commercial nuclear concepts while investing modest amounts of capital to further development of nuclear solutions for maritime remote power or other industrial applications.

It's just in general is not like it just falls out on day, one of 2024, it's actually pass through the year deep celebrating it you will and so there is a little bit of a half year impact that will get a full year impact in 25 of you will so that's something we have to contend with but but leave it to us will will figure out a 25 year soon.

I appreciate that have a caller Robyn then just one last one on the Rex.

<unk> it sounds like you've had a lot of back and forth with the with the FDA.

Still sounds like you think tracking for commercialization in 24 any color on you originally planned on a priority review what that timeline looks like you know today. When you think about just your exchanges that you've had with the FDA.

Yeah, I would say no change in our outlook there at all pagers. So we expect to be commercial sometime in 2024 and are.

Rex Geveden: In that vein, we recently announced early-stage contracts with the Wyoming Energy Authority stemming from our involvement in the Advanced Reactor Development Program to assess the potential for microreactors at mining sites in the state. We also announced a relationship with Crowley to explore the use of the microreactor on a barge that could be used for backup and emergency power. Another part of the government operation segment that is sometimes overlooked is our special materials business.

The work that we've done radiating and material at Darlington was promising and so no change on the outlook there it looks looks good for us.

As the guidance.

<unk> got it for 2024 I think we've always said that's a very small contribution the tech business. So.

So we hope to get commercial but really that'll be pretty pretty low scale. So.

Rex Geveden: While most of our investors are aware of the strength of our nuclear fuel services franchise, over the past several years we have methodically assembled the broader portfolio based on our strengths and technical capabilities in radiochemical processing and special materials handling and accountability. Given the reduction of Cold War era infrastructure and other capacity constraints within the government laboratory complex, BWXT has worked with its government customers to pilot and scale backup production systems for special nuclear materials.

Our guidance, if you will does not expecting a full year ramp.

Full year of that product or anything like that so we've been conservative there, we'll see how we go.

Appreciate the details nice results. Thanks.

Thanks Peter.

Your next question comes from a line of Michael Sure Molly What's your Securities you May know goal.

Hey, good evening gentlemen, nice results. Thanks for taking my question here.

Maybe Rob just to actually stay exactly on that that line or that topic, Peter <unk> on the.

Rex Geveden: The special materials franchise includes uranium downblinning where we have converted highly enriched stockpile material into lower enriched material under a current contract since 2018. A triso-coded fuel line we stood up in 2021 and a uranium metal processing line at our nuclear fuel facility that began production last year, the objective of which is to return valuable national security material to the stockpile for later use in naval fuels. These materials are other national security applications.

I guess the assumptions for next year with T. C 99, so not not really in the full year guidance, but if you are going to commercialize.

Can we expect maybe a little bit more pronounced impact of EBITDA margins, if you do get commercialization and get better overhead absorption start having.

Some actual product sales just just trying to think about how that might impact EBITDA margins next year.

Yeah, I think overall for the commercial division, we do see Tailwinds for margin overall for the year I wouldn't attribute much of that to the tech business, because even if we get a small bit right. That's a ramping product line. If you will so frankly, we're going to kind of bring that in at a lower margin writers are going to be just testing supply.

Rex Geveden: We further expanded this unique line of business in late August by securing an NSA contract to recycle scrap material from the Y-12 national security complex into high assay low enriched uranium or halu feed stock material. This material is an important stock gap source for much needed halu for the DOE's advanced reactor development program that requires higher assay nuclear fuels to support prototype development. We are in regular discussions with the Department of Energy, the National Security Administration and other government agencies about where BWXT can be of assistance in supporting their missions.

Getting it out there and probably not working super efficiently on kind of the first couple batches. If we even have that kind of 2024, so I wouldn't say that the huge driver I think what is it big driver.

A generally larger.

Bit of database the medical revenues. So we've talked about the fact that we just put up in another quarter of excellent growth last quarter. We said it was a little bit about 20% now we're saying this quarter's 30%.

Rex Geveden: So more to come on this special materials processing platform as it blossoms into a larger business line within the government operations segment. Looking ahead to 2024, we believe these demand trends will continue to support growth in our government operations segment. However, as we laid out at our November 2021 investor day, the law and the ordering cadence for the Ford class aircraft carrier in 2024 and 2025 creates some headwinds that we expect to overcome.

I think as we look out next year, we can continue that underlying trend of that base business and and the way I'm thinking about it is okay. So that's the underlying business and now therapeutic to kind of get layer on top of that and maybe a little handset tap into.

2024 that all should actually accelerate the growth rate from that 30% as we look out for next year.

Okay. Okay, and then it was I know you recently broke even at the EBITDA level and medical <unk> EBITDA positive for the fourth quarter, and we were and I see no. We do model that visit that on a quarterly basis, we're not gonna be guiding that but yes now from this point forward icy that business is making money at the EBITDA level.

Rex Geveden: [inaudible] Turning to commercial operations, revenue in this segment grew 10% with high single digit growth in commercial nuclear and another quarter of robust double digit growth in medical. Backlog in the segment, which is almost entirely related to our commercial nuclear business lines, was up sequentially for a third consecutive quarter and is up 14% over last year. This highlights the robust demand we are seeing in the market, which will continue for the next several years given demand for nuclear power in Canada and around the world.

<unk>, so we put out that targets retail standby that $200 million.

$75 million of EBITDA. So when we look out in a couple of years the line to get theirs middle staggered, but we'll get.

Got it perfect.

Rex Geveden: As we discussed in more detail last quarter, the Ontario government is seeking to double the scale of the power grid by 2050 to be projected demand and is fully committed to using nuclear to satisfy a large portion of this demand. This is evidenced by three recent developments, including Ontario Power Generations Commitment that build four BWRX 300 small modular reactors at the Darlington side, life extensions of existing plants at the Pickering side and the potential for new large scale power reactors at the Bruce power nuclear generating station.

And then <unk> I got out in a few minutes late I may have missed this.

On August and what's been going on with the supplemental support for the industrial base I mean.

Maybe more over the summer you guys weren't as overly optimistic that being a big growth driver, but it but it would seem like if if a you know a Virginia class, it's gonna get produced and delivered to Australia in 2032, I mean, it would it would have to start flowing through your facilities pretty early here I mean, what what's the <unk>.

Rex Geveden: Among many others, we see international momentum as well. We have talked about the potential for new nuclear in Europe and countries like the UK, Poland and Romania, as they seek to add clean base load power and to improve their energy security postures. Just in September Canada announced export financing of $3 billion Canadian dollars to be used for the construction of two can-do reactors at the turn of vote of nuclear power station in Romania.

<unk> banking on on kind of August.

Yeah, I think the Michael that's shaping up a little better than maybe we had.

Had been speaking about it earlier it looks to us like based on the $3 billion investment from Australia into the U S submarine industrial base and then obviously, there's another 3 billion in the supplemental that came from the White house over to Congress it looks like the the industrial basis.

And the decision makers are preparing for incremental demand here and that's certainly the way it's being discussed and so we're certainly hopeful that it's incremental so that three to five would be layered and on top of our normal Virginia production in the industrial base will need to produce let's call. It $2 three submarines a year.

Rex Geveden: Our strong position as a fuel and equipment provider in the can-do reactor market and our role as a merceness supplier of large critical equipment to the SMR markets positions us well to benefit from such projects in the global market. At BWXT Medical revenue growth in our base diagnostic and contract drug manufacturing businesses continues to accelerate growing approximately 30% in the quarter. We expect this trend to continue as demand for isotopes such as trontium and germanium, use in cardiac and cancer imaging studies remains strong, while we experience the rising tide of demand for new or therapeutic isotopes like luthuceum and actinium.

We also by the way anticipate having content.

We can't provide any any details here, but we do we do expect to have content won the <unk> August both that would go to both the UK in Australia. So there is there is a tail on that for US that you know, it's certainly well out into the future, but but that's all shaping up to be incremental demand and that's that's good for our business clearly.

Got it would you <unk> would that require.

Rex Geveden: It is worth noting that our proprietary actinium generators are now being used exclusively by Bayer for late stage human clinical trials in Europe. As it relates to our tech 99 product development, our team is diligently working to respond to the questions and data requests that we received from the FDA this summer. We have conducted several successful test runs of tech 99 generator production with irradiated material using the target delivery system at the OPG Darlington site and we continue to work toward commercialization of the product next year.

Yeah.

Okay.

<unk> you cut out on us.

Is it.

So I think you were asking I think Michael you were asking whether or not it would require incremental capex.

I guess it depends on it depends on the acquisition tempo for one thing.

But I would say that of that $6 billion that I.

That that I alluded to earlier from both U S. In Australia appropriation sources some of that will come into the industrial among all of that will come into the industrial base, we'd expect to get some of that potentially and so.

Rex Geveden: Overall our commercial operation segment is poised for a continued solid growth in 2024 with improving profitability based upon a better mix in commercial nuclear and higher profitability in medical. I would also like to take a moment to discuss a few of the initiatives we have in place to sharpen our business execution and improve the day-to-day operational functionality of our company. Last quarter I discussed that on top of the significant financial capital we invested in the business over the last several years.

So we'll have to see where the capital needs lay out, but I think it's shaping up nicely for us.

The next question comes from the line is Scott <unk> with Deutsche Bank. Your line is now okay.

Hey, good afternoon.

Hey, Scott Pniewska Rob.

<unk> it looks like the Eac's cut a lot better this quarter at least relative to the first task. Maybe you can just talk about if there are any non-recurring almost that drove that are established broadbase performance.

Rex Geveden: We also made significant investments in human capital throughout the organization and to ensure we have the people systems and processes to skillfully manage the strong growth we see ahead. Not only are we focused on capturing growth, but we are intent on honing our business through the use of AI and automation throughout the organization, more efficient operational effectiveness practices, including, for example, real time monitoring and reporting on large machine tool utilization at all our major US plants and enhanced human resources and financial back office platforms to increase the efficiency of administrative functions.

Yeah now that was in our government segment and generalized we've been grinding.

Grinding through as we've had this sort of labor inefficiencies relative to probably how we sold we had inflation headwinds we had.

All of that the past couple of years and you are exactly right in the third quarter, we did have better performance.

And so we saw better EAC I think all the efforts that we have an annual we've sort of gotten better at onboarding.

Prospects for continued positive.

<unk>.

Okay, Great and then Rob you talked about it about in the prepared remarks, there, but maybe you can just level set us on where you're at in the missile to a recovery negotiations.

Rex Geveden: Our strong competitiveness in the markets we serve and to drive returns on capital by sustaining our industry leading growth, solid margin performance and robust free cash flow generation. In conclusion, as we look at our portfolio and our dual focus on growth and execution, I couldn't be more confident in how well our employees are positioning BWXD to serve the nuclear markets around our three key capabilities, manufacturing, processing and services. Mainly for power and propulsion applications, the core of BWXD is our significant experience in manufacturing critical nuclear systems and components, handling and processing highly complex materials and providing services around these capabilities.

How much do you expect to recover and the confidence interval, you have and getting that here in the fourth quarter.

Yeah, I think that is.

Communications are quite good we're obviously negotiating.

<unk> with our customer and they have to interact with the with the Navy I think those discussions are quite good I think we made a good case and so we have not actually gotten to a number yet which is.

While we're trying to guide with all of that.

In mind for the fourth quarter.

I think we've talked about in the past that we had a pretty chunky negative item last year. So we're hoping to recover that and then some and so that's the way we're thinking we're not really at Liberty yet because we haven't actually settled on a true number at this point, but the communications great and yes, we're looking forward to getting that behind us in the fourth quarter.

Rex Geveden: Because of our extensive experience in the nuclear markets, unmatched facilities in the US, Canada and the UK and our deep technical expertise, we are uniquely positioned to benefit from the trans driving our markets. We are focused on taking these power and propulsion solutions to meet the demands of our distinguished customers in the national security, clean energy and nuclear medicine markets.

Okay and then last question is just an accounting question that appreciation for the technetium 99 product line.

Does that kick in on a straight line basis. Once you get the FDA approval and if you are slow to ramp up sales, but then you take the depreciation head is there a risk to EBIT margin of commercial operations, obviously EBITDA won't be affected just trying to think about the EBIT margin impact and what it means for EPS that treatment gets yes, it's a good question.

Rex Geveden: Before I turn the call over to Rob to discuss the third quarter financial results in more detail and to discuss our updated 2023 guidance and preliminary 2024 outlook, I would like to take a moment to express my gratitude to the men and women at BWXD for their hard work and dedication and supporting the many critical missions carried out by the customers we serve. It is widely known that the US has deployed two carrier strike groups to the Middle East to support Israel led by the USS Ford and the USS Eisenhower aircraft carriers, both of which are powered by BWXD reactors. This is a stark reminder of the importance of the work we do every day at BWXD in supporting the US and our most important allies.

In general really it's more on when you're when you put assets into commercial use if you will so it's not necessarily oh, there's the FDA. So that's the first surgery you should be thinking about.

The second is it's not all in one one dose so there's different asset that get deployed whether it be the target delivery system versus assets that are the facilities. So as not all at one.

I'm pretty close to there is some layering in.

But you're right as as we go to market, we want to be able to really surface.

The market in a in a quick manner and Thats a lot.

Rob Lemasters: With that, I will turn the call over to Rob. Thanks, Rex, and good evening, everyone.

But what I alluded to with one of the questions earlier, it's not like.

Rob Lemasters: I'll start with some total company financial highlights on slide four of the earnings presentation. Third quarter revenue was robust $590 million, up 13% organically on a consolidated basis with double digit growth in both government and commercial operations. Adjusted EBITDA was $107 million, up 6% year over year, as higher revenue was complemented by improved margins and commercial operations, so partially offset by lower margins and government operations, and higher corporate EBITDA spends driven by some seasonally stronger healthcare costs.

We're going to have a full run rate revenue does not going to be in immediately super profitable product, it's going to take us a quarter or two to kind of build into the profitability and when I mean profitable EBIT, which includes that depreciation sort of overhang, that's going to be a high fixed costs to work through so we've always contemplated that you recall the page that we had in the <unk>.

<unk> at the Investor day that contemplated that sort of headwind to DNA that we had to grind through from the revenue to ultimately get it to be as profitable as as we go through with it.

Okay. Thank you.

Sure.

Rob Lemasters: We still see this corporate EBITDA line coming in at the upper end of the $10 to $15 million range, with fourth quarter coming in more like the level we saw in the second quarter, this year. Looking into 2024, we expect corporate EBITDA expense to plan out in the mid-teens range and only grow at inflationary rates thereafter. I will know that despite seasonally lower revenue and the higher corporate expense, adjusted EBITDA was essentially flat compared to second quarter 2023, reflecting solid underlying performance in our government business, better margins and commercial power, and improved profitability and medical.

Your next question comes from the line of Brian Epstein with Bank of America.

Your line is now open.

Yeah good afternoon.

Okay.

Just a couple of quick ones.

The last quarter of the year.

The way things are lining up it seems like it would be the best quarter ever for the company.

What gives you confidence about that and is there any one single thing that's driving that worked.

Re as outsiders to deny onto it.

That's gonna play out.

Yeah, Hey, Ron.

It would not be a record quarter at the midpoint pointed the guidance.

Rob Lemasters: Adjusted earnings per share was 67 cents compared to 69 cents in the prior year quarter. As you can see in the EPS bridge and slide five, as has been the case throughout the year, the year-over-year decline was due to non-operational items, including lower pension income and higher interest expense. Our adjusted effective tax rate was 22.6 percent in the quarter, mainly due to the adjustment of provisions around R&D and certain stock compensation expenses that had a disproportionate impact on the quarter.

We've delivered quarters like that before I think last year was 95 cents.

So two years ago was 95 cents last year was 93.

So it is in the range of what we delivered in the fourth quarter. You know, we drew up the <unk> contracts that comes through obviously in a growing business like ours, particularly at these rates the fourth quarter tends to be the strongest quarter and the year. So we've got reasonable confidence we can deliver that and we've got a track record of having done so.

Got it got it and then.

This may be a bigger picture question.

Rob Lemasters: Nonetheless, we still expect a full-year tax rate of approximately 24 percent, meaning the fourth quarter rate will likely get had higher than the full-year rate. Despite modestly lower net income, pre-catchable improved to $43 million compared to $25 million in the third quarter of 2022, driven by improved working capital management and lower capital expenditures.

Just some marine demand writ large are you getting any signals from the navy.

Virginia class rates moving at all.

I mean, there's been an.

Supposedly there's been investments in the industrial base.

Avian keeps talking about where you want three Virginia class and everybody's struggling to get out to select 1.71, 0.6, but you are seeing any movement upward bear how should we think about Virginia class down the road I mean will they ever get to three.

Rob Lemasters: CapEx was roughly $31 million in the quarter and consisted of maintenance CapEx and select growth initiatives, including investments for our pay lay and Draco microreactor programs. Moving now to the segment results on slide six. In government operations, third quarter revenue was up 13 percent to $478 million, driven by higher naval nuclear component production and microreactor volume, those partially offset by lower-long lead material procurement. Third quarter adjusted EBITDA on the segment was $99 million, up to 10 percent from last year, as higher revenue was offset by less favorable mix and inefficiencies related to new hiring as we continue to expand the size of our workforce to meet growing demand.

Sort of a dreamy number.

How should we think about it.

Well I think the right way to think about it is that the steady state production rates should settle out it too and I think that it's fair to say that constraint. There is the shipyards and certainly not our production capacity, we're kind of producing to the shipbuilding schedule.

At present rates and so the shipyards have to get to that right. In a few later August and on top of that people are talking about sort of two three Virginia, a year coming out of the shipyards I don't think there is there is.

Production rate of three that's anticipated, but blend in those Australian chips and get the two three and I think clearly the investment from the Congressman from the Australians is intended to support that and so my expectation that the that the industrial base respond appropriately.

Rob Lemasters: EBITDA margin in the segment was 20.7 percent down compared to last year but up from 19.4 percent in the second quarter. This sequential increase was driven by better utilization and onboarding processes as well as nuclear manufacturing improvements. We are tracking well to having one of the best years of growth hiring in our history while also stemming the negative attrition trend we had seen in the wake of COVID. Going forward, we expect that continued solid performance in government operations with some lingering effects from onboarding timing of projects as well as mix will enable us to hold our underlying margins in this segment relatively steady in 2024.

Okay, and what's your sense I.

I mean.

In terms of of labor.

Infrastructure, but the shipyards, they're gonna actually need to get there I mean is that something that can happen in a couple of years I mean, how how.

How hard is it to actually do together.

Yeah, that's certainly won't speak on behalf of the shipyards. There I just thought I could speak to our own experience on that which is.

Labour has been hard to come by and we've really had to double down to try to get it that said.

I believe in capital markets free markets that that that the supply chain tends to organize around the demand signal. So I am hopeful that a little self correct here in the next over the next few years.

Got it alright, thank you very much.

Rob Lemasters: In commercial operations, revenue was up 10 percent driven by increases in component manufacturing and field service activity in our commercial nuclear business as well as robust BWXT medical revenue growth and partially offset by lower fuel handling volume. A year-to-date reported commercial operations revenue is up approximately 7 percent despite a 5 percent currency headwind due to the appreciation of the US dollar versus the Canadian dollar highlighting the underlying strength of our commercial nuclear and medical business.

Sure.

The next question comes from the line of P. Kubicki from Alabama, I'm, sorry, I apologise, Alabama Global your line is open T.

Hey, good evening, guys nice quarter.

Hey, I just want to follow up on Scott's question on commercial EBIT margins in 24, you're expecting them off.

My recollection is that you were expecting.

Tech 99 does get FTA approval, I think he quantified it to be $20 million of incremental DNA.

Rob Lemasters: 2nd quarter commercial operations, Adjusted EBITDA, was up approximately $2.5 million to $14 million, driven largely by improved profit billion medical. Similar to the trends we have experienced throughout the year, this was partially offset by the impacts of less favorable mix and commercial nuclear, that was skewed toward field service refurbishment activity and less outage work compared to last year, we expect this mix to remain relatively constant to 2024.

Are you still assuming that in those EBIT margin is being up in 24, you're just offsetting it or could you just clarify.

No just as I mentioned.

The DNA effectively comes when your commercial so it's going to match the sales if you will and so we've talked about how that is a very small sliver. The way I would think about it that would model year 2024 without sales without earnings and without DNA tied to that specific product in 2024, if we get lucky and pull it forward.

Rob Lemasters: Turning out a guidance for the remainder of 2023 in a preliminary outlook for 2024 on slide 7. We are narrowing our 2023 adjusted EPS guidance to $2.90 to $2.95, the midpoint of which is in line with our previous guidance and slightly above where we started the year. We are maintaining our operating assumptions for revenue to be up high single digits to more than $2.4 billion with both government operations and commercial operations near the higher end of our forecasted high single digit growth and mid single digit growth guidance respectively.

<unk> I think it will be relatively neutral to EBIT. If you will I don't think it's going to screw up your model if we get.

A sliver of that in 2000 2000 for it that's the way I would think about it.

Okay. So the incremental DNA it'll be more of a 25 events.

And it will come with a full hopefully a full year of revenue right. So you said you were able to like absorb all that fixed costs, but you're right in terms of the magnitude of the DNA that wasn't a boy gave out so I was <unk>.

<unk> model in a full year, which comes with all the goodness.

Out a fully built out product line hopefully maybe not full in 2005 right. We've always promised that in the 2025, plus time zone, but we'll see how it goes got.

Rob Lemasters: Overall, we expect EBITDA margins of approximately 20%, leading to adjusted EBITDA of approximately $475 million up high single digits compared to 2022 driven almost entirely by organic growth. Our full year guidance implies fourth quarter consolidate EBITDA margins to be higher than third quarter driven by a more meaningful improvement in commercial operations due to improve medical profitability and better commercial nuclear mix, as well as slightly improving underlying government performance plus the potential to recognize the recovery on non nuclear components.

Got it okay.

<unk> on the Canadian financing for Romania.

Usually that's a long haul in the tank right once a financing is kind of sad.

Do you guys have any sense of timing for when you know you might sign a contract for that project is still later in the decade or is that kind of being pulled forward.

Yeah, I don't have a lot of clarity on that one Peter I would say certainly later later decade.

Okay, Okay got it alright, thanks, guys.

Yes ma'am.

Your next question comes from the line, Bob <unk> C. J S Securities Bob Your line is open.

Rob Lemasters: Turning that to our preliminary outlook for 2024. Overall, we expect to see another year of good operational performance with mid single digit growth in revenue, adjusted EBITDA and EPS and continued strong free taxes. In government operations, we expect modest revenue growth as contributions from our non-navel programs, including new microreactor projects such as Draco and the expanded special materials that Rex walked through earlier to be partially offset by the adverse impact of the shipbuilding ordering keys.

Thanks, Good afternoon.

Well I'm sorry, if I missed this but can you give us an update on the timeline and expectations for the <unk>.

And for tanks program I read somewhere recently that.

<unk> had resubmitted and things like that how are you treating that in your 2024 outlook as well.

Yeah, Hey, Bob I'll give give some details on that.

I think you certainly know that we've been through court actions on that in the court.

The appellate court basically sent.

Sent the matter back to Doa for corrective action, the Doa did conduct its corrective action and ask <unk>.

Rob Lemasters: As we have communicated a low in our aircraft carrier-related work in 2024 and 2025, we'll only be partially offset by growth in Columbia class submarines. Government EBITDA margins are likely to be modestly lower compared to 2023 as solid underlying performance will be offset by the impact of revenue mix, particularly as it relates to our cost-reinversible microreactor projects and the non-recurring recovery benefit we expect in the fourth quarter of 2023. Excluding this benefit, government operations should be relatively flat compared to 2023.

Original proposal to resubmit, we have resubmitted that proposal in the meantime, the competitors have issued a protest that's gone through the GAA Oh, So there's a lot of legal churn here and that's all I'll say about that from the standpoint of how it might impact us financially I don't think we're expecting any transition on that contract until about.

At least throughout the middle of next year.

And where did the Howard looking at 2024 in terms of that guidance are the same way we thought about 2023 right. There is a bucket of good things that can happen in bad things in those sort of.

Rob Lemasters: In commercial operations, we expect continued strong growth driven by both commercial nuclear and medical, given favorable market trends and the opportunities that Rex discussed in his remarks. With this growth, we expect improved EBITDA margin from steady performance in commercial nuclear and improving contributions from BWXC medical. So, lastly, our capital expenditure targets continue to be focused on discipline, maintenance, capex, spending, plus layering in incremental capex to support growing demand for microreactors, commercial nuclear and therapeutics.

Chunky wins, and we probability wait those we time it just all of those.

And frankly just <unk>.

Try to be conservative on on all those factors. So in 2023 is you know draco pushed a little later for us at the Hanford felt tough sell out and we're still obviously going to hit the guidance or that's our plan. So so we try to put all that into the Blender and guide.

Accordingly, and so I think we've learned our lessons on the <unk> front that these things just take longer so when we contemplated at mid single digits. We we factor that in as to when we were going to ramp and how that Martin is going to work.

Rob Lemasters: At this point in time, we expect capex to remain in line with 2023. Additionally, we remain focused on working capital efficiency throughout the organization and in how we contract with our customers and suppliers. In total, we expect these factors to produce another strong year of free cash flow with investors seeing free cash flow growing faster than our mid single digit EBITDA growth. To sum it up, we have had another solid quarter in our well-position for continued growth in 2024.

Got it okay, great that makes a lotta sense and then obviously you discussed.

Molly the F D. A approval process for Tech 99, you touched on actinium sales and non Molly.

Molly sales and medical up 30, 25, 30% could you maybe you could just go a little one level deeper and talk about the key drivers there and and the opportunity set from the bay or at 10 am and.

And all that kind of stuff. Please.

Yeah sure Bob we've got growth <unk>.

Showing up across the board and our medical portfolio.

Rob Lemasters: Demand trends in our business remain strong, and while we are not immune to global macroeconomic factors, the high priority of our government programs and the underlying secular themes driving our business leave us relatively insulated from changes in government funding pattern and other macro risks. As Rex discussed, we are committed to capturing growth and are taking the initiative to drive more predictable earnings and free cash flow conversion, which combined with our unique assets and technical capabilities will continue to differentiate BWXT from its peers.

As you know we have diagnostic products and also therapeutic products and so this.

Strong very strong demand for germanium, we're seeing real growth there strontium.

Is growing Therasphere continues to grow at an impressive compounded rate.

Axiom 225 has shown up in our numbers a little bit because there were supporting clinical trials.

With our own.

Medical device, our own our own generator, which produces a non carrier added actinium and it's the only it's the only such generator on the market and then we're anticipating feathering in some lutecium 177 sales for next year, so and their underlying thanks to iodine in other products that we have and so.

Unknown Executive: And with that, we look forward to taking your questions. At this time, I would like to remind everyone in order to ask the question, press star, then the number one on your telephone keypad.

The core business is quite strong I think it's a bit of an under appreciated asset in BWXT and we see increasing demand in virtually every product line that we have.

Okay that sounds super thanks.

Peter Arment: Our first question comes from the line up here, Armin with Erd. Your line is now open. Hey, thanks. Good evening, Rex Rob. Chase. Hey, Rex, it sounds like you've done a great job on all the hiring and at least from a growth perspective and in dealing with some of the nutrition, but is that going to go linger into next year just thinking about the margins at your government operations? Yeah, thanks, Peter.

You're welcome.

Your next question comes from the line of Davis, Charles Barkley's data airline is opal.

Great. Thanks, good evening.

Megabytes.

Hey.

So Rob.

Q for free cash.

And working capital reversal too.

Peter Arment: Hey, good evening. Yeah, I'd say to add a little color to that discussion on hiring. I think we're doing quite well with talent acquisition. Let's say the other side of the equation that we haven't talked as much about is that we're sort of reducing the leakage rate with the improvement in nutrition, which is markedly improved. We're getting back to that range of mid-single digit attrition when you back out retirements and non-voluntary separations.

Get around $200 million and you can just walk through.

You get there and then for 2024.

I don't know, how I should interpret them and you know the <unk>.

Comment of improve working capital does that mean, it's less of a drag or is that meaning.

Contributor to Castillo because.

Yeah, I know, you're saying free cash flow growth above.

Single digit EBITDA growth, but I would've thought with.

Peter Arment: So it's the combination of those two things that are pretty powerful for the business Peter. I would say that in a business like ours, which is growing at the radar, businesses growing, we're constantly onboarding and hiring and training new people. So there's a bit of a bit of drag related to the growth itself. And so I think we'll see that linger for a period of time when I add to that run.

Kind of flattish capex that we we could see some pretty significant free cash flow growth next year. Thanks.

Sure Yeah. Thanks for the question.

Yeah, so the way they were thinking.

We have a very significant Q4, if you just look back to past coupla years, as a percentage of our free caches to always meaningful and this year in queue for if you just think about where we stand for the year were at about $40 million of.

Peter Arment: Yeah, just to give you a couple numbers and update where we stand. Third quarter was actually, and I think last quarter we talked about how we just saw the building momentum month upon month. As we look at a third quarter from a hiring standpoint on the sort of growth side, we're up almost 30% versus the levels that we brought in in Q2. So we are still onboarding quite a bit. Rex talked a little bit about the attrition.

Year to date free cash flow therefore in order to hit obviously, the $200 million bogey, we've got to have $150 million plus and the way that we're thinking about it is we're going to have a big fourth quarter in terms of profit just in general. So you start with that and if you just think about how the cash flow statement works right you have net net income.

Yep DNA you have stock comp JV income that gets you almost $125 million. If you just look at what we've already guided that's sort of your starting point for operating cash flow drivers and then you need to work higher.

Peter Arment: That number has actually gone back to a sort of more normalized level of mid-single digits. We're really seeing good performance there. So we both want to bring in new employees and we want to retain longer. And also just the overall onboarding, I think you saw in our margin performance just sequentially. We still have an issue of sort of utilization, but our efficiency has really been quite strong on a per hour basis, if you will.

We always have a pretty pretty big retain inch that generally is around $25 million, yes accounts receivable.

Sip release, all of that gets you comfortably over.

$200 million of operating cash flow for the fourth quarter and then you're obviously backup capex. So we have a very clear path. We know the items that are coming in.

Peter Arment: We're really matching what the customers are asking for. So it's taking a little bit of a drag on our utilization, but our efficiency is quite strong. I'm pretty proud of that, Rob. I appreciate those details. And then on your comments on the 24, I think we'd all kind of expected what you kind of just laid out regarding government, you know, the cadence, you know, coming down on the forward. And then ultimately, you know, then eventually Columbia would begin to offset that.

And so that's how we're thinking about fourth quarter. You are right first of all is pretty early to know where we stand for 2024 for free cash on there's always things that swash between fourth quarter of 2003.

In first quarter 2024, so it's hard to give a growth rate. When you don't know what your bases for 2023, we were using 200 million obviously.

Peter Arment: Do we start to see that in 25 where the Columbia becomes more of a bigger part of the mix? Or how do we think about that? You know, because we know the schedule really ramps up in the second. And after the decade. Yeah, I think it both, I mean, our goal has always been, I think we're actually kind of doing slightly better than what I, what I thought, right? We're kind of filling in a little bit of the overall shipbuilding both the carrier law and then the Columbia offset where having, you know, strength around the my reactor franchise and the AT division as well as some of the special materials businesses.

Just in general, but whether it's 195 or 205 matters a little bit we do see exactly what you said, which is a positive growth of working capital next year.

For 2024, so we're gonna have to rate the rate of the EBITDA that that'll kick in that will help free cash flow to grow in line with that and then we have the steam generator contract that we've talked about in the end that that should free up.

Some some working capital and should be a positive.

So we see all the trends pointing in the right direction I will I'm sure you've looked in the quarter, if you've looked at the balance sheet, you'll see that for the third quarter. We are.

Peter Arment: We have a, you know, a strong win on the U metal front. Is that providing a little bit of fail when to fill in? Both in 24 and 25. So probably too early to look all the way out to 20, 25. But I'm hoping that we could, you know, surprise you guys to the upside, just like we did it. I think in 24, we're now seeing a little bit of growth. And, you know, you asked me a year ago.

Cash conversion cycle go down for the first time in a couple of quarters, meaning less let days. So so we're starting to see real positive. We've that number came down by two days and I think next year, you're going to see some real positive developments there in 2024.

Okay. So just just sorry, just mainly ma'am.

Peter Arment: I'm not sure what to see that. So glad to fill that in. I'd also say that the carrier key is just in general. It's not like it just falls out on day one of 2024. It's actually kind of through the year, decelerating if you will. And so there is a little bit of a half year impact that will get a full year impact in 25, if you will. So that's something we have to contend with, but believe it us, we'll figure out 25 here soon.

Not get any here just in terms of in terms of working capital as we see it on the cash flow statement 24, you think that's a positive contributor to cash or not.

That's right I do see the working capital items should be a positive.

Two.

Operating cash flow.

Okay, alright, thanks for the clarification.

Sure.

Peter Arment: I appreciate that we're calling Rob and then just one last one on the Rex just it sounds like you've had a lot of back and forth with the, with the FDA. You know, it still sounds like you're thinking tracking for, you know, commercialization in 24 any color on, you know, you originally planned on a priority review. What that timeline looks like, you know, today when you think about just your exchanges that you've had with the FDA.

Okay and final question comes from the line and celebrate with Maxim Group.

Your line is open.

Hi, Thank you.

It sounded like you were quite positive on the fuel down blending in or what you call. The government's specialty materials opportunities is that a matter of more volume in.

Various businesses there and can you comment on it's higher uranium prices have any derivative positive or negative impact to you at all please. Thank you yeah sure. Thanks for the question.

Peter Arment: Yeah, it's a no change in our outlook there at all Peter so that we expect to be commercial sometime in 2024 and our, you know, the work that we've done and radiating the material at at Darlington was promising. And so no change on the outlook there. It looks, looks good for us. Peter, as we've got it for 2024, I think we've always said that's a very small contribution to tech business. So we hope to get commercial for really that'll be pretty, pretty low scale.

Yes, I mean first off we're completely uninfluenced by uranium prices because.

The uranium that we process on behalf of the U S government get comes from the stockpile in his government furnished equipment. In fact, it's government furnished government owned material all the way through so you can think of our business is having a tolling arrangement on government material.

Peter Arment: So our guidance, if you will, does not expect, you know, full year of ramp, you know, full year of that product or anything like that. So we've been conservative there. We'll see how we go. Appreciate the details. Nice results. Thanks. Thanks, Peter.

But the reason I'm bullish on it <unk>.

<unk> is because for one thing we are uniquely suited to do it and I mean that in a specific sense, we've met a category one and our seed license and we can handle stockpile material.

And no other commercial entity can do that so we are uniquely qualified to do it.

Michael Ciarmoli: Your next question comes from the line of Michael Sharmoly with true securities. You may now go ahead. Hey, good evening gentlemen. Nice results. Thanks for taking my question here. Maybe Rob just to actually stay exactly on that line or that topic that Peter was on on the, I guess the assumptions for next year with PC 99. So to not not really in the full year guidance, but if you are going to commercialize.

And we're bullish because it's a it's a good business it has a long tail on it.

Our competitive position is appropriate there, but then I think there might be more to come.

<unk> say.

National Nuclear Security Administration has has published a request for information about enrichment for National security purposes, There will come a point when we've got to replenish the stockpile based on demand from naval nuclear propulsion and other things.

Michael Ciarmoli: Can we expect maybe a little bit more pronounced impact to EBITDA margins if you do get commercialization and get that overhead absorption there and just start having you know some actual product sales just just trying to think about how that might might impact EBITDA margins next year? Yeah, I think overall for the commercial division we do see tailwinds for margin overall for the year. I wouldn't attribute much of that to the tech business because even if we get a small bit right that ramping product line if you will so frankly we're going to kind of bring that in at a low lower margin right because we're going to be just testing supplies getting it out there and probably not working super efficiently on kind of the first couple batches if we even have that kind of in 2024.

And that's.

That's a special need that will require the kind of licenses and credentials and.

Experiential qualifications that we possess and so.

Enrichment is it possible thing out there in the future certainly there's some low level activity in our business rap right now around ISO isotope production for National Security and if you want to think more broadly around that strategic thesis think about whether or not we could expand into non nuclear special materials.

That involve electrochemistry or chemicals are specialty metals.

So I think there's a whole world of of special case materials out there that require unique processing that require unique materials handling and accountability capabilities that we uniquely possess and so.

Michael Ciarmoli: So I wouldn't say that's a huge driver. I think what is the big driver is just a generally larger you know bit of the medical revenue. So we've talked about the fact that we just put up another quarter of excellent growth last quarter. We said it was a little bit above 20% now we're saying this quarter is 30% I think as we look at it next year we can continue that that underlying trend of that base business and then the way I'm thinking about it is okay so that's the underlying business and now there are few that kind of get layer on top of that and maybe a little hint of tech into 2024 that all should actually accelerate the growth rate from that 30% as we look out for that year?

It's a really interesting line of business that we hope to expand in the future.

Alright, thank thank you.

You're welcome.

Alan now like to turn the call back over to Chase Jacobsen.

Vice President and invest in a nation.

Thank you everybody for joining us today, we appreciate your time and your questions and your interest in BWXT, we look forward to seeing and speaking with many of you.

At upcoming Investor events, and if you have any further questions you can reach out to us at investors at BWXT Dot com. Thank you.

Michael Ciarmoli: Okay, okay and then was I know you've recently broke even at the EBITDA level and medical where you were you EBITDA positive for the full quarter in a quarter and I think no you know we do model that business that on a quarterly basis we're not going to be guiding that but yeah no from this point forward I see that business is making money at the EBITDA level and then something so we put out that target we still stand by that $200 million and 75 million of EBITDA. So when we look out you know a couple years the line to get there is little you know staggered but we'll get there.

Ladies and gentlemen that concludes today's call. Thank you all for joining any amount disconnect.

Michael Ciarmoli: Got it perfect and then Rex I got on a few minutes late I may have missed this just on on August and what's been going on with supplemental support for the industrial base. I mean you know I know maybe more over the summer you guys weren't as overly optimistic on that being a big growth driver but it would seem like if if a you know a Virginia class is going to get produced and delivered to Australia in 2032 I mean it would it would have to start you know flowing through your facilities pretty early here I mean what's the latest thinking on on kind of August?

Michael Ciarmoli: Yeah I think the Michael that's shaping up a little better than then maybe we had had been speaking about it earlier it looks to us like based on the $3 billion investment from Australia into the US submarine industrial base and then obviously there's another $3 billion in the supplemental that came from the White House over to Congress it looks like the the industrial basis and the decision makers are preparing for incremental demand here and that's certainly the way it's being discussed. And so we're certainly hopeful that it's incremental so that 3 to 5 would be layered in on top of our normal Virginia production and the industrial base will need to produce let's call it 2.3 submarines a year.

Michael Ciarmoli: We also by the way anticipate having content although we can't provide any any details here but we do we do expect to have content on the SSN office vote that would go to both the UK and Australia. So there's a tail on that for us that's you know it's certainly well out into the future but that's all shaping up to be incremental demand and that's good for our business clearly. Could you have with that requirement?

Michael Ciarmoli: Your next question? Yeah, Michael, you cut out on us. So I think you were asking, I think Michael, you were asking whether or not it would require incremental capex. I guess it depends on, it depends on the acquisition tempo for one thing. But I would say that of that six billion dollars that I alluded to earlier from both U.S, and Australia appropriation sources. Some of that will come into the industrial, I mean, all of that will come into the industrial base. We'd expect to get some of that potentially. And so, so we'll have to see where the capital needs layout, but I think it's shaping up nice for us.

Scott Deuschle: Your next question comes from the line of Scott Dushal with Deutsche Bank. Your line is now open. Hey, good afternoon. It's good. Rob, it looks like the EAC's got a lot better this quarter, at least relative to the first half. Maybe you could just talk about if there aren't any non-recurring elements that drove that or if that was just broad based performance. Yeah, that was in our government segment. In general, as we've been grinding through as we've had this sort of labor, you know, inefficiencies relative to probably how we sold, we had inflation, headwinds, we had all right, but all that the past couple years, and you're exactly right in the third quarter, we did have better performance. And so we saw better EACs, and I think all the efforts that we have, and now that we've sort of gotten better at onboarding, I see the prospect of continued positive EACs going forward.

Scott Deuschle: Okay, great. And then Rob, you talked a bit about in the prepared remarks there, but maybe you can just level set us on where you're at in the missile tube recovery negotiations. How much you expect to recover and the confidence interval you have in getting that here in the fourth quarter. Yeah, I think the communications are quite good. We're obviously negotiating with with our customer, and they have to interact with with the Navy.

Scott Deuschle: I think those discussions are quite good. I think we made a good case. And so we have not actually gotten to a number yet, which is, you know, why we're trying to guide with all that, you know, in mind for the fourth quarter. I think we've talked about in the past that we had a pretty chunky negative item last year, so we're hoping to recover that and then some. So that's the way we're thinking we're not really at liberty yet, because we haven't actually settled on a true number at this point.

Scott Deuschle: But the communication is great, and yeah, we're looking forward to getting that behind us in the fourth quarter. Okay, and then last question, just in the counting question, the depreciation for the technician 99 product line. Does that kick in on a straight line basis once you get the FDA approval? And, you know, if you're slow to ramp up sales, but then you take the depreciation hit, is there a risk to even margins at commercial operations?

Scott Deuschle: Obviously, the dog want to be effective just trying to think about the even margin impact. And what it means for EPS is that three minutes. Yeah, it's a good question. I mean, in general, really, it's more on when you're when you put assets into commercial use, if you will, so it's not necessarily, oh, there's the FDA, so that's the first trigger you should be thinking about. The second is it's not all in one dose, so there's different assets that get deployed, whether it be the starting delivery system versus the assets that are at the facility, so it's not all at once.

Scott Deuschle: Pretty close, so there is some layering in. But you're right, as we go to market, we want to be able to really service the market in a quick manner. That's a little bit what I alluded to with one of the questions earlier, it's not like, you know, we're going to have a full run rate of revenues is not going to be an immediately super profitable product. It's going to take us a quarter or two to kind of build into the profitability.

Scott Deuschle: And when I mean profitable, I mean EBIT, which includes that depreciation sort of overhang, that's going to be a high fixed cost to work through. So we've always contemplated that you recall the pace that we had in the materials at the investor day, that contemplated that sort of headwind of DNA that we had to sort of grind through from the revenue to ultimately get it to be as profitable as we go.

Unknown Executive: Okay, thank you.

Ronald Epstein: Your next question comes from a line of Ron Epstein with Bank of America. Ron, your line is now open. Hey, yeah, good afternoon, folks. Ron, a couple of quick ones. On the last quarter of the year, the way things are lining up, it seems like it would be the best quarter ever for the company. What gives you confidence about that? And is there any one single thing that's driving that, like, what can we as outsiders keep an eye on to just get a sense that that's going to play out?

Ronald Epstein: Yeah, hey, Ron. It would not be a record quarter at the midpoint of the guidance. We delivered quarters like that before I think last year was 95 cents. So two years ago was 95 cents last year was 93. So it's in the range of what we delivered in the fourth quarter, you know, we threw up the PSG contracts that comes through. Obviously in a growing business like hours, particularly these rates, the fourth quarter tends to be the strongest quarter in the year. So we've got reasonable confidence we can deliver that and we've got a track record of having done so. Got it, got it.

Ronald Epstein: And then maybe a bigger picture question on just summary and demand writ large. Are you getting any signals from the Navy of Virginia class rates moving at all? I mean, there's been, you know, supposedly there's been investments in the industrial base and the Navy keeps talking about what you want, three Virginia class and everybody struggling to get out to, right, just like 1.71.6. Have you seen any movement upward there? I mean, how should we think about Virginia class down the road?

Ronald Epstein: I mean, will they ever get to three? Is that just sort of a dreamy number? I mean, how should we think about it? Well, I think the right way to think about it is that the steady state production rate should settle out at two. And I think that it's fair to say that constraint there is the shipyards and certainly not our production capacity. We're kind of producing to the shipbuilding schedule at present rates.

Ronald Epstein: And so, you know, the shipyards have to get to that rate. And if you layer Augustin on top of that, people are talking about sort of 2.3 Virginia's a year coming out of the shipyards. I don't think there's, there's a production rate of three that's anticipated, but blend in those Australian ships and get the 2.3. And I think clearly the investment from the Congress and from the Australians is intended to support that.

Ronald Epstein: And so it's my expectation that the industrial base respond appropriately. And what's your sense, Rex, on, I mean, in terms of labor and infrastructure, but the shipyards are going to actually need to get there. I mean, is that something that can happen in a couple years? I mean, how hard is that to actually do to get there? Yeah, I certainly won't speak on behalf of the shipyards there. I can speak to our own experience on that, which is.

Ronald Epstein: Labor's been hard to come by and we've really had to double down to try to get it that said, you know, I believe in capital markets, free markets that, you know, that the supply chain tends to organize around the demands signal. So I'm hopeful that a little self correct here in the next over the next few years. Yeah, got it. All right. Thank you very much.

Tate Sullivan: Sure. Your next question comes from a line of Pete Scabisky from Alabama.

Tate Sullivan: I'm sorry. I apologize. Allabic Global. Your line is open. Hey, good evening, guys. Nice quarter. I just want to follow up on Scott's question on commercial EBIT margins in 24 or you're expecting them up. My recollection is that you were expecting when tech 99 does get FDA approval. I think you quantified it to be 20 million of incremental DNA. Are you still assuming that in those EBIT margins being up in 24?

Tate Sullivan: You're just offsetting it, or could you clarify? No, as I mentioned, the DNA effectively comes when you're commercial. So, you know, it's going to match the sales, if you will. And so we've talked about how that is a very small sliver. The way I would think about it, that would model your 2024 without sales, without earnings, without DNA tied to that specific product in 2024. If we get lucky and pull it forward, I think it'll be relatively neutral to EBIT, if you will.

Tate Sullivan: I don't think it's going to show up your model if we get a sliver of that in 2024. That's the way I would think about it. Okay, okay. So the incremental DNA will be more of a 25 event. That's right. And it will come with a full, hopefully, a full year of revenue, right? So you then you're able to absorb all that fixed cost. But you're right in terms of the magnitude of the DNA that was the number we gave out.

Tate Sullivan: So I was, you know, model in a full year, which comes with all the goodness around a fully, you know, built out product line. Hopefully, maybe not full in 25, right? We've always promised that in the 2025 plus time zones, but we'll see how it goes. Got it. Okay. And then we did one for Rex Rex on the Canadian financing for Romania. Usually that's the long pull in the tent, right? Once the financing is kind of set.

Tate Sullivan: Do you guys have any sense of timing for when, you know, you might find a contract for that project? Is it still late in the decade? Or is that kind of being pulled forward? Yeah. I don't have a lot of clarity on that one, Pete. I would say certainly later, later decade. Okay. Got it.

Bob LeBic: All right. Thanks, guys.

Bob LeBic: Yes. Your next question comes from the line of Bob LeBic with CJS Securities. Bob your line is open. Thanks. Good afternoon. Sorry if I missed this, but can you give us an update on the timeline and expectations for the, you know, hand for tank program. I read somewhere recently that, you know, bids have been resubmitted and things like that. How are you treating that in your 2024 outlook as well? Yeah. Hey, Bob.

Bob LeBic: I'll give some details on that. I think you certainly know that we've been through court actions on that. And the court, the appellate court basically sent, sent the matter back to DOE for corrective action. The DOE did conduct its corrective action. And asked the original proposals to resubmit. We have resubmitted that proposal. And in the meantime, the competitors have issued a protest that's gone through the GAO. So there's a lot of legal churn here. And that's all I'll say about that.

Rex Geveden: And from, from the standpoint of how it might impact us financially, I don't think we're expecting any transition on that contract until about, at least throughout the middle of next year. Yeah, and we're doing the how we're looking at 2024 in terms of that guys. The same way we, we thought about 2023, right? There's a bucket of good things that can happen in bad things and that those sort of, you know, chunky wins and we probability weight those, we time adjust all those.

Rex Geveden: And frankly, just, you know, we, we try to be conservative on all those factors. So in 2023, as you know, Drake will push a little later for us. Obviously, hand for, self fell out and we're still obviously going to hit the guidance or that that's our plan. So, so we try to put all that into the blender and, and guide accordingly. So I think we've learned our lessons on the TSU front that these things just take longer.

Rex Geveden: So when we contemplate that mid single digits, we, we factor that in as when we're going to ramp and how that margins going. Word. Got it. Okay, great. That makes a lot of sense. And then obviously you discussed, you know, Molly, the FDA approval process for tech 99. You touched on actinium sales and non-molly sales up in medical up 30, 25, 30%. Can you maybe just go a little, you know, one level deeper and talk about the key drivers there and the opportunity set from the Bayer actinium, you know, all that kind of stuff, please.

Rex Geveden: Yeah, sure. Bob, we've got growth showing up across the board in our medical portfolio. As you know, we have diagnostic products and also therapeutic products. And so there's strong, very strong demand for germanium, which the enrolled growth there, strontium is growing. Therosphere continues to grow at an impressive compounded rate. Actinium 225 is showing up in our numbers a little bit because we're supporting clinical trials with our own medical device, our own generator, which produces a non-carrier added actinium.

Rex Geveden: And it's the only, it's the only such generator on the market. And then we're anticipating feathering in some LTCM 177 sales for next year. And there are underlying things to iodine and other products that we have. And so, yeah, the core business is quite strong. I think it's a bit of an under-appreciated asset and BWXT. And we see increasing demand in virtually every product line that we have.

Unknown Executive: Okay, that sounds super. Thanks. You're welcome.

David Strauss: Your next question comes from the line of Davis trials with Barclays. David, your line is open. Great. Thanks. Good evening. So, Rob, Q4, free cash flow, working capital reversal to get to around 200 million. You could just walk through how you get there. And then for 2024, I don't know how I should interpret in the comment of improved working capital. Does that mean it's less of a drag or is it mean it's positive contributor to cash flow?

David Strauss: Because I know you're staying free cash flow growth above mid-single digit ebid dog growth, but I would have thought with a kind of flatish cat X that we could see some pretty significant free cash flow growth next year. Thanks. Sure. Thanks for the question, Dave. Yes, the way that we're thinking, we always have very significant Q4. We just look back to past couple of years as a percentage of our free cash rates always meaningful.

David Strauss: And this year in Q4, if you just think about where we stand for the year, we're at about $40 million of year-to-day free cash flow. Therefore, in order to hit obviously the $200 million bogey, we've got to have $150 million plus. And the way that we're thinking about it is we're going to have a big fourth quarter in terms of profit just in general. So you start with that, and if you just think about how the cash flow statement works, right, you have net net income, you have DNA, you have stock comp and JB income, that gets you almost $125 million.

David Strauss: If you just look at what we've already guided, that's sort of your starting point for operating cash flow drivers. And then you need to work higher. We always have a pretty pretty big retainage that generally is around $25 million. You have accounts receivable, you have a SIP release. All of that gets you comfortably over $200 million of operating cash flow for the fourth quarter. And then you obviously back off that back.

David Strauss: So we have a very clear path. We know the items that are coming in. And so that's how we're thinking about fourth quarter. You're right. First of all, it's pretty early to know where we stand for 2024 for free cash flow. There's always things that swash between fourth quarter, 23, and first quarter, 2024. So it's hard to give a growth rate when you don't know what your base is for 2023. We were using $200 million, obviously, just in general, but whether it's 195 or 205 matters a little bit.

David Strauss: We do see exactly what you said, which is a positive growth of working capital next year for 2024. So we're going to have the rate of the EBDAF that will kick in, that will help pre cash flow to grow in line with that. Then we have the steam generator contract that we've talked about in the end. That should free up some working capital and should be a positive. So we'll see all the trends pointing in the right direction.

David Strauss: I'm sure you've looked in the quarter. If you look at the balance sheet, you'll see that for the third quarter, we had our cash convergence cycle go down for the first time in a couple of quarters, meaning less days. So we're starting to see real positive. That number came down by two days, and I think next year you're going to see some real positive developments there. Okay, so just sorry, maybe I'm not getting it here, just in terms of working gapless, we see it on the cash flow statement in 24. You think that's a positive contributor to cash or not? That's right. I do see the working capital item should be a positive to operating cash flow. Okay, all right, thanks for the clarification.

Tate Sullivan: Your final question comes from the line of Tate Sullivan with maximum group. Tate, your line is open. Thank you Rex, it's done like you're quite positive on the fuel down blending and what you call the government specialty materials opportunities, is that a matter of more volume in that the various businesses there and can you comment on if higher uranium prices have any derivative, positive or negative impact to you at all, please.

Rex Geveden: Thank you. Yes, Cirtay, thanks for the question. I mean, first off, we're completely uninfluenced by uranium prices because the uranium that we process on behalf of the US government comes from stockpile and is government furnished equipment. In fact, it's government owned material all the way through, so you can think of our business as having a tolling arrangement on government material. But the reason I'm bullish on it, Tate is because for one thing, we're uniquely suited to do it, and I mean that in a specific sense, we've got a category one in our state license and we can handle stockpile material and no other commercial entity can do that.

Rex Geveden: So we're uniquely qualified to do it and we're bullish because it's A, it's good business, it has a long tail on it. Our competitive position is appropriate there. But then I think there might be more to come. The NNSA National Nuclear Security Administration has published a request for information about enrichment for national security purposes. There will come a point when we've got to replenish the stockpile based on demand from Naval Nuclear Propulsion and other things.

Rex Geveden: And that's a special need that will require the kind of licenses and credentials and experiential qualifications that we possess. And so enrichment is a possible thing out there in the future. Certainly there's some low level activity in our business right now around isotope production for national security. And if you want to think more broadly around that strategic thesis, think about whether or not we could expand into non-nuclear special materials that involve electrochemistry or chemicals or specialty metals.

Rex Geveden: And so I think there's a whole world of special case materials out there that require unique processing that requires unique materials handling and accountability capabilities that we uniquely possess. And so, you know, it's a really interesting line of business that we hope to expand in the future.

Rex Geveden: Thank you, Rex.

Chase Jacobson: You're welcome. I would now like to turn the call back over to Chase Jacobson, Vice President of Investive Relations.

Chase Jacobson: Thank you everybody for joining us today. We appreciate your time and your questions and your interest in BWXT.

Chase Jacobson: We look forward to speaking and speaking with many of you at upcoming investor events and if you have any further questions, you can reach out to us at investors at BWXT.com Thank you.

Unknown Executive: Ladies and gentlemen, that concludes today's call. Thank you all for joining.

Unknown Executive: You being now disconnect. Thank you all very much. Thank you very much.