Q2 2024 BWX Technologies Inc Earnings Call
Okay.
Speaker Change: Ladies and gentlemen, welcome to the BWXT technologies second quarter 2024 earnings Conference call.
Operator: At this time, all participants are in a listen-only mode. Following the company's prepared remarks, we will conduct a question and answer session, and instructions will be given at that time. I would now like to turn the call over to our host, Chase Jacobson, BWXT's Vice President of Investor Relations. Please go ahead.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: During the company's prepared remarks, we will conduct a question and answer session and instructions will be given at that time.
I would now like to turn the call over to our host Chase Jacobson BWXT expertise Vice President of Investor Relations. Please go ahead Sir.
Chase Jacobson: Thank you, Kathleen. Good evening, and welcome to today's call. Joining me on today's call are Rex Geveden, President and CEO, and Robb LeMasters, Senior Vice President and CFO. During today's call, we'll reference the second quarter 2024 earnings presentation that is available in the investor section of the BWXT website. We will also discuss certain matters that constitute forward-looking statements. These statements involve risks and uncertainties, including those described in the Safe Harbor provision found in the investor materials in the company's SEC filing.
Chase Jacobson: Thank you Kathleen good evening and welcome to today's call. Joining me are Rex <unk>, President and CEO, and Rob Lemasters Senior Vice President and CFO.
Speaker Change: On today's call will reference the second quarter 2024 earnings presentation that is available on the investors section of the BWXT website.
Chase Jacobson: We'll also discuss certain matters that constitute forward looking statements.
Chase Jacobson: The statements involve risks and uncertainties, including those described in the safe Harbor provision found in the investor materials and the company's SEC filings, we will frequently discuss non-GAAP financial measures, which are reconciled to GAAP measures in the appendix of the earnings presentation that can be found on the investors section of the BWXT website.
Chase Jacobson: We will frequently discuss non-GAAP financial measures, which are reconciled to GAAP measures in the appendix of the earnings presentation that can be found in the investor section of the BWXT website. I would now like to turn the call over to Rex.
Chase Jacobson: I would now like to turn the call over to Rex.
Rex: Thank you, Jason and good evening to all of you.
Rex Geveden: Thank you, Chase. And good evening to all of you.
Rex: This afternoon, we reported strong second quarter results that were ahead of our expectations, we had robust 11% organic revenue growth, 18% adjusted EBITDA growth and adjusted earnings per share growth of 26%.
Rex Geveden: This afternoon, we reported strong second quarter results that were ahead of our expectations. We had robust 11% organic revenue growth, 18% adjusted EBITDA growth, and adjusted earnings per share growth of 26%. We benefited from good execution across our business lines and favorable timing for a number of items in the first half, which drove the outperformance. Year-to-date performance gives us the confidence to increase the lower end of our adjusted earnings per share guidance, resulting in a range of $310 to $320, and to reaffirm our full-year operational guidance for mid-single-digit revenue and adjusted EBITDA growth.
Rex: We benefited from good execution across our business lines and favorable timing for a number of items in the first half which drove the outperformance.
Rex: Year to date performance gives us the confidence to increase the lower end of our adjusted earnings per share guidance, resulting in a range of 310 to $3 20 and to reaffirm our full year operational guidance for mid single digit revenue and adjusted EBITDA growth.
Rex Geveden: Over the last several months, we've continued to experience positive demand momentum in our global security, clean energy, and medical markets. We are seeing federal and state governments prioritize regulatory clarity and funding to boost investments in nuclear power as a reliable clean energy alternative, complemented by demand from private industries. This ranges from utilities and major power consumers looking to add nuclear capacity to the grid to pharmaceutical companies investing in radiotherapeutics as the first line of attack for complex cancer.
Rex: Over the last several months, we continued to experience positive demand momentum in our global security clean energy and medical markets. We are seeing federal and state governments prioritize regulatory clarity and funding to boost investments in nuclear power as it reliable clean energy alternatives complemented by demand from private industry.
Rex: This ranges from utilities and major power consumers looking to add nuclear capacity to the grid to pharmaceutical companies investing in radio therapeutics as the first line of attack for complex cancers, Bwxt's nuclear technical depth unique licenses, a differentiated infrastructure across various industry segments position us well.
Rex Geveden: BWXT's nuclear technical depth, unique licenses, and differentiated infrastructure across various industry segments position us well to help our customers realize their goals across project licensing. At our core, we are a supplier and partner to our customers capable of everything from concept development and engineering and early design stages, through manufacturing of critical components, and ultimately providing services to maximize the utilization and lifespan of their assets. This provides substantial visibility into the long-term potential of the markets we serve and opens decadal lifecycle opportunities for BWXT.
Rex: To help our customers realize their goals across project life cycles.
Rex: At our core we are a supplier and partner to our customers capable of everything from concept development and engineering and early design stages through manufacturing of critical components, and ultimately providing services to maximize the utilization and the lifespan of their assets. This provides a substantial visibility.
Rex: Ability into the long term potential of the markets, we serve and opens decadal lifecycle opportunities for BW X T. Now turning to a discussion of segment results and market outlook.
Rex Geveden: Now turning to a discussion of segment results and market outlook. Government operations had a solid quarter with 10% revenue growth and 13% adjusted EBITDA growth, both ahead of our expectations and driven by the continued ramp-up on newer special materials and microreactor projects, as well as solid volumes in our naval propulsion business.
Rex: Government operations had a solid quarter with 10% revenue growth and 13% adjusted EBITDA growth. Both ahead of our expectations and driven by the continued ramp on newer special materials and micro reactor projects as well as solid volumes in our naval propulsion business.
Rex Geveden: From an operational standpoint, our naval nuclear propulsion business performed well during the course. As we discussed in detail last quarter, the lower tempo of work associated with the ordering lull for the Ford-class aircraft carrier will be with us through at least 2025 and potentially 2026, but we are seeking and finding ways to keep our plants operating at levels. We remain intensely focused on operational equipment effectiveness initiatives and driving process improvements throughout the organization to mitigate these headwinds. And we expect to finalize our next pricing agreement in the coming months.
Rex: On an operational standpoint, our naval nuclear propulsion business performed well in the quarter.
Rex: As we discussed in detail last quarter, the lower Tampa work associated with the ordering wall for the Ford class aircraft carrier will be with us through at least 2025 and potentially 2026, but we are seeking and finding ways to keep our plants operating at level loads, we remain intensely focused on operational equipment effectiveness initiatives.
Rex: And driving process improvements throughout the organization to mitigate these headwinds.
Rex: And we expect to finalize our next pricing agreement in the coming months at the same time, we continue to invest in our businesses to ensure sufficient capacity for execution of program schedules and to improve our competitive positioning for example in the second quarter, we engaged in a significant and successful facility and process.
Rex Geveden: At the same time, we continue to invest in our businesses to ensure sufficient capacity for the execution of program schedules and to improve our competitive position. For example, in the second quarter, we engaged in a significant and successful facility and process line modernization in our nuclear fuel services plan to support growing demand. Such investments can create modest near-term margin headwinds.
Rex: Line modernization in our nuclear fuel services plant to support growing demand such investments can create modest near term margin headwinds, but we make these investments to improve product quality and production capacity.
Rex Geveden: But we make these investments to improve product quality and production capacity. Also, within government operations, we are very excited about the contract award and quick transition to the Pantex plant in Amarillo, Texas. As of July 13th, BWXT is leading a joint venture that will supervise this important site under a 20-year contract, further solidifying our leadership in the NNSA space. In the micro-reactors business line, our defense-related projects, Paleo and Land, Draco, and Space, are progressing well.
Rex: Also within government operations, we are very excited about the contract award at quick transition under the Pantex plant and have real taxes as of July 13th BWXT as a lead is leading a joint venture that will supervise this important side under a 20 year contract.
Speaker Change: Further solidifying our leadership in the Internet space.
Speaker Change: And the micro reactors business line, our defense related projects Pelayo landed Ray Cohen space are progressing well.
Speaker Change: And in the commercial sector, we continue to work with the Wyoming Energy authority to assess the viability of deploying micro reactors in that state leveraging our banner work largely funded under the department of Energy's advanced reactor development program.
Rex Geveden: And in the commercial sector, we continue to work with the Wyoming Energy Authority to assess the viability of deploying microreactors in that state, leveraging our Banner work, largely funded under the Department of Energy's Advanced Reactor Development Program. In a related matter, in early June, the Army and Defense Innovation Unit posted an RFP for procurement of a microreactor capable of generating 3 to 10 megawatts of power for U.S. Army
Speaker Change: And a related matter in early June the Army and defense innovation unit posted an RFP for procurement of micro reactor capable of generating 3% to 10 megawatts of power for U S Army basis.
Rex Geveden: We believe the strong team of partners we have selected, our experience with Pele, and our existing component and fuel manufacturing facilities put us in a leading position for this remarkable opportunity. Overall, the long-term demand trends in our government operations segment are favorable. We remain confident in the segment's medium-term outlook for Mid-Single-Digit Revenue and Adjusted EBITDA Growth, as modest growth in our naval nuclear propulsion business is enhanced by real growth in microreactors, special materials, and technical services. Turning to commercial operations, Revenue in the segment grew 17% organically, and adjusted EBITDA grew 42%.
Speaker Change: We believe the strong team of partners, we have selected our experience of Taylor and our existential component and fuel manufacturing facilities put us in a leading position for this remarkable opportunity.
Speaker Change: Overall, the long term demand trends in our government operations segment are favorable we remain confident in this segments medium term outlook for mid single digit revenue and adjusted EBITDA growth as modest growth in our naval nuclear propulsion business is enhanced by real growth.
Speaker Change: Micro reactors special materials and technical services.
Turning to commercial operations.
Speaker Change: Revenue in this segment grew 17% organically and adjusted EBITDA grew 42%.
Rex Geveden: Demand for commercial nuclear power is blossoming with interest from industry, utilities, and government buyers. During the quarter, we received full notice to proceed with the manufacture of the reactor pressure vessel for GE Hitachi's BWRX-300 small modular reactor project at Ontario Power Generation's Darlington. As the first SMR project in the Western Hemisphere, this is a strategically meaningful project for BWXT and is also an important reference point for power plant developers assessing the build-out of SMR.
Speaker Change: Demand for commercial nuclear power is blossoming with interest from industry utilities and government buyers during the quarter. We received full notice to proceed with the manufacturer of the reactor pressure vessel for GE Hitachi VW Rx 300, small modular reactor project at Ontario power Generation's Darlington site as the.
Speaker Change: First SMA project in the Western Hemisphere. This is a strategically meaningful project for BWXT and is also an important reference point for power plant developers assessing the build out of <unk>.
Rex Geveden: Additionally, in June, the Department of Energy announced that it would provide up to $900 million of funding to spur SMR development. This was followed by Dominion Energy issuing an RFP to find a technology partner to build an SMR at the North Anna Power Station in Virginia. Dominion joins a growing list of domestic and international utilities expressing interest in building small modular reactors.
Speaker Change: Additionally in June the department of energy announced that it will provide it to $900 million of funding.
Speaker Change: <unk> development. This was followed by Dominion energy issuing an RFP to find a technology partner to build an SLR at the North Anna power station in Virginia.
Speaker Change: Dominion Groans joins a growing list of domestic and international utilities expressing interest in building small modular reactors.
Rex Geveden: We face the SMR market with deep nuclear design capabilities and as a merchant manufacturer with the largest nuclear equipment assembly facility in North America. In the CANDU market, we had a solid quarter driven by ongoing life extension projects and strong field services growth weighted toward outage projects that generally bring slightly higher margins. We're starting early work on the life extension of Ontario Power Generation's Pickering Units 5 through 8, which will be a key part of this segment's bookings and earnings over the next 10-year lifecycle of that project.
Speaker Change: We faced the SMA market with.
Speaker Change: Deep nuclear design capabilities.
Speaker Change: And as a merchant manufacturer with the largest nuclear equipment Assembly facility in North America.
Speaker Change: And the can do market, we had a solid quarter driven by ongoing life extension projects and strong field services growth weighted toward outage projects that generally brings slightly higher margins. We're starting early work on the life extension of the Ontario power Generation's Pickering units five through eight which will be a key part of this segment's books.
Speaker Change: <unk> and earnings over the next 10 year lifecycle of that project.
Rex Geveden: Turning to BWHT Medical, revenue in the first half of 2024 is tracking in line with our full year expectation of approximately 25% growth. I continue to be pleased with the progress we are making in growing and executing on our existing diagnostics portfolio and expanding our product lines in key cancer therapeutics. Specifically, over the last couple of months, BWXT has extended its leading commercial position in high-quality Actinium-225, a therapeutic isotope that is being used in over 25 clinical trials for the treatment of multiple forms of cancer. In June, we submitted a drug master file with the FDA for our Actinium-225 Active Pharmaceutical Ingredient. We are now the only commercial company with an active drug master file for this vitally important medical isotope.
Speaker Change: Turning to BWXT medical revenue in the first half of 2024 is tracking in line with our full year expectation of approximately 25% growth.
Speaker Change: I continue to be pleased with the progress we are making in growing and executing on.
Speaker Change: On our existing diagnostics portfolio, and expanding our product lines and key cancer therapeutics.
Specifically over the last couple of months of BWXT has extended its leading commercial position and high quality actinium $2 25, a therapeutic isotope that is being used in over 25 clinical trials for the treatment of multiple forms of cancer in June we submitted a drug master file with the FDA for our <unk>.
<unk> hundred 25 active pharmaceutical ingredient we are now the only commercial company with an active drug master file for this vitally important medical isotope. This enables pharmaceutical companies to reference our product as they advanced drugs through clinical trials and prepare to file new drug applications.
Rex Geveden: This enables pharmaceutical companies to reference our product as they advance drugs through clinical trials and prepare to file new drug applications. Additionally, in July, we announced a partnership with Northstar whereby BWXT will provide processing and purification services to develop radium-226 targets that will be utilized in Northstar's electron accelerator to produce actinium-226. This partnership highlights our picks-and-shovel strategy through which we serve the ecosystem with a full suite of services including sourcing starter material, target design, irradiation, processing the irradiated material, and waste stream management.
Speaker Change: Additionally, in July we announced a partnership with Northstar, whereby BWXT will provide processing and purification services to develop radium $2 26 targets that will be utilized in northstar as electron accelerator to produce actinium 225. This partnership highlights our picks and shovels strategy through which we.
Served ecosystem with a full suite of services, including sourcing startup material target design irradiation processing, the irradiated material and waste stream management. In this instance, with Northstar. We are initially focused on constructing the difficult to manufacture radium $2 26 targets, but over time.
Rex Geveden: In this instance with Northstar, we are initially focused on constructing the difficult-to-manufacture radium-226 targets, but over time, it could evolve into a second source of irradiation in production, in addition to our current actinium operations in Vancouver and Diagnostics. We continue to advance our TEC-99 development and commercialization strategy. We have successfully produced test generators and continue to work with the FDA at the pace we previously outlined and seek clear customer support for our product. As the pending FDA approval date becomes more visible, we have been actively marketing and testing samples of our product with customers to enable supply agreements and commitments to significant spot volumes when they become available.
Speaker Change: That could evolve into a second source of irradiation and production. In addition to our current actinium operations in Vancouver.
Speaker Change: In diagnostics, we continue to advance our tech 99 development and commercialization strategy.
Speaker Change: We have successfully produced test generators and continue to work with the FDA at the pace, we previously outlined and see clear customer support for our product.
Speaker Change: As the pending FDA approval date becomes more visible we have been actively marketing and testing samples of our product with customers to enable supply agreements and commitments to significant spot volumes when they become available.
Rex Geveden: We have planned a methodical entrance into the market to ensure a smooth product launch with gradual volume increases throughout 2025 and a full annual run rate of contracted volumes in 2026 and beyond. Finally, as BWXT Medical shifts the balance from development to a more operational and commercial phase, we are adding executive talent to the business. I'm pleased to announce that Vittorio Pupo will join BWXT this month.
Speaker Change: We have planned and methodical entrants into the market to ensure a proof of smooth product launch with gradual volume increases throughout 2025, and a full annual run rate of contracted volumes in 2026 and beyond.
Speaker Change: Finally, as BWXT medical shifts the balance from development to a more operational and commercial phase, we are adding executive talent to the business.
Speaker Change: <unk> announced that Vittorio <unk> will join BWXT. This month, he brings deep operational and commercial expertise having spent most of his 30 plus year career in the nuclear medicine industry and Ameren Shan Bracco in Medtronic among others.
Rex Geveden: He brings deep operational and commercial expertise, having spent most of his 30-plus-year career in the nuclear medicine industry at Amersham, Bracco, and Medtronic, among others. I appointed Dr. Jonathan Cirtain to run this business in 2022 with a charge to lead the development and regulatory approval of the technetium-99m generator product and to establish the foundations of a therapeutic growth strategy. He has made remarkable strides in developing the product portfolio, nearly doubling sales and driving it to positive EBITDA. He will now return to my direct staff and resume his role as Chief Development Officer, maintaining a focus on BWXT Medical alongside Vittorio and growing the larger BWXT product portfolio, including microreactors and advanced fuels.
Dr. Jonathan: Appointed Dr. Jonathan certainly run this business in 2022 with a charged to lead development and regulatory approval of the technetium 99 generator product and to establish the foundations of the therapeutic growth strategy. He has made remarkable strides in developing the product portfolio nearly doubling sales and driving it as a positive.
Speaker Change: EBITDA It will now return to my direct staff and resume his role as Chief Development Officer.
Speaker Change: Maintaining a focus on BWXT medical alongside Vittorio and growing the larger BWXT product portfolio, including micro reactors advanced fuels special materials and other exciting new product lines.
Speaker Change: Overall, we had a strong quarter strong quarter, and we continue to position BWXT to capture an overweight share business in these exciting and growing nuclear market segments. Our year to date performance leads us to narrow our 2024 adjusted earnings per share guidance range.
Rex Geveden: Special Materials, and other exciting new product lines. Overall, we had a strong quarter, and we continue to position BWXT to capture an overweight share of business in these exciting and growing nuclear market segments. Our year-to-date performance leads us to narrow our 2024 adjusted earnings per share guidance range. There are firm demand signals from our government and private customers alike, and their desire to use nuclear solutions to address their challenges is steadily increasing.
There are firm demand signals from our government and private customers like and their desire to use nuclear solutions to address their challenges is steadily increasing.
Rex Geveden: BWXT has world-class manufacturing, processing, and services capabilities, backed by our highly credentialed and experienced workforce and unique infrastructure that enables us to benefit from the many compelling nuclear opportunities we see ahead. With that, I will now turn the call over to Robb. Thanks, Rex, and good evening, everyone.
Speaker Change: BWXT has world class manufacturing processing and services capabilities.
Rob Lemasters: <unk> by our highly credentialed and experienced workforce and unique infrastructure that enables us to benefit from the many compelling nuclear opportunities. We see ahead with that I will now turn the call over to Rob.
Thanks, Rick and good evening everyone.
Robb LeMasters: I'll start with some total company financial highlights on slide four of the earnings presentation. Second quarter revenue was $681 million, up 11% organically, with solid growth in both segments. Adjusted EBITDA was $126 million, up 18% year-over-year, with double-digit growth in both segments, albeit off an easier comparison in the second quarter of last year. However, unallocated corporate EBITDA was essentially flat compared to the second quarter of 2023, in line with our expectation for the full year.
Rob Lemasters: I'll start with some total company financial highlights on slide four of the earnings presentation.
Rob Lemasters: Second quarter revenue was $681 million up 11% organically with solid growth in both segments.
Rob Lemasters: Adjusted EBITDA was $126 million up 18% year over year with double digit growth in both segments, albeit off an easier comparison in the second quarter of last year.
Rob Lemasters: Unallocated corporate EBITDA was essentially flat compared to the second quarter of 2023 in line with our expectation for the full year.
Robb LeMasters: Adjusted earnings per share of $0.82 increased 26% compared to the $0.65 in the prior year quarter. As you can see in the EPS bridge on slide 5, the majority of growth was driven by operations, with modest contributions from lower interest and a lower tax rate. Our adjusted effective tax rate in the quarter was 22.7%. This is lower than our previous guidance for the year of 23.5%, driven mainly by a catch-up for the recently enacted Canadian tax legislation that reduces the statutory tax rate for nuclear manufacturers through 2034. As such, we now expect our full-year tax rate to be less than 23.5%. Free cash for the quarter was $36 million, down modestly from $41 million in the second quarter of 2023.
Rob Lemasters: Adjusted earnings per share of <unk> 82.
Rob Lemasters: Increased 26% compared to the 65 in the prior year quarter.
Rob Lemasters: As you can see on the EPS bridge on slide five the majority of growth was driven by operations with modest contributions from lower interest and a lower tax rate.
Rob Lemasters: Our adjusted effective tax rate in the quarter was 22, 7%. This is lower than our previous guidance for the year of 23, 5% driven mainly by a catch up for the recently enacted Canadian tax legislation that reduces the statutory tax rate for nuclear manufacturers through 2034.
Rob Lemasters: As such we now expect our full year tax rate to be less than 23, 5%.
Rob Lemasters: Free cash flow in the quarter was $36 million down modestly from $41 million in the second quarter of 2023.
Robb LeMasters: Slightly lower cash flow was due to higher working capital requirements as we ramped up several new projects in each of our segments. Year-to-date, free cash flow was $38 million, up significantly from a use of $2 million in the first half of 2023. CapEx in the quarter was $30 million and $61 million year-to-date. We continue to expect CapEx to be similar to last year's level of $151 million, with the ramp-up in the second half of 2024 largely driven by our commercial nuclear facility expansion in Cambridge, Ontario, as well as other select growth investments. Moving now to the segment results on slide six.
Rob Lemasters: Slightly lower cash flow was due to higher working capital requirements as we ramp on several new projects in each of our segments.
Rob Lemasters: Year to date free cash flow was $38 million up significantly from a use of $2 million in the first half of 2023.
Rob Lemasters: Capex in the quarter was $30 million and $61 million year to date.
Rob Lemasters: We continue to expect Capex to be similar to last year's level of $151 million with the ramp in the second half of 2024, largely driven by our commercial nuclear facility expansion in Cambridge, Ontario, as well as other select growth investments.
Rob Lemasters: Moving now to the segment results on slide six.
Rob Lemasters: And government operations second quarter revenue was up 10% to $541 million driven by increases in naval nuclear components long lead materials, you metal and micro reactors.
Robb LeMasters: In government operations, second quarter revenue was up 10% to $541 million, driven by increases in naval nuclear components, long-lead materials, U-metal, and microreactors. Adjusted EBITDA on this segment grew by 13% to $108 million as higher revenue was complemented by solid operational performance. EBITDA margin in the segment was 20.0%, compared to 19.4% in the same quarter last year. While higher compared to Q2 2023, GEO's EBITDA margin performance continues to be limited due to both investments in new capabilities, such as the fuels modernization optimization project, REX, discussed earlier, and faster growth in our development stage work streams that carry lower margins until they become more mature programs.
Rob Lemasters: Adjusted EBITDA in this segment grew by 13% to $108 million.
Rob Lemasters: As higher revenue was complemented by solid operational performance.
EBITDA margin in the segment was 20.0% compared to 19, 4% in the same quarter last year.
Speaker Change: While higher compared to Q2 2023, Geo EBITDA margin performance continues to be limited due to both investments in new capabilities, such as the fuels modernization optimization project Rex discussed earlier and faster growth in our development stage work streams that carried lower margins until they become more mature programs.
Rob Lemasters: Yes.
Rob Lemasters: At this point in time, we view first half 2020 for Geo segment EBITDA margin performance as a good proxy for the year as these items continue.
Robb LeMasters: At this point in time, we view first half 2024 GEO segment EBITDA margin performance as a good proxy for the year as these items continue. This should ultimately lead to modest year-over-year adjusted EBITDA growth in the segment in line with our previous guidance, trained to commercial operate. Revenue is up 17% driven by strong growth in commercial nuclear power and continued growth in BWXC medical. Adjusted EBITDA in this segment grew nearly $7 million to $22.5 million, driven by higher revenue, good execution, favorable contract items, and mix in our commercial nuclear power business. As a reminder, our commercial nuclear power business is seasonally stronger in the second and fourth quarters due to outage schedules and associated field services work, which had an outsized benefit on second quarter results.
Rob Lemasters: This should ultimately lead to modest year over year adjusted EBITDA growth in the segment in line with our previous guidance.
Rob Lemasters: Yes.
Speaker Change: Turning to commercial operations.
Speaker Change: Revenue was up 17% driven by strong growth in commercial nuclear power and continued growth in BWXT medical.
Speaker Change: Adjusted EBITDA in the segment grew nearly $7 million to $22 5 million driven.
Speaker Change: Driven by higher revenue good execution favorable contract items and mix in our commercial nuclear power business.
Speaker Change: As a reminder, our commercial nuclear power business is seasonally stronger in the second and fourth quarters due to outage schedules and associated field services work, which had an outsized benefit on second quarter results.
Robb LeMasters: This led to a commercial EBITDA margin of 15.9%, up from 13.1% last year. We continue to expect commercial operations revenue growth of high single digits to low double digits in 2024 with higher EBITDA margins compared to 2023. Turning now to guidance on slide seven.
Speaker Change: This led to commercial EBITDA margin of 15, 9% up from 13, 1% last year.
Speaker Change: We continue to expect commercial operations revenue growth of high single digits to low double digits in 2024 with higher EBITDA margins compared to 2023.
Speaker Change: Turning now to guidance on slide seven.
Robb LeMasters: We are reaffirming our operational guidance metrics and narrowing our adjusted EPS guidance range for the year. We project total company revenue and adjusted EBITDA growth in the mid single digits, leading to revenue of at least $2.6 billion and adjusted EBITDA of approximately $500 million. We now expect adjusted earnings per share of $3.10 to $3.20. As you can see on the EPS bridge on slide 8, we see a slightly lower interest expense and tax rate, with no material change to our view on operations for the year as we experienced the shift between first half and second half timing compared to how we originally saw our quarterly earnings cadence playing out.
Speaker Change: We are reaffirming our operational guidance metrics and narrowing our adjusted EPS guidance range for the year.
Speaker Change: We project total company revenue and adjusted EBITDA growth in the mid single digits, leading to revenue of at least $2 6 billion.
Speaker Change: And adjusted EBITDA of approximately $500 million.
Speaker Change: We now expect adjusted earnings per share of $3 10.
Speaker Change: To $3 20.
Speaker Change: As you can see on the EPS bridge on slide eight we see a slightly lower interest expense and tax rate with no material change to our view on operations for the year as we experienced the shift between first half and second half timing compared to how we originally saw our quarterly earnings cadence playing out.
Robb LeMasters: We now expect a more even cadence of EPS between the first half and the second half of the year, with the next two quarters being similar. Lastly, we are reiterating our expectation of strong free cash flow growth. We expect free cash flow of $225 million to $250 million, driven by EBITDA growth, improved working capital management, and a disciplined approach to capital expenditures. To sum it up, we had a strong quarter that was ahead of our expectations, de-risking our full-year EPS guidance.
We now expect a more even cadence of EPS between the first half and second half of the year with the next two quarters being similar.
Lastly, we are reiterating our expectation of strong free cash flow growth, we expect free cash flow of $225 million.
Speaker Change: To $250 million driven by EBITDA growth improved working capital management, and a disciplined approach to capital expenditures.
Speaker Change: To sum it up we had a strong quarter that was ahead of our expectations Derisking, our full year EPS guidance.
Robb LeMasters: Our focus remains on capturing growth opportunities across our business lines, pursuing new opportunities, and mitigating macro headwinds, such as higher labor costs, through operational excellence and improved planning. And with that, we look forward to taking your questions.
Speaker Change: Our focus remains on capturing growth opportunities across our business lines and pursuing new opportunities and mitigating macro headwinds such as higher labor costs through operational excellence and improved planning.
Speaker Change: And with that we look forward to taking your questions.
Johan: Alright, we will now begin the question and answer session. If you have dialed in and we'd like to ask a question. Please press star one on your telephone keypad journeys Johan and joined the queue.
Operator: Alright, we will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw your question, simply press the star 1 again. If you are called upon to ask your question and are listening via the loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, please press star 1 to join the queue. Your first question comes from the line of Scott Deuschle from Deutsche Bank. Please go ahead.
Speaker Change: And if you would like to withdraw your question simply press Star One again, if you recall the bond ask your question and listening via loud speaker on your device. Please pickup your handset and ensures that your phone is not on mute when asking a question.
Ken: Ken Please press star one to clean the queue.
Speaker Change: Yeah.
Speaker Change: Your first question comes from the line of Scott <unk> from Deutsche Bank. Please go ahead.
Scott: Hey, good evening guys.
Scott: Scott.
Scott Deuschle: Rex, is zectinium already a meaningful contributor to growth at BWXT Medical, just given the pricing there, or is it still very small right now?
Speaker Change: Rex is actinium already a meaningful contributor to growth at BWXT medical just given the pricing there or.
Speaker Change: Is it still very small right now.
Rex Geveden: It's a pretty small fraction of revenue, but it's ramping pretty fast and has a chance to be meaningful in the fairly near term.
Speaker Change: It's a pretty small fraction of revenue, but it's but it's ramping pretty fast and as a chance to be meaningful in the fairly near term I would say.
Speaker Change: Okay. So do you need to have the commercial the commercialization of drugs and extending them for that to be meaningful or can it become meaningful just with.
Scott Deuschle: Okay. So do you need to have the commercialization of drugs in Actinium for that to be meaningful, or can it become meaningful just with these large numbers of Phase III trials that are out there?
Speaker Change: These large numbers of phase III trials that are out there.
Rex Geveden: I think you can think of it as maybe having a similar profile to Lutetium in the sense that there's a business in the clinical trial phase, and there were, as we said in the script, you know, over 25 clinical trials at the time, so there's something there. Yeah, but the real growth occurs when you get drugs approved and get them into production. And we've announced prior agreements with Bayer Infusion for such supply. So we're doing clinical trial stuff with an expectation of participating meaningfully in the production of the drug. Okay.
Speaker Change: I think you can think of it as maybe having a similar profile to two lutetium in the sense that there's a business in the clinical trial phase and there as we said in the script over 25 clinical trials at the time, so there's something there but.
Speaker Change: But the real growth occurs when you get drugs approved and get into and get into production and we've got and we've announced prior agreements with.
Speaker Change: With Bayer infusion for four such supply. So we are doing clinical trials stuff with an expectation of participating.
Speaker Change: Participating meaningfully in the production of the drugs.
Scott Deuschle: Okay, and then speaking of Lutetium, Rex, you know, are you getting ready to file the DMS for that year soon as well?
Speaker Change: Okay, and then speaking of lutetium bricks are you getting ready to file the Dms that you're soon as well.
Speaker Change: Yes.
Speaker Change: Yes, I can fill in for that because I think I gave an update.
Rex Geveden: Yeah, I can fill in for that. I think I gave an update last year. We still have that as a project that we're rolling out and expecting next year. So it's a couple months off. We're readying construction and figuring out the processing and so forth. And again, we'll have two different irradiation sources, we think, to do that. So we'll be filing that next year, Scott.
Speaker Change: Last year, we still have.
Speaker Change: As a project that we're rolling out and expecting that next year. So it's a couple of months off.
Speaker Change: We're readying construction and figuring out the processing and so forth and again, we will have two different radiation sources, we think to do that so we'll be filing that next year Scott.
Scott Deuschle: Okay, and then Rex, maybe I'm misinterpreting, but the confidence you seem to have in your prepared remarks on the outlook for Tech 99 seems pretty high. So, I guess, are you seeing some movement in terms of getting FDA approval that's driving that confidence, or am I maybe just overinterpreting? No, I think not.
Scott: Okay, and then Rex maybe I'm misinterpreting the confidence you seem to have there in your prepared remarks on the outlook for Tech 99 seems pretty high.
Speaker Change: So I guess are you seeing some movement in terms of getting FDA approval, that's driving that confidence or it might be just over interpreting here.
Rex: No I think our confidence is good here Scott we've got.
Rex Geveden: No, I think our confidence is good here, Scott. We've got, you know, we've kind of been optimizing the formulary, so to speak, and the product quality is really exceptional. So we know we have a viable commercial product. We've been working off our list of actions with the FDA, and there's a normal pace of communication with them. And I think we're probably most excited about the commercial progress where we have, you know, very, very engaged potential customers working through working through our future with them. So I'm, you know, I'm certainly bullish on this.
Speaker Change: We've kind of been optimizing the formulary so to speak in the product quality is really exceptional. So we know we have a viable commercial product. We've been working off are sort of list of actions with the FDA and there is a normal tempo of communication with them.
And I think we're probably most excited around the commercial progress where we have.
Speaker Change: Very very engaged potential customers working through.
Speaker Change: Working through our future with them so.
Speaker Change: Certainly certainly bullish on this.
Speaker Change: Your next question comes from the line of Rob Lee of <unk>.
Robb Labick: Your next question comes from the line of Robb Labick of CJS Securities. Please go ahead.
Speaker Change: Js Securities. Please go ahead.
Robb Labick: Good afternoon, this is Bob Labick, and thanks for taking our questions as well. Just to stick with the isotopes questions there for a second, and on Molly-99 in particular, it does sound obviously that your confidence continues to increase, and the timing, and you gave us... An outline sounded like a ramp during 2025. So what is the next news we'll hear? Is there, you know, a timeframe for approval that you have or can share? Or, you know, how should we think about the next steps that we'll hear in terms of MOLLE, to start with?
Rob Lee: Good afternoon, as Bob Leduc, and thanks for taking my questions as well.
Rob Lee: Just to stick with the isotopes questions here for a second just and on the moly 99 in particular it does sound obviously that your confidence continues to increase and the timing and you gave us.
Speaker Change: Outlines it sounded like a ramp during 2025. So what is the next news will here is there.
Speaker Change: A timeframe for approval that you have or can share or how should we think about.
Speaker Change: The next steps that will here in terms of Mali to start with.
Rex Geveden: Yeah, I'd say just stay tuned, Bob. We are on the same course and, you know, expect things to develop in the way that I outlined in my remarks. We are, I think, going to be a little careful about how we approach 25 because the production and logistics are complicated for tech, but that's well understood in the market.
Speaker Change: Yes.
Speaker Change: Say just stay tuned Bob we are on the same course.
Speaker Change: Thanks to develop in a way that I outlined here in the remarks, we are I think going to be a little careful about how we approach 25 because of the production and.
And logistics are complicated for tek as well understood in the market, but we will ramp up.
Speaker Change: In a cautious way and.
Speaker Change: And have a viable product in the market.
Speaker Change: Yeah, maybe I'll add to just say well, we're trying to kind of lay out there as 2024 as I said last quarter really it's we plan to be commercial and be ready to service customers. This year in fact, as Rajiv talked about agreements are being discussed and so by some indications we already kind of our commercial ready ready to go as long as the FDA comes through.
Robb Labick: But we'll ramp up, you know, in a cautious way and have a viable product in the market. Maybe I'll add to just say what we're trying to kind of lay out there is 2024, as I said last quarter, really, it's, you know, we plan to be commercial and be ready to service customers this year. In fact, as Rex talked about, agreements are being discussed.
Robb Labick: And so, by some indications, we're already kind of commercial, ready to go as long as the FDA comes through shortly. And then as 2025 evolves, we're also trying to indicate, look, we're not going to be a blockbuster kind of immediately; we're going to try to get in the industry slowly, and we're going to moderate our expenditures. I think I've talked about in the past that we have ways of doing sort of one run and building to a second and third run over time. And so that will kind of build up as we see customers really satisfied with the product and putting the logistics out and so forth.
Speaker Change: Shortly.
Speaker Change: And then as 2025 evolves. We're also trying to indicate look we're not going blockbuster kind of immediately we're going to try to get them the industry slowly and we're going to moderate our expenditures I think I've talked about in the past that we have ways of doing sort of one run in building to a second and third run over time, and so that will kind of build up as we see.
Speaker Change: Customers really satisfied with the product and putting the logistics out and so forth and then ultimately it will become a mover in 2026 as our guidance always suggested so that was sort of a.
Robb Labick: And then ultimately, it will become a mover in 2026, as our guidance always suggests. So that was sort of the, you know, walk before you run speech financially, not a big factor in 2024. Frankly, all scenarios for 2025 allow us to get in very judiciously and have it not really moved the needle substantially to the upside or downside for 2025 as it relates to profit. And 2026 is really where you're going to see some powerful economic growth.
Speaker Change: Walk before we run speech financially not a big factor for 2020 for frankly, all scenarios for 2025 allow us to get in very in a judicious manner and have it not really move the needle substantially to the upside or downside for 'twenty five as it relates to profit and in 2026 is really where youre going to see some powerful X.
Speaker Change: <unk>.
Speaker Change: Okay Super and then shifting over to TST congratulations on the pantex when it sounds like that one.
Robb Labick: Okay, super. And then, shifting over to TSG, congratulations on the Pantex win. It sounds like that one was not protested. So can you give us a time horizon for a ramp-up and when that starts to hit the P&L, and then an update on the Hanford tank? You know, I don't know the timeline or what we might hear from that. Yeah, I'll take that one, Bob.
Speaker Change: It was not protested so can you give us some.
Speaker Change: Horizon for ramp up and when that starts to hit the P&L and then an update on <unk>.
Speaker Change: The Hanford tanks.
Speaker Change: I don't know timeline or.
Speaker Change: What we might hear from that.
Rex Geveden: Yeah, I'll take that one, Bob. You know, I think we've described before on these calls for the technical services contracts, you go through a transition period where you overlap with the incumbent for a period of three or four months. So we are in that phase now; you're correct, it withstood the protest period, and we went on site to begin the transition in the middle of July. So the transition period, I don't know, I can't recall if it's three months or four months, but I think it's a four-month transition.
Speaker Change: Yes, I'll take that one Bob.
Speaker Change: I think we've described before on these calls for the technical services contracts you go through a transition period, where.
Bob Leduc: Where you overlap with the incumbent for a period of three or four months. So we're in that phase now you're correct. It was stood still.
Bob Leduc: Through the protest period, and we went on to site to begin the transition in the middle of July so that transition period, I don't know I cant recall, if it's three months or four months, but.
Rex Geveden: That's not a fee-bearing period. You do get some minor cost absorption benefits in that phase, but it's not a fee-bearing period. So think of that as starting to have a modest effect in, let's call it the fourth quarter and then being in full run rate for 2025 on Pantex. For Hanford, the Hanford, just to review the bidding here a little bit, we won the contract a couple years ago, it was protested, Judge Horn in the Federal Claims Court sent it back to DOE for corrective action because there were problems with both bids.
Speaker Change: I think it's a four months transition that's not a fee bearing period, you do get some minor cost absorption benefits in that phase, but its not fee bearing so think of that is starting to have a modest effect in let's call. It the fourth quarter, and then being in full run rate for $2025 and pantex.
Speaker Change: For Hanford.
Speaker Change: The Hanford.
Just to review the bidding here a little bit we won the contract a couple of years ago. It was protested judge.
Speaker Change: Judge Horn and federal clean claims court send it back to Dow for corrective action, because there were problems with both bids.
Rex Geveden: We re-applied, submitted new proposals, and were selected again. That selection was protested and is now in the hands of the court, so that's up to the Federal Court of Appeals, and we'll see what happens, but I would expect it to get sorted out probably in the next quarter.
Speaker Change: We re propose to submit a new proposals and we're selected again that selection was protested and is now in the hands of the court and.
Speaker Change: So that's up to the federal the Federal Court of Appeals and we will see we'll see what happens, but I would expect it to get sorted out probably in the next quarter or so.
Speaker Change: Your next question comes from the line of Pete Kubicki of Alembic Global. Please go ahead.
Rex Geveden: Your next question comes from the line of Pete Skibitski of Alembic Global. Please go ahead.
Pete Kubicki: Hey, good evening guys.
Pete Kubicki: Hey, Tom Hey, Rex on the RFP.
Pete Skibitski: Hey, hey, Rex, on the DIU RFP, just was wondering if you could maybe share with us some of the structure there. Is this sort of an LRIP request or, you know, for one unit or for multiple units? And then I was just wondering if you guys have been able to identify, you know, if the Army has actually budgeted for some of these units across their fit up.
Pete Kubicki: RFP just was wondering if you could maybe share with us some of the structure. There is this sort of an al Rep request for one unit or for multiple units and then I was just wondering if you guys have been able to identify if the army is actually budgeted for some of these units across their their fit up.
Rex Geveden: Yeah, Pete, so the RFP, it looks like what they're going to do is select maybe two different contractors. We'll go through some kind of study phase, and then ultimately through a deployment phase. And their intention was to have these two types of micro-reactors online in place by the end of the decade. I think the total procurement is for up to five reactors of each type. So you can think of that as having, I think that's a very meaningful opportunity for us as regards the Army. I don't; I don't know whether that funding is in place yet.
Pete Kubicki: Yes.
Pete Kubicki: <unk>.
Pete Kubicki: So the RFP it looks like what theyre going to do a select maybe two different contractors.
We will go through some kind of a steady phase and then ultimately through a deployment phase and their intention was to have these two types of micro reactors.
Online in place by the end of the by the end of the decade, I think the total procurement for up to five reactors of each type.
Speaker Change: So you can think of that as having <unk> being very meaningful opportunity for us as to the army.
Yes.
Speaker Change: I don't know whether that funding is in there yet.
Speaker Change: Okay, Okay, yes that sounds like.
Pete Skibitski: Okay, okay. But yeah, that sounds like, I don't know, half a billion or more type of opportunity for you. It sounds like.
Speaker Change: I don't know half a billion or more type of opportunity for you it sounds like.
Rex Geveden: Yeah, I don't want to put a number on that, certainly at this juncture, but it's, yeah, it's meaningful. We had always hoped to get to kind of an LRIP phase on these micro-reactors, and this will resemble that for sure, and then hopefully, get into a cadence of full production as we move down the road on this. It's always been our ambition, you know this, to replicate our franchise business in other domains with other technologies, and this is that step, that next step.
Speaker Change: Yes, I don't want to put a number on that certainly at this juncture, but but it's meaningful.
Speaker Change: A meaningful we had always hoped to get to kind of an L. Risks phase on these micro reactors. This will resemble that for sure and then hopefully get into a cadence of full production as we move down the road on this front its always been our ambition is to replicate our franchise business in other domains with other technologies and this is that step that next step.
Speaker Change: Okay. Your next question comes from the line of Peter Arment of Baird. Please go ahead.
Peter Arment: Okay, your next question comes from the line of Peter Arment of Baird. Please go ahead.
Rex Geveden: Thanks. Good afternoon, Rex, Robb, and Chase. Nice results. Rex, you mentioned the GE Tachi SMR kind of work. How do we think about kind of the revenue timeline, you know, impact just related to that?
Speaker Change: Okay. Thanks, Good afternoon Rex from Chase and.
Peter Arment: Nice results.
Speaker Change: Hey.
Speaker Change: Max you mentioned the GE Hitachi SMIC.
Speaker Change: Uh huh.
Speaker Change: How do we think about kind of the revenue timeline.
Speaker Change: Impacting just related to that.
Speaker Change: Yes, so we laid out kind of.
Rex Geveden: Yeah, so we laid out kind of a pattern, I think, in the past few calls, which is, you know, you do this first unit, and hopefully, you know, Ontario Power Generation commits to units two through four at some point in the future. And we imagined, you know, these units being separated in time by 18 months, two years, something like that. And so, and then we attached a rough revenue number of about $100 million to each of those, each of those small modular reactors for BWXT.
Speaker Change: Kind of a pattern I think in the past few calls which is.
Rex Geveden: And that would include the reactor pressure vessel and potentially some other components. And so think of those as, you know, those activities design manufacturing is occurring over a handful of years, that hundred million spread over, let's call it two, three years, two, three, four years, and then the other ones layering in on top of it that way. I don't know if you, Robb, want to add anything? No, that's right.
Speaker Change: You do this first unit and hopefully.
Speaker Change: Ontario power generation commenced the units two through four at some point in the future than we imagined.
Speaker Change: These units being separated in time by 18 months two years, something like that and so and then we attached the rough revenue number of about $100 million to each of those each of those small module reactor for BWXT and Thats that would include reactor pressure vessel.
Speaker Change: Potentially some other components and so think of those as.
Speaker Change: Those those activities design manufacturing is occurring over a handful of years that 100 million spread over lets call. It two to three years 234 years and then the other ones layering in on top of it that way.
Speaker Change: I don't know Rob you want to add anything no. That's right. We've been talking about these different opportunities. Obviously, we've also been selected by other providers.
Robb LeMasters: We've been talking about these different opportunities. Obviously, we've also been selected by other providers. They generally range from, call it, $50 to $100 million of content each time you get selected, depending on what our mission is for that. And then generally, we've been saying over about a three, maybe four-year time frame is where you kind of spread that, call it $100 million over that. And hopefully, it just keeps layering blocks of those as they increasingly take orders.
Speaker Change: These range from call it $50 million to $100 million of content. Each time, you get selected depending on what our what our ambition is for that and then in general we've been saying over about a three maybe four year timeframe is where are you kind of spread that call it $100 million.
Speaker Change: Over that and hopefully that just keep layering in blocks of those as they increasingly take orders and pushed it down to us as the.
Speaker Change: <unk> manufacturing.
Speaker Change: Got it and then just a quick one on the Pickering refurbishment work it sounds like the early work is commencing so.
Rex Geveden: Got it. And then just a quick one on the Pickering refurbishment work. It sounds like, you know, the early work is commencing. So just can you talk a little bit about, you know, either capacity or, you know, meaningful headcount that you need in order to kind of support all the work you're doing with Darlington, Bruce, and now Pickering? Yeah.
Speaker Change: Can you talk a little bit about.
Speaker Change: Either capacity or meaningful head count that you need in order to kind of support all the work Youre doing with Darlington and Bruce and now Pickering.
Rex Geveden: Yes, Peter. So that's obviously the reason why we're expanding the Cambridge facility consistent with the announcement that we made a few months ago last quarter. Yeah, we have, we're ramping that workforce pretty aggressively right now because we continue to have meaningful work on the Bruce refurbishments. We have, you know, including, by the way, steam generator manufacturing, and theater manufacturing. We'll have similar work scopes over at Pickering, and they're overlapping somewhat, and just to put things in perspective and to make matters more challenging for us from a capacity perspective, they also overlap with the small modular reactor at Darlington.
Speaker Change: Yes, yes, Peter So Thats, obviously, the reason why we're expanding the Cambridge facility.
Speaker Change: Consistent with the announcement that we that we made a few months ago last quarter.
Speaker Change: Yes, we have we're ramping that workforce pretty aggressively right now because we continue to have meaningful work on the Bruce refurbishment.
Speaker Change: We have.
Speaker Change: Including by the way steam generator manufacturing fever, Cedar manufacturing will have similar work scopes are over at Pickering, and they're overlapping somewhat.
Speaker Change: And to make matters more challenging for us from a capacity perspective. They also overlapped with the small module reactor at Darlington. So thats the reason for the build out.
Rex Geveden: So that's the reason for the build-out. We are recruiting aggressively and having good success with that. I'd say our talent acquisition process is really tuned up right now, and so our expectation is to, you know, meet the labor needs. It's also our expectation that with the capacity expansion that we did, we can accommodate all of these competing priorities of the customer. Your next question comes from the line of David Strauss of Barclays. Please go ahead.
Speaker Change: Our recruiting.
Speaker Change: Aggressively and having good success with that I'd say, our talent acquisition processes really tuned up right now and so our expectation is to meet the labor need. It's also our expectation that with the.
Speaker Change: Past the expansion that we did we can accommodate all of these competing priorities and when the customer needs.
Speaker Change: Your next question comes from the line of David Strauss of Barclays. Please go ahead.
David Strauss: Hi, good afternoon.
Speaker Change: Hi, Good afternoon. This is Josh <unk> on for David Thanks for taking my question.
Josh: Just wanted to I was hoping you could speak a little bit about the latest on carrier, Virginia, and Columbia build schedules and any impact on the Dublin office outlook over the next couple of years.
Speaker Change: Yes, I'd say, there's kind of nothing new there.
Rex Geveden: Yeah, I'd say there's kind of nothing new here. We, you know, consistent with what we've been saying, the shipbuilding schedule would have the forward ordering lull extended into 2026. It had been historically 24 and 25.
Speaker Change: Consistent with what we.
Speaker Change: Consistent with what we've been saying.
Speaker Change: The shipbuilding schedule would have.
Speaker Change: The forward ordering lull extended into 2026, it had been historically 'twenty four 'twenty five.
Speaker Change: So we're forecasting our business based on the shipbuilding schedule that said and.
Speaker Change: And we always say this the authorizers and appropriators arent done yet so we'll see what happens there is some noise about.
Rex Geveden: You know, so we're forecasting our business based on the shipbuilding schedule. That said, and we always say this, you know, the authorizers and the appropriators aren't done yet. So we'll see what happens. There is some noise about long-lead materials and advanced procurement. So we'll see where all that goes. But right now, we're forecasting according to the shipbuilding schedule, and we expect to find, you know, ways to grow apart from that in order to meet our medium-term guidance numbers, and we're very confident that we can do so.
Speaker Change: About long lead materials and advanced procurement, so, we'll see where all that goes but right now we're forecasting according to the shipbuilding schedule.
Speaker Change: And we expect to find.
Speaker Change: Ways to grow apart from that.
Speaker Change: Order to meet our medium term.
Speaker Change: Guidance numbers and we're very confident that we can do so.
Speaker Change: Thank you I'll stick to one.
Andrew <unk>: Your next question comes from the line of Andrew <unk>. Please go ahead.
Andre Madrid: Your next question comes from the line of Andre Madrid, FBTIG. Please go ahead.
Speaker Change: Yes.
Hi, Thanks for taking my question kind of following up on the last one just more specifically there's been a lot of chatter on Virginia class, maybe getting cut by one on the appropriations Bill It seems like that might get some emergency funding put back in but I mean do you think that the prospect of this happening is actually real in the next coming years and if so would it be a one off or could we actually see a step.
Rex Geveden: Hi, thanks for taking my question. Kind of following up on the last one, just more specifically, there's been a lot of chatter around Virginia about the class maybe getting cut by one on the appropriations bill. Seems like there might be some emergency funding put back in, but I mean, do you think that the prospect of this happening is actually real in the coming years? And if so, would it be a one-off, or could we actually see a step change from the Navy happening?
Speaker Change: <unk> changed from the Navy happening.
Rex Geveden: Yeah, it's speculative at this point, and I think it's something we can manage if it does transpire, but you know we continue to build two Virginias a year, and it's our hope that that continues. Yeah, the specific thing you're talking about, maybe was the one-off in the actual budgets that were filed earlier this year. I think we talked about in the last call that going from a two per year cadence to one actually, if you look at the funding profile, we've actually received, even in that scenario, we get advanced procurement dollars that would keep us steady.
Speaker Change: Yes, its speculative at this point and I think it's something we can manage it if it does transpire.
Speaker Change: But.
Speaker Change: We continue to build two virginias a year and it's our hope that that continues.
Speaker Change: This specific thing Youre talking about maybe it was the one off.
Speaker Change: The actual budgets that were filed earlier this year I think we talked about in the last call that going from a <unk>.
Speaker Change: Two per year cadence to one actually if you look at our funding profile, we've actually received even in that scenario, we get advanced procurement dollars that would keep us steady so while that might affect the shipyards to some extent I wouldn't be surprised if they fill it and just to be clear. If you are talking about just this year.
Rex Geveden: So while that might affect the shipyards to some extent, I wouldn't be surprised if they fill it in. If you're talking about just this year, kind of that order, that one looks quite good for us. So I just want to be clear. And then thereafter, I haven't heard much chatter.
Speaker Change: That ordering that one looks quite quite good for us. So I just want to be clear and then thereafter I haven't heard much chatter in fact, the two per year. Thereafter, I think a lot of people are trying to push up to making sure that the industry is able to do almost $2 three because as you know the office program will be quickly on the backs of the extent that you can ramp even more I think.
Robb LeMasters: In fact, the two per year thereafter, I think a lot of people are trying to push it up to make sure that the industry is able to do almost 2.3, because, as you know, the AUKUS program will be quickly on the back. So to the extent that you can ramp even more, I think, frankly, the US, UK, and Australia would take more. I might add, Andre, just as a footnote to what Robb said there very, very accurately, Congress is particularly interested in ensuring that the supplier base is stable for submarine and carrier production, and so you do see, you know, the legislature is tending to support long-lead materials, tending to support the supply chain, despite throughput challenges at the shipyards.
Speaker Change: The U S UK and Australia would take more.
Andre: I might add Andre just as a footnote to what Rob said they are very very accurately the <unk>.
Speaker Change: Congress is is particularly interested in ensuring that the supplier base is stable for four.
For submarine and carrier production and so you do see.
Speaker Change: The legislature is tending to support long lead materials tending to support the supply chain.
Throughput challenges at the shipyards, that's been the history.
That's helpful and a follow up on that I know you mentioned August.
Andre Madrid: That's helpful. And to follow up on that, I know you mentioned AUKUS.
Rex Geveden: I know coming up very rapidly is the down selection of the different suppliers. I mean, any kind of update on the timeline there? I mean, that's kind of all been the signaling from the Australians, but I'm not sure if you guys are getting anything else. Maybe just an update on how you're feeling about that potential competition.
Speaker Change: I know coming up very rapidly as the down selection of different suppliers I mean, any kind of update on the timeline. There I mean, thats kind of all been signaling from the Australians, but I'm not sure. If you guys are getting anything else maybe.
Speaker Change: Maybe just an update on how youre feeling about that potential competition.
Speaker Change: Yes, we're not getting much honestly.
Rex Geveden: Yeah, we're not getting much, honestly. You know, we just don't have a ton of visibility into that.
Speaker Change: We just don't have a ton of visibility into that at this point.
Robb LeMasters: And as you know, there's two parts to that. There's the, you know, of their, the Australians wanting a, you know, the first three to five, in terms of Virginia. There's no down select, if you will, away from us, right? It's just the quantity that they want. So to the extent that they want three, we'll produce those three; if they want five, we'll produce those five, right? So those are my Virginia class.
Speaker Change: As you know there is two parts of that.
Speaker Change: Australia is one of the first three to five in terms of Virginia, There's no doubt the last if you will away from US right. It's just the quantity that they want so to the extent that they want three will produce those three they want five will produce those five right. So those are a Virginia class.
Speaker Change: Frankly, the work over the next decade, so that comes to US there is no down select away from BWXT.
Rex Geveden: That's, frankly, the work of the next decade. So that comes to us; there is no downgrade away from BWX. On the future platform, whether it's SSN or AUKUS, you know, we hope to participate there. So there is, as you call it, a down-select. There is some, you know, desire. We've been upfront that we've been communicating with our customers. They say you certainly get some scope on that one, but that's a little bit TBD as to what that scope is and how big it is for BWXT. But even there, we've leaned in to say, yeah, we see scope there.
Speaker Change: On the future platform, whether it's SSN orchid, we hope to participate there. So there is as you call. It a down select there is some.
Speaker Change: Desire and we've been upfront that we have been communicating with our customer. They say you certainly get some scope on that one that's a little bit TBD, what that scope is and how big it is for BWXT, but but even there we've leaned in to say, yes, we see we see scope there.
Speaker Change: Your next question comes from the line of Mike O'hare Molly.
Michael Ciarmoli: Your next question comes from the line of Michael Ciarmoli of Truist Securities. Please go ahead.
Speaker Change: <unk> Securities. Please go ahead.
Speaker Change: Hey, good evening guys. Thanks for taking the questions nice nice results.
Robb LeMasters: Hey, good evening, guys. Thanks for taking the questions. Nice, nice results. Hey, Rob, I think Rob or Rex, you kind of commented in light of the CBN kind of lull, maybe level loading the plants, you've obviously got, you know, the microreactors ramping up, but how do we think about the margin implications? You know, you've guided government down slightly this year, and even in this quarter, you had really good sequential growth, but the margin We're down sequentially.
Speaker Change: Hey, Rob I think Robert you kind of commented in light of the.
Speaker Change: <unk> kind of a lull, maybe maybe level loading the plans you've obviously got.
Rob: The micro reactors.
Speaker Change: <unk>, but but how do we think about the margin implications.
Speaker Change: Guided government down slightly this year, even in this quarter you had really good sequential growth, but the margins were down sequentially. So it's TVN does in fact play out should we sort of calibrate our expectations to be a little bit more cautious on the government op EBITA margins.
Robb LeMasters: So, if CBN does in fact play out, should we sort of calibrate our expectations to be a little bit more cautious on the government operations EBITDA margins, just given the type of work that's going to be flowing through the facilities?
Speaker Change: Just given the type of work that's going to be flowing through the facilities.
Rex Geveden: Let me start, Michael, with a response, and then I'll flip it over to Robb here to add some color. Margin pressure that we see really isn't so much related to operations in the Naval Nuclear Propulsion Program. What you're really seeing there is a mix.
Rob: Yes, let me start Michael with our with the response and then I'll flip it over to Rob here to add some color.
Speaker Change: That <unk>.
Rob: Margin pressure that we see really isn't so much related to operation operations in the naval nuclear propulsion program.
Rob: You're really seeing there is a mix that relates to the very the very rapid growth in our primarily our advanced technologies group. So we've got micro reactor programs. We've talked about that those are cost plus fixed fee programs in the early stages, where the government's bearing the risk.
Rex Geveden: And therefore, the fee and the margin on the business a little bit. Until we get into production programs, there are also some other factors that have a heavier R&D load on that business, and there's also the Advanced Reactor Development Program, which is an 80-20 cost share with the government. The government's paying 80 cents on the dollar, a great deal for us.
Rob: Therefore the.
Rob: The fee and the margin is.
Rob: Drags on the business a little bit until we get into production programs. There's also some other factors heavier R&D load in that business and there is also the advanced reactor development program, which is an 80 20 cost share with the government.
Rob: Governments paying 80 cents on the dollar great deal for us it enables us to advance our commercial ambitions around micro reactors, but theres a cost with it as that program grows and so I see that as more of a mixed thing than it has been a.
Rex Geveden: It enables us to advance our commercial ambitions around microreactors, but there's a cost with it as that program grows. And so I see that as more of a mixed thing than a, you know, than a margin pressure thing in operations. And I think that's most of the story there. And let me flip it over to Robb for any additional color.
Rob: And then a margin pressure thing in operations.
Rob: And I think that's the most that's most of the story there and let me flip it over to Rob for any additional color. Yeah. I know you said that well I mean, I guess just to level set the geo margins.
Robb LeMasters: Yeah, no, you said that well, Rex. I mean, just to level set, the geo margins for the year 2024, Michael, we've always been saying, and there's no change, frankly, to the guidance that we have. That's gonna be slightly down because, as you know, we had a one-time item in Q4 last year which was high margin. So when you exclude that, frankly, you're basically flat underneath that for 24 versus 23. That's point number one; no change in geo margin.
Rob: For the year for 2024, Michael we've always been saying and no change frankly to the guidance that we have with that's going to be slightly down because as you know we had a.
Rob: One time item in Q4 last year, which was high margin. So when you exclude that frankly, you are basically flat on underneath that for 24 versus 23, that's point number one no change of Geo margin and we gave all of that guidance.
Robb LeMasters: And we gave them all that guidance in the earnings script. Secondly, I would just say in terms of what we saw even in the quarter, to Rex's point, the underlying NOG margin, which is the core manufacturing margin, that actually was, we're chewing through all the inefficiencies we've been seeing the past couple quarters, but I was looking at that the other day, and those margins are actually up year over year, sort of on an underlying basis.
In the earnings script.
Speaker Change: Secondly, I would just say in terms of what we saw even in the quarter.
Speaker Change: To <unk> point, the underlying <unk> margin, which is the core manufacturing margin that actually was we're chewing through all the inefficiencies that we've been seeing the past couple of quarters, but I was looking at that the other day and those margins are actually up year over year sort of on an underlying basis and as Greg said as you are having this kind of acceleration in growth in <unk>.
Robb LeMasters: And as Rex said, as you're having this kind of acceleration and growth in the more, call them immature development programs, which is really what you saw, right? A very strong revenue quarter in Q2, you're just blending in those lower margins. And then finally, to kind of pick up on what that all means for two or three years out, if you actually had the scenario that you depicted of CBN pushing out, the way I'm thinking about it is that the margins of those more development programs will start to kind of mature, right?
Speaker Change #100: More call it immature development programs, which is really what you saw right a very strong revenue quarter in Q2, Youre just blending in those lower margins and then finally to kind of pick up on what what does that all mean for two years or three years out. If you actually had the scenario that you depicted of Cvs pushing out the way I'm thinking about it as those markets.
Robb LeMasters: So that'll be a tailwind underneath the business in two or three years. And that's when you start picking up kind of, oh, that starts blending in just like all of our other established programs. The last thing I'll say is that we've been pretty good at figuring out ways to grow EBITDA in 24, 25, and we hope to continue to grow that even if we see that tide going out. I think we've found different ways, whether it's the growth now that we're gonna see in the TSC business, whether it's maturing other programs, whether it's picking up enrichment franchises. I think when you look that far out, I'm not concerned about figuring out different ways to continue to battle that situation. And we'll work with the government and hope they fill that in too. Okay.
Michael Ciarmoli: Okay, perfect. That's a great caller. I'll keep it to one, guys. Thanks. Your next question comes from the line of Ron Epstein from Bank of America. Your line is now open.
Speaker Change #100: <unk> of those more development programs will start to kind of mature right. So that'll be a tailwind underneath the business in two or three years and that's when you start picking up kind of that starts blending just like all of our other established programs. The last thing I'll say is that we've been pretty good at figuring out ways to grow the EBITDA in 'twenty.
Speaker Change #100: 425, and we hope to continue to grow that even if we see that tied going out.
Speaker Change #100: I think we've found different ways, whether it's the growth now that we are going to see in the <unk> business, whether it's the maturing of the programs, whether it's picking up enrichment franchises I think when you looked at far out.
Speaker Change #100: I'm not concerned about figuring out different ways to continue to battle that situation and we will work with the government and hope they feel that end too.
Speaker Change #100: Okay, perfect that's great color I'll keep it to one guys. Thanks, Thanks Michael.
Speaker Change #100: Your next question comes from the line of Ron Epstein from Bank of America. Your line is now open.
Ronald Epstein: Hey, good evening, guys. Yeah, Rex, can you-
Ron Epstein: Hey, good evening guys.
Speaker Change #100: Ed.
Ron Epstein: <unk> in your prepared remarks, you seem pretty bullish about kind of terrestrial nuclear can.
Ron Epstein: Can you give us a little more color on that what are you hearing what are you seeing in terms of.
Speaker Change #102: And coming on that.
Rex Geveden: Yeah, yeah. On the microreactors, you mean, Ron? Yeah. Yeah, yeah. We are.
Speaker Change #103: Yes, yes.
Speaker Change #104: On the micro reactors, you mean run yes, yes.
Speaker Change #104: Yes, yes, we are.
Speaker Change #104: We're bullish on it.
Speaker Change #104: The defense innovation unit published that RFP.
Rex Geveden: We're bullish on it. The Defense Innovation Unit published that RFP, that I referenced in the call, that's asking for micro reactors with power outputs in the three to 10 megawatt range to be put on a couple of army bases by the end of the decade with quantity orders of up to five each. And so I think what we've got here is a transition from the prototyping stage on these microreactors into what I would characterize as an LRIP, a low-rate initial production phase, and that's very, very encouraging.
Speaker Change #104: I referenced in the call that that's asking for micro reactors with power outputs in the 3% to 10 megawatt range to be put on.
Speaker Change #104: A couple of army basis by the end of the decade with quantity orders of up to five each and so I think what we've got here is a transition from prototyping stage on these microreactors into.
Speaker Change #104: What I would what I would characterize as an L. Rip a low rate initial production phase and thats very very encouraging.
Rex Geveden: You know, that's the next step towards full-rate production, where hopefully we're putting out a couple a year like we do with the Navy reactors and can populate Army bases or whatever the military needs. So yeah, I think it's quite an exciting development and, in some ways, surprisingly early. And if I may, just kind of quickly as a follow-on to that, I mean, how different are these in principle from what you already do in a summary?
Speaker Change #104: The next step towards.
Speaker Change #104: Full rate production, we're hopefully we're putting out a couple of year like we do on the Navy reactors.
Speaker Change #104: And can populate army bases or whatever the military need is so yes, I think it's quite an exciting development in some ways surprisingly early.
Speaker Change #105: And if I, if I may just kind of quickly as a follow on to that I mean, how different are there has been principal than what you already do on a summary.
Speaker Change #106: Well, it's different technology on the submarine Thats pressurized water reactor technology, and that's where it originated in the recovery program.
Rex Geveden: Well, it's different technology, you know, on the submarine. That's pressurized water reactor technology, and that's where it originated in the Rickover program. Although it's advanced very dramatically over the decades, it's still that kind of architecture. In the case that we're talking about here for these micro-reactors that go on a military basis, by and large, those would be high-temperature gas reactors. So they're cooled differently, moderated differently, they have different types of fuel, and I think notably these things have, These things will have high SA, low-enriched uranium, generally tri-so kind of fuel.
Speaker Change #107: Although its advanced very dramatically over the decades, it's still that kind of architecture in the case that we're talking about here for these micro reactors to go on the military basis by and large those are those would be high temperature gas reactors.
Speaker Change #107: They are cool differently moderated differently, they have different types of fuel and I think notably these things have these.
Speaker Change #107: These things will have high assay low enriched uranium generally try so kind of fuel. So there is a very interesting fuel opportunity for us regardless of kind of the.
Rex Geveden: So there's a very interesting fuel opportunity for us regardless of the kind of the, you know, which particular design is chosen. And that tri-so fuel, as we've articulated on prior calls, is inherently safe fuel. Because you capture the fission products at the level of the fuel grain. And these reactors are also designed to have negative reactivity coefficients, they call those when it reaches a certain temperature, and so it shuts itself down. So materially different in the type of technology, and certainly different in the type of technology that we use and in the way that safety is managed on those.
Speaker Change #107: Which particular design is chosen and that and that Tri so fuel as we've articulated on prior calls is inherently save fuel.
Speaker Change #107: Because it's because you capture the fission products set.
Speaker Change #107: At the level of the fuel grade.
And these reactors are also designed to have negative reactivity coefficient they call those when it reaches a certain temperature and so it's just itself down so so.
Speaker Change #107: So materially different in the type of technology and certainly different in.
Speaker Change #107: And the way that safety is managed on those systems.
Thomas <unk>: Your next question comes from the line of Thomas <unk> from Janney Montgomery. Please go ahead.
Thomas Merrick: Your next question comes from the line of Thomas Merrick from Chattanooga, Montgomery. Please go ahead.
Thomas <unk>: Hey, good evening gentlemen, thanks for the time.
Rex Geveden: Good evening, gentlemen. Thanks for your time. Just a few for me.
Speaker Change #109: For me I'll start on Tech 99 racks, you mentioned some early conversations.
Thomas Merrick: I'll start on Tech 99. Rex, you mentioned some early conversations. And I'm curious if you could kind of give any more color around what those conversations are focused on, whether it's terms, volume scale up, quality, price, you know, anything that stands out from that initial marketing. Okay.
Thomas <unk>: I'm curious if you could kind of give any more color around what those conversations are focused on whether it's term volume scale up quality price anything stick out from that initial marketing.
Rex Geveden: Yes, all of the above. It's, we're sharing the, you know, certainly sharing the details of the product quality with potential customers and testing that material, and it's leading to, you know, certainly Robb LeMasters has been working with Jonathan Cirtain in that business in that particular area. Rob, if you would like to add any color,
Speaker Change #110: Yes, all of the above.
Thomas <unk>: It's.
Speaker Change #111: We're sharing.
Speaker Change #112: Certainly sharing the details of the product quality with potential customers and testing that material.
Speaker Change #113: And it's leading to certainly.
Robb LeMasters: Discussions around commercial terms Robb Lemasters has been working with Jonathan certain in that business in that particular area. So let me ask.
Robb LeMasters: Rob if he would like to add any color there, yes sure. Yes. So there is really five distributors in the market.
Rex Geveden: Yeah, sure. Yeah, so there are really five distributors in the market that cover the North American market, and that's what we'll be launching first. And so we're going to Target. We know who those people are.
Robb LeMasters: Canvas in the North American market and Thats, what we will be launching first and so we're going to target. We know who those people are we know where their radio pharmacies are we've been kind of studying that for the past couple of years and what's exciting is that you can reach out now and really exchange agreements and talk about what time, they want to take delivery.
Robb LeMasters: We know where their radio pharmacies are. We've been kind of studying that for the past couple years. And what's exciting is that you can reach out now and really exchange agreements and talk about what time they want to take delivery and start testing whether or not it truly is a drop-in replacement. So when you can actually show up and do that business development activity under live circumstances, we're seeing that all five of those, frankly, are saying, "yeah, we'd love to have a third supplier."
Robb LeMasters: And start testing, whether or not it truly is a drop in replacement. So when you can actually show up.
Speaker Change #115: We do that business development activity with life circumstances, we're seeing that other that all of the all five of those frankly are saying, yes, we do.
Robb LeMasters: As you know, there are two others, and we have a differentiated product. And at a minimum, it just increases the ability for them to have a couple of different providers. I think we'll eat in pretty substantially to the incumbents there, but we're happy to show up and prove that our product will be reliable, will be on time, will have all the benefits that we've been advertising to all of you. And I think we're just seeing customers say, yeah, that kind of makes sense to us. So we're discussing terms, price, logistics, everything, right, and getting ready so that then we can quickly get into the market when that happens.
Speaker Change #116: Love to have a third supplier as you know there is two other and we have a differentiated product and at a minimum it just increases the.
Speaker Change #116: Ability that for them to have a couple of different providers I think we will eat in pretty substantially to the incumbents there, but we're happy to show up and prove that our product will be reliable will be on time, we will have all the benefits that we've been advertising to all of you and I think we're just seeing customers say, yes, that's kind of makes sense to us. So we're discussing term.
Speaker Change #116: Logistics everything right and getting ready. So that then we can quickly get into the market when that happens.
Speaker Change #117: Helpful. Thanks on micro reactors I'm curious if there's any timeline you could share for projects specifically, if there's kind of a question campaign schedule that it's worth remembering and paying attention to.
Thomas Merrick: Oh, thanks. On microreactors, curious if there's any timeline you could share for Project LA, specifically, if there's kind of a testing campaign schedule that is worth kind of remembering and paying attention to. Yes, so the development phase is going on now.
Speaker Change #118: Yes, so the development phases going on now finalizing design.
Rex Geveden: Yeah, so the development phase is going on now, finalizing the design, and exercising the supply chain. We'll do that at Reactor Assembly in Lynchburg, Virginia, at our Advanced Technology Center, and then we'll ship it out to Idaho. And the plan is to have a testing campaign at Idaho National Laboratory that would run through, you know, through the middle part of the decade. So all of that will develop over the next few years.
Speaker Change #119: Exercise in the supply chain will do that reactor assembly in Lynchburg, Virginia at our advanced Technology Center, and then we'll ship it out the Idaho.
And the plan is to have a testing campaign at Idaho National Laboratory that would run through through the middle part of the decade. So it's all of that will develop over the next few years.
Speaker Change #119: Thanks.
Speaker Change #120: That concludes our Q&A session I will now turn the conference back over to Mr. Chase Jacobson from closing.
Chase Jacobson: That concludes our Q&A session. I will now turn the conference back over to Mr. Chase Jacobson for closing remarks.
Chase Jacobson: Yeah, thank you everybody for your interest in BWXT and joining in and for your questions. We look forward to seeing and speaking with many of you. In the days and weeks ahead, over the phone and in person, if you have any questions, you can reach out to us at investors at BWXT.com. Thank you.
Chase Jacobson: Yes. Thank you everybody for your interest in BWXT and joining in and for your questions. We look forward to seeing and speaking with many of you.
Chase Jacobson: In the days and weeks ahead over.
Chase Jacobson: Over the phone and in person. If you have any questions you can reach out to us at investor that BWXT Dot com. Thank you.
Speaker Change #121: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect. Please wait; the conference will begin shortly.
Speaker Change #122: Please wait the conference will begin shortly.
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