Q4 2024 BWX Technologies Inc Earnings Call
Okay.
Speaker Change: Ladies and gentlemen, welcome to BW acts technologies fourth quarter and full year minus 24 earnings conference call.
Speaker Change: This time all participants are in a losing 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 Chinas Jacobsen Bwxt's Vice President of Investor Relations. Please go ahead.
Speaker Change: Ed.
Ed: Thank you Gail good evening and welcome to today's call. Joining me are Rex <unk>, President and CEO and Rob Lemasters Executive Vice President and CFO on today's call. We will reference to fourth quarter of 2024 earnings presentation that is available on the investors section of the BWXT website. We will also discuss certain matters that constitute.
Ed: Forward looking statements. These statements involve risks and uncertainties, including those described in the safe Harbor provision found in the investor materials and the company's SEC filings we.
We will frequently discuss non-GAAP financial measures, which are reconciled to GAAP measures in the appendix of the earnings presentation that can be found on the investors section of the BWXT website I would now like to turn the call over to Rex.
Rex: Thank you Chase and good evening to all of you. This afternoon, we reported better than expected fourth quarter earnings capping off another strong year for BWXT, we generated record revenue adjusted EBITDA adjusted earnings per share and free cash flow all meeting or exceeding the full year guidance metrics, we set last year demand in our end markets.
Rex: Unprecedented major players in National Security clean energy and medical end markets view nuclear technologies as novel solutions for their mission needs BWXT is well positioned to benefit from this accelerating demand, which drove our extremely strong fourth quarter and full year bookings.
Rex: We ended 2024 with a backlog of $4 8 billion up 21% year over year from large contract awards in both of our operating segments and.
Rex: In addition to the focus on growth we are obsessive about improving the business in all its aspects internally we call. This the BWXT Battle plan. It has five elements that intertwined with one another which are sustained and grow the core invest strategically expand into adjacent markets drive performance.
Rex: And deliver the mission the Battle plan is our operating system and I use it to communicate our purpose and to drive the focus on execution every day with that backdrop, let me take a few minutes to highlight how we are executing under this framework and how this is positioning BWXT for continued success in 2025 and beyond first.
We are investing strategically organically and inorganically across our business lines.
Rex: These investments create capacity expand our capabilities with new products and services and importantly increased customer confidence in choosing BWXT to support their most critical needs.
Rex: And government operations, we recently completed the expansion of the BWXT innovation campus. The home of our advanced nuclear business line. This facility located adjacent to our naval reactor manufacturing plant in Lynchburg, Virginia is home to over 300 employees that has state of the art capabilities for the design and manufacturing of <unk>.
Rex: Michael reactors and advanced nuclear fuels for defense and commercial applications.
Rex: We have spoken extensively about the major investments in our naval nuclear propulsion manufacturing plants, while the largest are behind US. We continue to make these strategic investments in our infrastructure to meet the current and future demands of our naval reactors customer. This includes maintaining a steady production rate of Virginia class reactor cores, increasing the cadence of.
Rex: And be a class submarine production as we enter a serial ordering pattern over the next decade and capacity expansion for August further in the first week of the new year, we completed the acquisition of <unk>.
Rex: Expanding our special materials business line into the depleted uranium assay with exciting new capabilities and R&D prototyping testing and production for major customers, including the department of Energy and Department of Defense, we are already uncovering interesting opportunities at that.
Rex: Would drive growth beyond the acquisition business case.
Rex: In commercial operations. It is a similar story the demand signals in commercial nuclear power and medical markets are strong and visible and we are investing in plant capacity and workforce to address that demand.
Rex: The ongoing expansion of the Cambridge manufacturing plant just outside of Toronto.
Rex: <unk> BWXT to pursue more projects for large heavy nuclear equipment beyond this investment we are assessing options for additional capacity in North America as demand from utilities and non traditional high tech buyers for Green base load power generation precipitate.
Rex: In early January to complement and enhance our commercial nuclear power business, we announced an agreement to acquire kinetics incorporated which we expect to close in mid 2025 <unk>.
Rex: <unk> offers a comprehensive specialty service portfolio to commercial nuclear players globally covering key stages of the project lifecycle that we have coveted from reactor design and site licensing on the front end to testing analysis and materials management throughout the life of the plant through to decommissioning support at the end of the plant life.
Rex: We have received unequivocally positive feedback on the announcements from our customers, whom we will be able to serve more effectively with a larger portfolio of services.
Rex: <unk> also has an interesting play in nuclear medicine isotope radiation services and stable isotope enrichment for the production of the most important oncology radiotherapeutic on the market Lutetium 177. This complements bwxt's capabilities, an isotope production systems and processing and provides us exposure to the loss.
Rex: Just and most advanced pipeline of drugs and nuclear medicine.
Rex: Our investments extend beyond operations over the last year, we have taken on a full digital transformation initiatives, including cloud migration better collaboration tools ERP consolidation elimination of redundant on premise systems, and vastly improved financial integration tools, enabling faster and better decisions.
Rex: Business decisions overall, our investments to enhance capabilities drive growth and improve efficiency are paying off yet we remain committed to an active and disciplined capital deployment strategy.
Rex: How does all of this translated to our results in future growth as I noted in 2024, we achieved record financial performance. Adjusted EBITDA grew 6% adjusted earnings per share were up 10% and free cash flow was nearly 20% higher driven by strong operations and supported by many of the financial and.
Rex: <unk>, Rob and his team have implemented.
Rex: Yeah.
Rex: And government operations, despite multiple severe weather disruptions and a tough year over year comparison, we delivered revenue and adjusted EBITDA growth in line with our expectations, we continued to hire and drive productivity through lean manufacturing processes and increased use of technology mitigating the impact of higher labor cost in our business mix.
Shifting toward less mature and therefore lower margin programs during.
Rex: During the year, we delivered multiple critical components to naval reactors and drove progress in our micro reactor and special materials programs, such as Pele, Draco and new metal processing in the fourth quarter, we booked our next pricing agreement for naval propulsion reactors and components through the year. We also secured several long term technical services <unk>.
Rex: Tracts in November we took responsibility for management and operations at the Pantex site and just today, we assumed full responsibility for environmental restoration at the Hanford tank side. After successful four months transition period, both contracts boost the bottom line and provide added earnings visibility over a multiyear period.
Rex: In September we announced that BWXT was the sole awardee of the contract is starting to build out of our national security enrichment plant a vital strategic capability that the U S does not presently possess this can blossom into a new and exciting long term opportunity for BWXT.
Rex: Which would enhance the security and energy independence of the United States. These wins with our existing book of business provide the foundation for continued growth in government operations in 2025, and commercial operations, we delivered double digit revenue and adjusted EBITDA growth in 2024, driven by strong growth in commercial.
Rex: <unk> tower, and the commercial power and medical end markets commercial power revenue grew by more than 10% driven by steam generator deliveries and services to the Bruce power life extension project.
Rex: Which will persist through the early 2000 <unk>, we are entering the final phases of the Darlington refurbishment one of the highest performing nuclear projects in the world over the past decade, we're particularly proud of this project as it serves as a proof point against the misapprehension that all nuclear projects experienced cost and schedule overruns.
Rex: The positive precedent set by these projects led LPG to commit to extending the life of its Pickering <unk> reactors for which BWXT has been selected to provide 48 steam generators.
Rex: Finally earlier in the year, we were awarded the contract manufacturer the reactor pressure vessel for the BW Rx 300.
Rex: Modular reactor project at the Darlington site, and we continue to anticipate anticipate multiple follow on orders in Canada, USA and Europe.
Rex: <unk> book, the RPC and a considerable portion of the Pickering contract in the fourth quarter commercial operations enters 2025 with a record backlog of $930 million up 19% supporting our expectation for another year of double digit commercial power revenue growth.
Rex: Looking ahead, the opportunity set and commercial power is rich to say the least in Canada, Ontario power generation recently announced that it is assessing adding up to 10 gigawatts of new nuclear capacity at Port Hope Bruce.
Rex: Bruce Bruce Power's evaluating technologies to add up to five gigawatts of new capacity.
Rex: And in the United States, The Tennessee Valley Authority, along with a group of industry partners, including BWXT announced that it is seeking doa support to build.
SMS it to clinch river site.
Rex: BWXT medical continued its strong growth trajectory revenue grew 23% in 2024, and EBITDA turned to more meaningfully positive.
Rex: This was driven by <unk> and pet diagnostics business lines and increased sales of therapeutic isotopes for actinium 225 clinical trials, we signed our second Tech 99 commercial agreement with a key distributor during the fourth quarter further affirming industry appetite for our brand and our product and keeping us on track for contracted volumes.
Rex: In 2026.
Rex: Overall, we expect 2025 medical revenue to grow at a similar rate to 2024.
Rex: In conclusion, we are executing on our strategy and delivering the forecasted growth.
Rex: <unk> for nuclear solutions is strong and we are driving performance through the organization to maintain our competitive edge improved financial performance serve our customers and build on the momentum we have generated with that I will now turn the call over to Rob.
Rob Lemasters: And good evening, everyone I'll start with some total company financial highlights on slide four of the earnings presentation.
Speaker Change: Fourth quarter revenue was $746 million up 3% organically with growth in commercial operations offsetting a modest decline in government operations.
Speaker Change: Adjusted EBITDA was $130 million compared to $148 million in the same quarter last year as growth in commercial operations was offset by lower government operations and timing of quarterly corporate expense accruals.
Speaker Change: Corporate EBITDA expense in the quarter was higher primarily based on the timing of health care and other expenses following several quarters of below average expenditures.
Speaker Change: On an annual basis corporate EBITDA expense was $16 9 million slightly lower compared to 2023 and 2025, we expect another slight decline in corporate EBITDA expense.
Speaker Change: Adjusted earnings per share were <unk> 92, compared to $1 <unk> last year due to the operating items. Previously discussed this was partially offset by slightly higher pension income and lower interest expense as well as the lower tax rate.
Speaker Change: Last quarter I applaud the efforts of our tax team, which has been hard at work finding ways to improve our tax rate.
Speaker Change: After a thorough evaluation and infield analysis of certain expense activities. We determined that many tasks that we engage in are considered qualified research expenditures under IRS definitions.
Speaker Change: This effort will relief meaningful cash tax savings as we amend returns and recover money for past tax years.
Speaker Change: This will permanently reduce our tax rate by over 100 basis points per year compared to historical levels.
Speaker Change: As such we recognized a $6 million benefit to our tax provision in the fourth quarter on both a GAAP and non-GAAP basis related to this favorable tax planning change, which accounts for the accruals for fourth quarter as well as what we should have been occurring over the course of the year.
Speaker Change: This led to an adjusted effective tax rate of 18, 9% in the quarter and 21, 7% for the full year, a favorable outcome compared to our guidance of approximately 23%.
In addition to the benefit related to the 2020 for tax provision. We also recorded a roughly $7 million benefit to GAAP earnings only for refunds, we expect for the 2020 through 2023 tax years.
Speaker Change: Said differently, we have excluded the positive benefit from prior years from our non-GAAP results as we deemed it to be nonrecurring.
Speaker Change: As we look to 2025, we expect our tax rate to be approximately 22% a notable decrease from the 23% to 24% we observed in 2022 and 2023, however, slightly higher than 2024 non-GAAP tax rate of 21, 7%.
This slight increase is due to a geographical earnings mix shift towards Canada, a higher tax jurisdiction compared to the U S. Given our expectation for outsized organic growth in Canadian commercial nuclear power and medical operations.
Speaker Change: Free cash flow in the quarter was $224 million.
Bringing full year free cash flow to $255 million up 20% year over year.
Speaker Change: During the quarter, our intense focus on working capital management and timing of cash receipts associated with strong bookings allowed us to exceed the high end of our original free cash flow guidance.
Speaker Change: Our capital expenditures in 2024 were five 7% of sales or $154 million in line with our expectation.
Speaker Change: In 2025, we anticipate capital expenditures to remain in the range of 5% to 6% of sales as we continue to see our maintenance capex at 4% and anticipate spending 1% to 2% on select growth initiatives.
Speaker Change: Major capital projects in 2024 will include the previously announced expansion of our Cambridge commercial nuclear manufacturing plant as well as incremental capital investment into our U S facilities, including the support of increasing production of Columbia class submarine reactor cores as Rex mentioned.
Speaker Change: I would note several to similar to several other defense peers, while heightened investment in certain naval programs run through our Capex. It is often recovered through operating cash flow or working capital releases.
Speaker Change: Despite likely higher capital expenditures, we expect another strong year of operating cash flow leading to free cash flow growth in 2025.
Speaker Change: We anticipate $265 million to $285 million of free cash flow as we continue to progress toward our medium term target of 90% free cash flow conversion.
Speaker Change: Moving to the segment results on slide seven.
Speaker Change: And government operations fourth quarter revenue was down slightly to $295 million.
Speaker Change: <unk> EBITDA was $117 million, leading to adjusted EBITDA margin of 19, 6% down from last year, mainly due to a tough comparison and shifting mix towards less mature programs.
Speaker Change: On an annual basis government operations revenue was up 8% and adjusted EBITDA was up 3%, yielding adjusted EBITDA margin of 22% consistent with the guidance we provided over the last several quarters of slightly higher than 20%.
Speaker Change: Our underlying performance in our largest facilities as measured by efficiency and utilization remained solid however, our year over year margin comparisons continue to be impacted by a mix shift towards cost reimbursable micro reactor projects and contracts that are earlier in their lifecycle, providing less opportunity to recognize.
Speaker Change: Cost savings, we anticipate that this dynamic will remain with us through 2025, and therefore, we expect Geo segment margin to be relatively flat compared to 2024.
Turning to commercial operations revenue was $152 million up.
Up 23% year over year with double digit growth in commercial power and medical.
Speaker Change: Adjusted EBITDA in the segment was $23 $7 million up 11% as good execution and improving medical profitability was offset by mix with less outage work in the quarter and growth investments.
Speaker Change: Turning now to our 2025 guidance on slide eight and nine of the earnings presentation.
On an organic basis, our operating assumptions are generally in line with the preliminary outlook. We provided last quarter. However, we have also included a contribution from the <unk> acquisition, which we are still targeting to close in mid 2025.
Speaker Change: On the top line, we expect revenue of approximately $3 billion.
Speaker Change: And government operations, we expect mid single digit growth consisting of low single digit organic growth plus the contribution from the acquisition of Iot.
Speaker Change: Organic growth will be led by our special materials business with flatter revenue in micro reactors and naval propulsion as we enter our second year of the forward carrier law.
Speaker Change: And commercial operations, we expect significantly higher revenue with mid teens organic growth plus the contribution from the pending acquisition of <unk>.
Speaker Change: As a reminder, we expect <unk> to generate revenue of slightly more than $300 million annually in 2025 with approximately half of our year included in our guidance given an expected midyear closing.
Speaker Change: This continues the mid to high single digit organic growth trend kinetics has exhibited the past couple of years as an independent company.
Speaker Change: Additionally, I will note that our commercial operations guidance includes a foreign currency translation headwind of approximately 5% due to the strength of the us dollar versus the Canadian dollar.
Speaker Change: For adjusted EBITDA, we are guiding $550 million to $570 million inclusive of solid organic growth plus the incremental contribution from Iot and kinetics.
Speaker Change: As mentioned and government operations, we expect EBITDA to grow at a similar rate to revenue and.
Speaker Change: And in commercial operations, we anticipate EBIT EBITDA margin to be in the 14% to 15% range compared to 14, 1% in 2024 as the increase of higher margin medical sales will be somewhat offset by the large contribution of acquired commercial power revenue.
Speaker Change: Moving to non-GAAP EPS, we are introducing 2025 guidance of $3 42.
Speaker Change: <unk> to $3 55.
Speaker Change: As you can see in the detailed guidance bridge on slide nine of our presentation, we expect higher EBITDA to be largely offset by non operating items, including a roughly <unk> <unk>.
Speaker Change: Headwind from lower pension and other income and 8% to 10 cents from higher interest expense related to the funding of the Iot and <unk> acquisitions.
Speaker Change: I'll also note that beginning in the first quarter of 2025, our non-GAAP EPS will exclude acquisition related amortization for these two acquisitions.
Speaker Change: Looking at the quarterly cadence of earnings we expect first quarter EPS to be flat to up modestly year over year.
Speaker Change: Beyond that we anticipate the remainder of the full year earnings per share to be evenly distributed across the second third and fourth quarters.
This could be moderately affected by when the <unk> acquisition closes and the resulting impact on non operating items, such as interest expense and pension income in the other net on the P&L.
Speaker Change: To sum it up we had a solid finish to a record year BWXT has a strong competitive position in growing markets supported by our unique infrastructure capabilities and our robust workforce. We are focused on execution and have a strategy in place that we believe will allow us to effectively and efficiently capitalize on market opportunities.
Speaker Change: And therefore continue to drive shareholder value.
Speaker Change: And with that we look forward to taking your questions.
Speaker Change: At this time I would like to remind everyone that in order to ask a question Star then the number one on your telephone keypad.
Raj: We'll pause for just a moment to compile the Q&A Raj.
Speaker Change: Thank you.
Speaker Change: Okay. So your first question comes from the line of Scott, though Michelle with Deutsche.
Speaker Change: Please go ahead.
Scott: Hey, good evening, Rob can you up for an update on where medical profitability was for the full year of 2024, and how we should be thinking about the incremental EBITDA margins in medical from here.
Scott: Yes, so ill remind you that in 2023, we sort of stopped finally turned positive and then built upon that in 2024 I think as far as we want to go is that we're really seeing the margins in that particular part of the commercial at or slightly above where the overall segment is so that was accretive.
Scott: Ive to margin and I think that margin upside, we will see as ultimately the tech business.
Scott: Continues to grow and the revenue growth. So right now, it's a really nice contributor to both EBITDA and revenue.
Scott: Okay, and just to clarify it grew about 25% and 24 and you are expecting the similar amount of growth in 2025 or is that.
Scott: That's exactly right, we actually in the transcript, we specifically said it was 23% we saw at the same rate looking at 2025.
Scott: Okay, and then Rex if GE Hitachi were to get some SM our orders here from U S customers like Tennessee Valley Authority.
Scott: Just curious if would you be able to service that manufacturing work out of your facilities in Canada.
Speaker Change: Do you think you'd be required to build out capacity for U S customers in the United States, particularly given some of this tariff risk overhang.
Scott: Yes.
Scott: Sort of setting the tariff risk aside for a moment Scott, yes, we would be able to service that out of our Cambridge plant in fact, thats what that capacity expansion is about it's about the ability to to build all the pickering steam generators concurrent with reactor pressure vessels and other things that we are moving through that plant.
So we designed it so that we have an output capacity of about three reactor pressure vessels a year. So I think all things being equal we would want to fill that plant up before we would.
Scott: Move to expand in the U S. So we've got plenty of capacity for let's say a four pack at clinch river completing the Darlington reactors and maybe some maybe some opportunities in Poland.
Speaker Change: Okay, and then how are you thinking about that tariff risk I guess, both on the commercial nuclear side and on the medical side.
Scott: Yes.
Speaker Change: So I'll start this and maybe flip it over to Rob, It's obviously concerning to us.
Speaker Change: Most particularly in our medical business, because we export a good amount of products into the U S of course that that import tariff is paid by the by the customer, but it might put some months flash and pricing pressure back onto our medical products.
Speaker Change: Commercial power business is really kind of self contained in Canada. Obviously, the labor is there and a lot of the components are manufactured there and sold there. So there's not as much effect, there, but but it is a concerning thing and we're evaluating it and keeping a close eye on it.
Flip it over to Rob Yes.
Rob Lemasters: Yes, maybe to put some.
Speaker Change: We've been analyzing that.
Speaker Change: Day by day, we're monitoring and there are some headlines even even earlier today. So we're just assuming that this will be a headwind and of course, Canada is likely to respond as well the way. We're looking at it Scott is that about about 75% of our.
Speaker Change: Earnings comes from the government side of the business is 25% for commercial on the 75% that's really a self sustaining in market business right. That's how you build a defense businesses to be able to source everything domestically to the extent you can or at least no that you can get supplies from copper.
Speaker Change: Different areas, so that that puts us in a pretty good position, where our supply chain and ultimately where our workforce and sales are are all kind of within the U S. And then looking at the 25% I think Rex is exactly right.
Speaker Change: Just dividing that into the two different parts of the power business, which again is the majority of that businesses revenue and profits today.
Speaker Change: It is also I guess, one could say self sustaining commercial.
Speaker Change: How're in Canada was always derived.
Speaker Change: To be sustaining I actually think it could be interesting to just look at the competitive dynamics, where ultimately the utilities themselves want to even more source in Canada. So I think that puts us in a pretty good position within the power we've evaluated the supply chain for some of those products and occasionally we get stuff from overseas or from the <unk>.
But it's a minority and frankly, we can replace it so I don't see a lot of pressure there Rex.
Speaker Change: <unk> talked about the medical business, we are concerned about the medical business, because mostly thats a manufacturer in Canada and sell into the U S and sometimes in Europe and the way we're thinking about it is that if this goes through we need to contact our customers and really.
Make a strong case that the supply chain really only has a couple of players we're standing of capacity, we need to work with our customers and this is not going to be some short term things. So we're going to try to evaluate whether or not there is theres ways, we or our customers can work together. There is also a <unk>.
Speaker Change: <unk> in the medical business, which is.
Speaker Change: As a pretty high margin business for some of our customers to the Cogs and <unk>.
Speaker Change: Relatively small high gross margins, so that's where you'd want to if you are a supplier into an industry you'd want to sort of have that kind of dynamic where even if we have to pass along our price onto their cogs.
Speaker Change: It's not going to hurt their profitability a whole lot. So we'll work with our customers we're looking to.
Speaker Change: To be long term players with them, we hope they're viewing it the same way and if we have to pass along price we will.
Speaker Change: Thank you.
Speaker Change: We plan to ask that each analyst.
Speaker Change: But pretty much for your question to one question and one follow up only so that we can ensure that everyone gets a chance to ask an unstable response. Thank you very much very understanding. Your next question comes from the line of Ms.
Speaker Change: <unk> with Janney Montgomery Scott.
Speaker Change: Go ahead.
Speaker Change: Yeah.
Speaker Change: Good afternoon, and thanks for the time, Russ you mentioned expanding into Adjacencies being a part of the Battle plan.
Speaker Change: How do you think about the possibility of expansion into hexafluoride conversion.
Speaker Change: Thats organically or through acquisitions.
Speaker Change: So we have the capability internal debate <unk> to do conversion and D conversion.
Speaker Change: And so but it would require some additional plant capacity and a new and a new process line. So it's not the sort of thing I think we would think about acquiring its something we would sort of standup organically. If we were to do that.
Speaker Change: And then second one for me is really on kind of win rate after the kinetics acquisition and just how to think about.
Speaker Change: The commercial.
Speaker Change: Win rate.
Speaker Change: Improvement that the kinetics acquisition.
Speaker Change: Could bring.
Speaker Change: Specifically I'm also thinking about the banner project and potentially.
Speaker Change: Options for micro reactors at industrial facilities or data centers things like that just kind of the overall package that you now have with the acquisition and Thats. It from me. Thanks.
Speaker Change: Sure I would say.
Speaker Change: Maybe I'd put it a little maybe I would respond in a little different way that you framed the question what the <unk> acquisition brings to US is a spectrum of capabilities.
Speaker Change: That round out what BWXT does we do engineering and component manufacturing.
Speaker Change: <unk> spent fuel waste containers, a fuel manufacturing and <unk> has a number of interesting and different complementary capabilities like licensing on the front end safety base analysis and they've got some tail end things as we said in the script such as supporting.
Particularly testing support for decommissioning and some things, we don't even have like distribution and transmission and so what it really does it gives us a pretty interesting vertical stack of capabilities. So it can <unk> has on its own a very high win rate we BW.
Speaker Change: BWXT, our Canadian commercial power business has a very high win rate on its own on its own and I don't think that would change I think what would change is that the combination of those two gives you. This vertically integrated offering that you could take the customers and maybe take on something completely bigger in completely different than you had anticipated before.
Speaker Change: I think it is.
Speaker Change: It's a powerful combination that may be enables us to climb the value chain in ways that I think youre going to be powerful in the long run.
Speaker Change: Operator.
Speaker Change: Your next question comes from the line of Bob Lee with <unk>.
Speaker Change: CJS Securities. Please go ahead.
Bob Lee: Great. Good afternoon, thanks for taking our questions.
Speaker Change: Pedro I just wanted to start with a quick one first and then a slightly longer one for my follow up but in terms of <unk>.
Bob Lee: You mentioned another contract.
Bob Lee: When or potential for contracting for tech 99 in the 26 contract season can you just give us kind of the latest update on the process with the FDA.
Speaker Change: And time timeline I guess.
Speaker Change: Six contracts seasons towards the very end of this year, yes. So plenty of time ahead of you but.
Speaker Change: How is that process playing out.
Yes.
Speaker Change: So yes, we signed a second supply agreement from one of the major radiopharmaceutical chains.
Speaker Change: In the U S. So good news for us as I said, it demonstrates appetite for our product and I think for our brand.
Speaker Change: In terms of the.
Speaker Change: The Tech development.
Speaker Change: I mentioned on the last call that we've been working through a few dozen items.
Speaker Change: Ticking and tying those off we are.
Speaker Change: Really sort of down to the.
Speaker Change: To the short strokes on this one.
Speaker Change: Been spending quite some time perfecting our formulary because you need to get to make tradeoffs between illusion efficiency in Mali breakthrough for example, so we're perfecting that product, making sure we have it exactly right before we submit our final data package.
Speaker Change: And I would feel quite quite good about where we are I do anticipate approval. This year. So that we can be in production contracts in 2026.
Speaker Change: Okay, great. Thank you and then.
Speaker Change: Obviously, you started off the call yet.
Speaker Change: Tremendous year last year and you have <unk>.
Speaker Change: Insistent steady long term growth outlook.
Several opportunities over the medium term so.
Speaker Change: The diversity of the growth is great I was hoping you could help focus us a little bit on the biggest contributors in dollars you have to tell us the dollars, but just rank them biggest contributors in dollars over the next five years and I'll throw out a few and then just tell me what I'm missing there or rank them for us, but the recovery in the aircraft cadence the <unk>.
Speaker Change: And the Columbia rates, the Canadian refurbishment growth.
Speaker Change: Moly sales you mentioned.
Speaker Change: The new builds in Canada Microreactors SMS.
Speaker Change: Give us a sense of the rank order of I'm talking five years out.
Speaker Change: Dollar contributors and how you think about the variability around those those medium term drivers.
Speaker Change: Yes.
Rob Lemasters: Rob I can kind of think about how we build up our growth we've gone through a <unk>.
Rob Lemasters: We're going through a strategy planning cycle, where we look out over 10 years. We of course look out over one and then three years in our kind of near term planning cycle, but as we look out over the longer term, maybe I'll start with kind of the near term medium term and then long term.
Rob Lemasters: What I really see US building the biggest growth drivers in the near term all of our base businesses are just going to kind of grow nicely, but what comes on top in the near term I think is an increased expansion of <unk> as.
Rob Lemasters: As well as nuclear Medicine, I think both those two are really primed over call. It. The next one to three years to really kind of.
Rob Lemasters: The incremental to how people are thinking about just the pretty steady organic growth we have in our core <unk>.
Rob Lemasters: Over the medium term I see more around August specifically, I think that that will pick up quite nicely.
Rob Lemasters: Also see at play for micro reactors, either is helping others are us getting into that business. So that's sort of a medium term driver.
In that bucket might be also a play around fuel for micro reactors try so specifically.
Rob Lemasters: And then as I think about sort of the longer term.
Rob Lemasters: Some of the biggest franchises are still to be had are around enrichment.
Rob Lemasters: I think we're just getting going there and it takes a little bit of time, but I think that'll be a significant incremental growth driver around as you said of that five year time time horizon and the last one I put on the list is greenfield commercial nuclear sort of large scale reactors. So again start off kind of slow with the things that were on the medium term being.
Rob Lemasters: More about Microreactors in August and then longer term just takes a long time to to get the engine really going but once we get it going on enrichment in commercial.
Rob Lemasters: Clearer large scale reactors I'm pretty excited I guess, you could also say that therapeutics over that time is kind of feathered in across all of those.
Rob Lemasters: Yes.
Rob Lemasters: Super that's great. Thank you so much.
Rob Lemasters: Sure.
Speaker Change: Our next question comes from the line of Steve Skate-ski with Alembic Global. Please go ahead.
Steve Skate-ski: Hey, good evening guys.
Rob Lemasters: Pete.
Speaker Change: Maybe just following on Rob's comments on micro reactors could you guys talk more about I feel like we haven't heard in a while and banner.
Speaker Change: Maybe you could talk about if theres any dependency on.
Speaker Change: On banner from Pele, if that builds on it and you've got I think this LOI with Tata as well and it seems like we've had a proliferation of micro reacting micro retro kind of planning globally rates I was wondering if you could give us kind of a.
Speaker Change: A real kind of overview of where you are out there with banner.
Speaker Change: Sure I'll do that I'll take that one Pete.
Speaker Change: So banner is part of the advanced reactor development program contract Award from the Department of Energy that we that we won probably four years ago now and it's one of those 80 20 cost shares where we're investing at the 20% level in the government takes the other 80% subscribed beneficial to us from that perspective banner you can think of.
Speaker Change: As a commercial derivative of pele, but it's been a little different sized class Pele, we can say is in that 1% to five.
Speaker Change: Megawatt class a power output of electrical and you can think of banners more like in the 15% to 20 megawatt electrical power output there are some real differences here.
Speaker Change: <unk> is designed to fit into our standard connex box and could be air shipped a rail shift you wouldn't have that same kind of constraint where the thing like banner.
Speaker Change: And so therefore banners in some ways simpler and probably certainly going to be more cost effective from a standpoint of.
Speaker Change: The scale economics of scale, but also the packaging and would be suitable for things like those applications. We've talked about in Wyoming that would support trona mining with Tata and also it would fit into that class of reactors for which the <unk> The defense innovation Defense innovation unit.
Speaker Change: As soliciting for.
Speaker Change: To power U S military basis, so thats the relationship between the two there is a ton of learning between Pele and banner and it's essentially the same team and so we have.
Speaker Change: Semi permeable membrane, where where employees move back and forth as necessary and we take the lessons learned and apply them to banner. So it's a good dynamic there and we're hopeful of some positive commercial outcomes.
Speaker Change: And I guess Pele as the first prototype is that expected to be up and running next year is that the timeline.
Speaker Change: Maybe banner.
Speaker Change: Beyond on a somewhat similar timelines and what Youre thinking yes.
Speaker Change: Yes, I'd say our customers aren't publishing schedule is on that actively right now, but pele and banner both undergone some some scope increases particularly around testing.
Speaker Change: And so they will continue over the next couple of years and we're not we're certainly not approaching a cliff on either of those.
Speaker Change: Maybe just maybe.
Speaker Change: Maybe just to provide a little perspective on.
Speaker Change: Why micro reactors might come come next at least in my opinion when you look at the commercial nuclear market.
Speaker Change: You really see a trend where we've gotten going on the reefer side that has given way to greenfield activity right Thats. The next thing that's happening there youre seeing a lot of activity on the <unk> side and maybe the next generation in my opinion could be micro reactors, you just think about getting <unk>.
Speaker Change: Further out on.
Speaker Change: Experimental products, if you will and then the last sort of analogy I would give you is that the gen. Three reactors that are popping up in that tomorrow World are also starting to lay the groundwork for advanced reactors, which are based on halo or different fuels. So when you really think about refurbish giving away to greenfield as Mars the micros.
Speaker Change: You can start seeing that youre, starting to get an ecosystem.
Speaker Change: People doing a lot of things that are paying the bills here now with solutions that work, but also looking out over the next couple of years and I see micro reactors as kind of the next thing.
Speaker Change: Great. Thanks for the overview guys.
Speaker Change: Thanks Pete.
Speaker Change: Your next question.
Speaker Change: Comes from the line of Michael <unk> with <unk> Securities. Please go ahead.
Hey, good evening guys. Thanks for taking the question good results.
Speaker Change: Rob just on the EBITDA bridge into next year.
Speaker Change: Key assumption from <unk> should we assume about $20 million and I guess does that imply that the organic core margins are down 60 basis points or so I know the corporate was going to be down but is that the right right math, we should be thinking about.
Speaker Change: Let me take those into two different buckets. So as you recall, we acquired connectors, which we haven't closed yet still expecting a midyear closing that's growing nicely.
Speaker Change: We talked about it having a little bit under $300 million of revenue.
Speaker Change: Yes.
Speaker Change: That's U S dollar and about a little under $40 million of EBITDA, We said those would grow nicely in 2025 so.
Speaker Change: Slightly over 300 and slightly over $40 million, we as we always have described and all of our guidance, we take different scenarios, whether we close the deal.
Speaker Change: Two months from now three months or in our five months from now, but I think the way you set it up there is actually a reasonable.
Speaker Change: Do you think about sort of half a year call it $40 million of EBITDA, depending on on how that flows through of course don't forget that when that timing comes in that's going to come with it interest as well as some pension expense, which rolls down into other income. So we've always said, that's only going to be slightly.
Speaker Change: Accretive in the first year. So if you think about it you modulate the EBITDA and you modulate the interest in <unk>.
Speaker Change: Other income to really be relatively neutral said differently no matter when it closes we've sort of included all of those scenarios in our on how we thought about EPS given the neutrality ultimately on EPS and then as the margin goes I Didnt exactly follow you on the 60 basis points because here.
Speaker Change: Here's how I'm thinking about is that we end the year in 2024 at 14, 1%, we guided 14% to 15% you have the mixed up impact of medical you're at your you did have some headwind from the fact that your commercial nuclear business.
Speaker Change: <unk>.
Speaker Change: Existing business growth of less than 25% rate because thats medical so that would always have a pull down because that has margins essentially in line with what the overall <unk> segment, and then you get a huge amount of kinetics are huge meaning.
Speaker Change: Large new dose of similarly.
Speaker Change: Commercial power EBITDA margins, so youre still growing margin even in the face of increasing your commercial nuclear power mix tremendously right with both <unk> as well as just the.
Speaker Change: The implied growth that we have in our core business, so I'm pretty proud of that mix up.
The overall margin and I'll say lastly of course at the company level, we cant outgrow when you're essentially guiding to nearly.
Speaker Change: Nearly 50% growth in commercial which frankly will always probably have a lower margin overall than government youre always going to have a mix down.
Speaker Change: Debt at the company level right. If you have years like this where youre, where youre taking on a huge amount of commercial so that's just a function that just a function of that we don't need to look when we look at Geo margins. We look at Seo margins, we'd encourage you to this segment.
Speaker Change: Okay Fair.
Speaker Change: And then just one last one what's the latest on Draco it looks like that.
Speaker Change: That problem or is that programs.
Speaker Change: Kind of had some some maybe challenges on testing are you still getting revenue there any any expected headwinds or how should we think about that one.
Speaker Change: Yes, it's actually the contrary Michael.
Speaker Change: There is a desire to do some more comprehensive ground testing before that mission launches and most of that scope comes into our contract because it's around testing the nuclear engine. So it's certainly going to be some schedule implications on for that but thats, new scope that comes into our program and so its business for us.
Okay. Okay. So no issues there okay perfect. Thanks, guys.
Speaker Change: Yes.
Your next.
Speaker Change: Question comes from the lineup David Strauss with Barclays. Please go ahead.
Hi, Good afternoon. This is Josh corn on for on for David.
Speaker Change: Just wanted to ask about the new Navy contract any color you could provide and how that might flow through to margins over the next couple of years and then in the same vein if you've gotten helped by any of the shipbuilding funding from the CR.
Rob Lemasters: Ill answer the latter one and then maybe flip it back to you Rob on on any impact of the pricing agreement on margins. We don't have any we're not getting any direct funding from any of the shipbuilding.
Rob Lemasters: Shipbuilding submarine industrial base funding, that's coming through this time or we haven't seen that we did we were the beneficiaries of some of that funding a few years ago to help and workforce development and it was quite positive for us, but we have we don't have any particulars on the latter one.
Rob Lemasters: Yes, maybe I'll just address the recent.
Rob Lemasters: This agreement.
Rob Lemasters: Don't think youre going to see any kink up if you will.
Rob Lemasters: From from the signing of that as you know we sign agreements every two to three years and agreements that we signed pre Covid frankly, we've been working through the economic realities of workforce and inflation and so forth and so we've been chewing our way through that so we're pleased that we got a new contract.
Rob Lemasters: But it will take a few years to even dive into that one if you will we always talk about layers of the cake. So six years ago. We signed one four years ago signed one two years ago, we signed from all those layers of the cake or really what we're eating out of now yes. It's true that we will start eating out of us.
Rob Lemasters: A layer of the cake that I think better probably reflects some of the realities of the economic environment that we've been dealing with the past couple of years.
Rob Lemasters: But also raises the bar on US right, we're actively working with our customer to reflect all the efficiency and utilization goodness that we've been working on the past couple of years and so we continue to try to set the bar higher on ourselves and work with our customer we are in a fixed price incentive fee contract there.
Rob Lemasters: During these times I think we look quite favorable when we're working with our customer to share in our profit and really be judged by various scrupulous customer that's looking to to have as always.
Rob Lemasters: Our margin so no kink up I think we're really pleased with the contract that we reached and that we believe our customers too.
Speaker Change: Okay. Thanks, and then if I could just.
Speaker Change: Follow up if you could quantify the cash tax benefit from the tax change you mentioned during the prepared remarks.
Speaker Change: Yes so.
Speaker Change: Two impacts first going forward. If you will the 100 basis points applied to our profit before taxes is really the way to think about what happens through our book and taxes said differently, a 100 basis points against our <unk>.
Speaker Change: PBT would be about $6 million over the next couple of couple of years and so that's really going to help both our ETR 100 to 150 basis points is really what we see over time slowly building to that level over a couple of years from the benefit you take a reserve in the early years and then you work that down.
Speaker Change: We see 100 basis points, plus and that would be a positive to our P&L income going forward to be at that 22% and the cash so really on a going forward basis, we would have that as we look back we talked about that we've been.
Speaker Change: <unk>, what we did in the 2020 through 2023.
Speaker Change: Three type timeframe in order of magnitude, we were getting R&D tax credits of a minimal amount.
Speaker Change: Ill review that with the IRS and ultimately try to release, if you will the past couple of years of that five or $6 million. So ultimately to release all that money. We are going to have to work through that and that'll be a couple of years in the making but we'll work through the past and then ultimately we would get a permanent benefit for ETR and tax savings going.
Forward.
Speaker Change: Great. Thanks for thanks for all the help.
Speaker Change: Your last question comes from the line of Andrew Mcgee.
Speaker Change: Please go ahead.
Andrew Mcgee: Hey, everyone. Thanks for taking the question.
Andrew Mcgee: One of the focus specifically on the regulatory environment with all the news recently with the NSA.
Andrew Mcgee: As a firings in rehiring and I know you guys put out a release not long after that but just trying to talk broadly is really something that we're going to have to need to worry about moving forward I mean, I thought with regard to BWXT things would be pretty secure just given the.
Andrew Mcgee: The high priority of the work that you guys do.
Andrew Mcgee: Yes, I'll comment to that I would say certainly we have our eye on it and its cause for some concern.
Andrew Mcgee: But I think we're kind of built for this.
Andrew Mcgee: We're not a staff augmentation company or anything like that we're not wide writing white papers over here.
Andrew Mcgee: I think you could argue that everything we do is high value add for the government. So we're making nuclear fuel and making reactor pressure vessels doing environmental restoration of Cold War sites I think its meaningful work and I would add that in the case of naval reactors and the sole source position, we have an open book contract with them and so they're examining it.
Andrew Mcgee: <unk> our cost.
Andrew Mcgee: Every day, so it's a <unk> like environment to begin with.
Andrew Mcgee: So.
Andrew Mcgee: So we are we obviously have our eyes on it but I think I think we're in as good a position as you could be under the circumstances.
Andrew Mcgee: Yeah, maybe I'll just.
Andrew Mcgee: Offer I mean, I think you touch on something that concerns us here, which is there is a lot of.
Speaker Change: Change going on in DC, and we're concerned about an air pocket just in general right as everybody gets back to work and understand what their priorities are we think we're going to fare as Ross said quite well.
Andrew Mcgee: Versus the competition.
Speaker Change: But it's that sort of not knowing that causes different.
Speaker Change: Pizza business that we're going after to potentially get delayed, but we're not worried about that over the long term as you said, we're sort of built for this we thank all of our programs and all the recent media is.
Speaker Change: Where theyre looking to make adjustments would most likely not affect us <unk>.
Speaker Change: <unk> point, just to put numbers around it it is in our 10-K that I think we filed earlier today.
We are 80% fixed price incentive fee <unk>.
Speaker Change: Firm fixed price already.
Speaker Change: Within our government business, we break it out in the 10-K, so you'll see that for 2024 so.
Speaker Change: <unk> talked about 80% of our business is highly scrutinized by a very informed customer we're a sole supplier and in many circumstances, we're actually showing that cost to our customer and working with them to try to find ways to.
Speaker Change: To save ourselves money and give that back to the government. So again, we're really nicely aligned with all of the themes that we've been reading about.
Speaker Change: No. That's very very helpful. Thank you both for breaking that out and I guess on a similar note.
Speaker Change: Thinking about the prospect of a full year CR, what could the potential impact would be for <unk>, specifically I mean does the long lead nature of the work in its priority within the Dod kind of help offset any potential impact there.
It's kind of in a similar vein. So the question I, just asked but put a different way.
The thing that you worry about in a year long Crs, whether or not you have programs of record the programs of record to get funded at some percentage of the prior fiscal years the typical formula.
Speaker Change: And all of our major programs are programs of record. So that would include obviously naval reactors, Virginia forward Colombia.
Speaker Change: Draco.
Speaker Change: So from that perspective, it's not too worrisome, you do worry about new programs and new starts that said.
Speaker Change: Since the advent of <unk>.
Of this administration.
Speaker Change: The changeover in the White house and.
Speaker Change: In the new fiscal year, we have received authority to proceed on our West Valley project.
<unk> proceed on our Hanford tanks projects, so there's a bit of a business as usual theme going on in the business and so we're comforted by that and and hopeful that it won't be disruptive to us overly.
Speaker Change: Excellent Rex Rob. Thanks, so much for your comments I'll leave it there.
Speaker Change: Yes, I think for your questions.
Speaker Change: Your next question. Your next question comes from the line of Peter Arment with Baird. Please go ahead.
Peter Arment: Good afternoon, Thanks, Rob, Jason Hey, I'll be brief and there was a long call and a lot of questions been asked but.
Peter Arment: Rob maybe you could just remind us or Rex on I'm looking at all of the really good organic growth on the commercial operations.
Speaker Change: But we know you're just beginning to really ramp up with Pickering, how does the overlap go with Bruce.
Speaker Change: The refurbishment work do we have kind of an overlap for a few years or how do we think about that.
Speaker Change: Yes, so youre so again, a little history story here is that we had Darlington really announced first we've talked about in the call that that will be.
Speaker Change: <unk> Rolling off here are the lion's share of that work over the next.
Speaker Change: A couple of years that's been.
Speaker Change: Very positive for US, we then got into the thick of the Bruce.
Speaker Change: And then now ISO to that I'll start out we're in the thick of that one.
Speaker Change: And then ultimately we will have the Pickering.
Speaker Change: Our reactor.
Speaker Change: Refurb that one is actually juicy for quite Juicy for us on the on the bickering side, we announced 48 steam generators moving through our plants. It's product that we know a lot about you can really get stable conditions, there and you can.
Speaker Change: I feel good about that work and so so I don't see that as I sort of view it as one slightly rolling off and then getting into two different <unk> that are just as jussi, if not juice here for our book of business layer on top of that what's going on with the first <unk>.
Speaker Change: I think theres going to be a decision here over the next couple of quarters, if not sooner about moving forward in Canada on that that would be work again.
Speaker Change: Wouldn't be first of a kind of second third and fourth so I'm feeling pretty good about the book of business that we're looking at so I'm not worried about a roll off of the <unk>.
Peter Arment: Yeah, and I might add to that Peter.
Peter Arment: I might add Peter that the Darlington opportunity was smaller for us than the Bruce opportunity because they didn't replace steam generators over there and we had a feeder contract and we had some other very interesting work, but Bruce has.
Peter Arment: Bruce refurbishment involved replacing steam generators before those reactors. So we had feeders steam generators heat exchangers primary.
Peter Arment: Coolant loop cooler coolant pump motors and the Pickering, So looks more like Bruce then it does lag.
Peter Arment: Then like Darlington as Rob said, it's a little meatier for us a little richer opportunity set.
Peter Arment: So that could could that accelerate a little bit.
Peter Arment: In terms of the overall segment I'm just in general that mix of business just given the size of the Pickering operation.
Peter Arment: Yes, I think as we look out toward I mean.
Peter Arment: It's a good question because even in our guidance right imputed for 2025 is an acceleration in the core non <unk>. So I think we you could parse through if you took out the medical business. This year and kind of looked at the underlying nuclear power growth in 2024, and then you look at 2025 Youre seeing a slight.
Peter Arment: Acceleration into the double digits on the on the power side.
Peter Arment: I think that'll be we're not guiding 26% and 27 at this point, but I think with all of those drivers of <unk>, Pickering, and yes Darling to roll off I think we have a really good shot at continuing to grow as we said in Investor day mid to high single digits organically kinetics also Rex talked about that there should be.
Peter Arment: Some opportunities to help our customers and hopefully they select us not only for the work that they plan to give us, but maybe those hand off points will be easier for us to help our customers with so I won't be surprised if that helps ultimate their sales. So I look forward to.
Peter Arment: Seeing the positive impacts of that and I think the premise of your question does seem possible.
Steve Skate-ski: I appreciate all the color nice results guys. Thanks, Thanks, Steve Thanks, Steve.
Steve Skate-ski: Please wait the conference will begin shortly.
Speaker Change: Sorry for that thank you everyone.
Steve Skate-ski: Our Q&A session for today.
Chase Jacobson: I will now turn the call over back to Chase Jacobson. Please.
Please go ahead.
Chase Jacobson: Yeah, Thanks, everybody for joining us today, we look forward to seeing many of you are speaking with you at upcoming investor events or on the phone. If you have any questions you can reach us at investors at BWXT com.
Chase Jacobson: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect have a nice day everyone.
Chase Jacobson: Please.
Speaker Change: The conference will begin shortly.
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