BWX Technologies, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Special Materials and Acquisition: Announced acquisition of A.O.T. from L3Harris, a strategic extension of special materials portfolio, with 2024 sales expected ~$40 million. Special Materials portfolio includes Navy fuel business with Category 1 NRC license, and new contracts in uranium enrichment and HALEU deconversion.
• Government Operations: Strong quarter with 17% revenue growth, driven by naval nuclear components and Technical Services. Microreactors project Pele maturing, with Idaho National Laboratory starting construction of testing facility. Anticipates modest organic growth in 2025 with A.O.T. acquisition contribution.
• Commercial Operations: Driven by new investments in nuclear power, with solid double-digit growth expected in 2025. Focus on building workforce and expanding Cambridge facility to capture growth in commercial nuclear power market.
• Weather Impact: Hurricane Helene impacted East Tennessee nuclear fuel services facility, leading to over 3-week shutdown, potentially pushing large customer payment milestones into early 2025 and affecting free cash flow guidance.

Segment Performance

• Government Operations: Third quarter revenue was $560 million, up 17%, with adjusted EBITDA growing by 18% to $117 million, and an EBITDA margin of 20.9%. Driven by outperformance in naval propulsion and Technical Services businesses. Naval propulsion is working through Ford class aircraft carrier delays but negotiated a term sheet for next multiyear pricing agreement. Technical Services joint venture H2C received notice to proceed on the Hanford Integrated Tanks Disposition Contract.
• Commercial Operations: Revenue up modestly, driven by robust medical and commercial nuclear components growth, partially offset by lower field services activity. Driven by new investments in nuclear power from companies like Microsoft, Amazon, and Google, with solid double-digit growth expected in 2025.
• BWXT Medical: Year-to-date growth in line with full year expectations of about 25%, driven by base diagnostics portfolio and TheraSphere contract drug manufacturing. Tech-99 development program progressing with supply agreements and FDA communications in place.

Guidance

• 2024: Raised adjusted earnings per share guidance to ~$3.20 (high end of previous range), maintained free cash flow guidance $225 million to $250 million.
• 2025: Expect mid- to high single-digit revenue, EBITDA, and EPS growth compared to 2024, with at least 10% free cash flow growth. Government Operations expected mid-single-digit growth (low single-digit organic + A.O.T. contribution). Commercial Operations anticipated double-digit growth in power and medical, with EBITDA growth outpacing revenue growth.

Risks

• Weather-related: Hurricane Helene and other weather events impacted East Tennessee facility, potentially pushing customer payment milestones into 2025 and affecting free cash flow guidance.
• Shipbuilding Plan: Impact of Navy shipbuilding plan on naval propulsion volume potentially extending the carrier lull into 2026, affecting revenue and margin.

Question and Answer

Q: Supply chain issues at shipyards impacting BWX?

A: Rex Geveden states BWX is a couple of years ahead of shipyards in visibility, has worked through supply chain issues successfully, and feels well-positioned to deliver products.

Q: EPS decline in Q4?

A: Robb LeMasters mentions factors like Hurricane Helene causing shutdown, cadence of corporate expenditures, and ramp-up headwinds.

Q: Competitive advantages in nuclear space?

A: Rex Geveden highlights being market leader in advanced nuclear fuels, only large component manufacturer in North America, and decades of experiential qualifications from naval nuclear propulsion.