BWX Technologies(BWXT) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted EBITDA grew 6% year-over-year to $107 million, driven by higher revenue and improved margins in commercial operations, though partially offset by lower margins in government operations and increased corporate expenses [3][18][63] - Adjusted earnings per share declined 3% to $0.67, primarily due to non-operating items such as lower pension income and higher interest expenses [4][41][63] - Free cash flow improved to $43 million compared to $25 million in the same quarter last year, attributed to better working capital management and lower capital expenditures [19][63] Business Line Data and Key Metrics Changes - Government operations revenue increased 13% to $478 million, supported by higher naval nuclear component production and microreactor volume, despite lower long lead material procurement [40][42] - Commercial operations revenue grew 10%, with significant contributions from commercial nuclear and medical segments, and a backlog increase of 14% year-over-year [13][40][65] - BWXT Medical revenue growth accelerated approximately 30% in the quarter, driven by strong demand for isotopes used in cardiac and cancer imaging studies [15][63] Market Data and Key Metrics Changes - The naval propulsion business remains robust, supported by a 30-year shipbuilding plan and increased demand from the AUKUS trilateral security agreement [6][29] - International momentum is evident, particularly in Europe, with countries like the UK, Poland, and Romania seeking to enhance energy security through nuclear power [14][36] - The Ontario government aims to double the power grid by 2050, committing to nuclear solutions, which positions the company favorably in the CANDU reactor market [36][37] Company Strategy and Development Direction - The company is focused on operational excellence and continuous improvement, leveraging government program funding to advance novel commercial nuclear concepts [4][9][16] - Investments in AI and automation are being made to enhance operational efficiency and maintain competitiveness in the market [16][38] - The company anticipates continued growth in government operations, particularly in microreactor projects and special materials processing [22][34][66] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in strong organic growth despite economic challenges, with expectations for mid-single-digit growth in revenue, adjusted EBITDA, and EPS in 2024 [4][27][66] - The company is optimistic about the demand for nuclear solutions driven by national security and clean energy initiatives [5][47] - Management highlighted the importance of supporting U.S. and allied military operations, reinforcing the strategic significance of their work [39][47] Other Important Information - The company announced a $300 million award for naval nuclear fuel manufacturing through mid-2025, indicating strong government support [7][29] - A $200 million contract for the DRACO project, a nuclear thermal rocket engine demonstration, was booked during the quarter [8][28] - The company is actively engaging with the Department of Energy and other agencies to expand its special materials business [12][34] Q&A Session Summary Question: What is the outlook for government operations margins? - Management indicated that onboarding new team members and a less favorable product mix may continue to impact margins in the near term [71][73] Question: What is the status of the FDA approval for the tech 99 product? - Management confirmed that they expect to commercialize the tech 99 product in 2024, with no changes to their outlook [77][78] Question: How is the company preparing for increased submarine production under the AUKUS agreement? - Management noted that investments from Australia and the U.S. are expected to support incremental demand, with a focus on maintaining production rates [107][108] Question: What are the expectations for commercial operations in 2024? - Management anticipates continued solid growth in commercial operations, driven by a better mix in commercial nuclear and higher profitability in medical [60][66] Question: How does the company view the impact of depreciation on EBIT margins? - Management explained that depreciation will be layered in as assets are deployed, and they are prepared for the associated fixed costs [89][91]