Release Date: August 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- BWX Technologies Inc (BWXT, Financial) reported strong second quarter results with 11% organic revenue growth, 18% adjusted EBITDA growth, and 26% adjusted earnings per share growth.
- The company increased the lower end of its adjusted earnings per share guidance to a range of $3.10 to $3.20 and reaffirmed its full-year operational guidance for mid-single digit revenue and adjusted EBITDA growth.
- Positive demand momentum was observed in global security, clean energy, and medical markets, with governments prioritizing regulatory clarity and funding for nuclear power.
- BWXT's Government Operations segment saw 10% revenue growth and 13% adjusted EBITDA growth, driven by newer special materials and micro reactor projects, as well as solid volumes in the naval propulsion business.
- The company secured a significant contract award for the Pantex plant in Amarillo, Texas, under a 20-year contract, further solidifying its leadership in the NNSA space.
Negative Points
- The lower tempo of work associated with the ordering wall for the Ford class aircraft carrier is expected to persist through at least 2025, potentially impacting operations.
- Investments in facility and process line modernization, such as in the Nuclear Fuel Services plant, may create modest near-term margin headwinds.
- The micro reactors and advanced reactor development programs, while promising, are still in early stages and carry lower margins until they become more mature.
- Free cash flow in the quarter was $36 million, down from $41 million in the second quarter of 2023, due to higher working capital requirements.
- The company faces challenges in ramping up workforce and capacity to meet overlapping demands from multiple projects, including the small modular reactor at Darlington and the Pickering refurbishment.
Q & A Highlights
Q: Rex, is actinium already a meaningful contributor to growth at BWXT Medical, just given the pricing there, or is it still very small right now?
A: 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, I would say.
Q: Do you need to have the commercialization of drugs and actinium for that to be meaningful or can it become meaningful just to us these large numbers of Phase 3 trials that are out there?
A: 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. As we said in the script, it's in over 25 clinical trials at the time. So there's something there. But the real growth occurs when you get drugs approved and get into production, and we've announced prior agreements with Bayer and Fusion for such supply.
Q: Are you getting ready to file the DMS for lutetium here soon as well?
A: Yes, we still have that as a project that we're rolling out and expecting that next year. So it's a couple of months off. We're reading construction and figuring out the processing and so forth. And again, we'll have two different Radiation Sources we think to do that. So we'll be filing that next year.
Q: The confidence you seem to have in your prepared remarks on the outlook for tech-99 seems pretty high. Are you seeing some movement in terms of getting FDA approval that's driving that confidence?
A: No, I think our confidence is good here. We've been optimizing the formulary, 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 tempo of communication with them. We're most excited around the commercial progress where we have very engaged potential customers working through our future with them.
Q: Can you give us a time horizon for ramp-up and when Pantex starts to hit the P&L and then an update on the Hanford tanks?
A: For Pantex, we are in the transition phase now, which is not fee-bearing. It will start to have a modest effect in the fourth quarter and then be in full run rate for 2025. For Hanford, the selection was protested and is now in the hands of the court. We expect it to get sorted out probably in the next quarter or so.
Q: On the DIU RFP, can you share some of the structure there? Is this an algorithm request or one unit or multiple units?
A: The RFP looks like they will select maybe two different contractors. They will go through a study phase and then a deployment phase, with the intention to have these micro reactors come online by the end of the decade. The total procurements are for up to five reactors of each type.
Q: How do we think about the revenue timeline impacting us related to the GE Hitachi SMR work?
A: We do this first unit and hope Ontario Power Generation commits to units two, three, four at some point in the future. We've imagined these units being separated in time by 18 months to two years. Each small modular reactor for BWXT would include reactor pressure vessel and potentially some other components, with revenue spread over two to four years.
Q: Can you speak about the latest on Carrier, Virginia, and Columbia build schedules? Any impact on the government outlook over the next couple of years?
A: The shipbuilding schedule would have the forward ordering wall extended into 2026. We are forecasting our business based on the shipbuilding schedule and expect to find ways to grow apart from that to meet our medium-term guidance numbers.
Q: There's been chatter around Virginia-class maybe getting cut by one on the appropriations bill. Do you think the prospect of this happening is real in the next coming years?
A: It's speculative at this point. We continue to build two Virginias a year, and that's our hope that continues. Even if there is a one-off reduction, we have ways to manage it and maintain steady production.
Q: How do we think about the margin implications if CVN does, in fact, play out? Should we be cautious on the government EBITDA margins?
A: The margin pressure isn't so much related to operations in the naval nuclear propulsion program. It's more about the mix related to the rapid growth in our Advanced Technologies group, which includes cost-plus fixed fee programs in the early stages. This mix drags on the business margins until we get into production programs.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
