BWX Technologies, Inc.

Ladies and gentlemen, welcome to BWX Technologies, Inc. Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Following the company's prepared remarks, we will conduct a question and answer session and instructions will be given at that time. Please note this event is being recorded. I would now like to turn the call over to our host, Mark Kratz, BWXT's Vice President of Investor Relations. Please go ahead.

Thank you, Andrea. Good evening, and welcome to BWXT's second quarter 2021 earnings call. Joining me are Rex Jevidan, President and CEO, and David Black, Senior Vice President and CFO. On today's call, we will discuss certain matters that constitute forward-looking statements. These statements involve risks and uncertainties, including those described in the Safe Harbor provision found in today's earnings release and the company's SEC filings. We will also discuss on-gap financial measures, which are reconciled to gap measures in the quarterly materials that are available on the BWXT website. With that, Rex, I will turn the call over to you.

Thank you, Mark, and good evening, everyone. Earlier today, we reported solid second quarter results with earnings of 62 cents a share on over a half a billion dollars of revenue as we prepare for a strong second half. Although down on a comparative basis, year-to-date earnings are where we anticipated as we crossed the midpoint of 2021, and we have clear line of sight to the balance of the year. Beyond operational performance, we remain focused on achieving key milestones that will position the company for continued growth. So before I turn the call over to David to discuss financial details and guidance, let me give you an update on the state of the business and initiatives across the BWXT portfolio. The Nuclear Operations Group continues to reliably produce strong results amidst COVID and capital build-out disruptions while maintaining a high operational tempo. 2021 also represents a transition year compared with 2020 where we are moving to higher labor production volume and lower long-lead material procurements. The business is executing well against those milestones while maintaining impressive cash generation as it prepares for a strong second half this year. As we have noted in the past, the timing of certain milestones and accounting for improvements in the Navy business can be somewhat uneven with a number of factors in play. In addition to normal business lumpiness, we saw COVID absences impact us early this year, which put some pressure on production. Another unique but temporary factor includes the complications of a significant capital build-out running concurrently with operations. For instance, at one of our NOG sites, we integrated five large machine tools into the factory recently, which disrupted production somewhat and required agile workarounds. The good news is, These bottlenecks are improving as we near the end of this capital campaign. In Canada, the medical business is returning to pre-pandemic levels as we saw 60% top-line growth in the second quarter. We expect this positive trend to continue through 2021 as we press forward on commercialization efforts for Technetium 99 generators. Overall, the new Technetium 99 generator production line has transitioned from construction to initial testing as the systems come to life at the Kanata facility. Three of the four major milestones are substantially complete, including in-cell radiochemistry equipment installation, major facility modifications, and the target delivery system that has been assembled and is being factory tested for installation on a Darlington reactor in the future. The complex and automated radio pharmacy line is the last major system, and it is nearing completion. As the program fully transitions to testing, We will be exercising the integrated system with cold chemistry before moving to hot chemistry runs. The program remains on track to submit FDA reference batches and required documentation around the end of the year as we seek a priority review. On the nuclear services side, we await new awards that should occur later this year, including the PANTX and Y-12 Management and Operations Contract and the Savannah River Integrated Mission Cleanup Contract. Should we prove successful on some of these, the nuclear services segment would see significant income growth in the near and medium term, with the objective to grow that segment back to its historical prominence. With our nuclear operations pedigree, we have a competitive advantage to succeed as a leader in this market, as evidenced by the recent track record of wins and a strong pipeline of new opportunities, particularly for larger contracts. Turning to other growth initiatives, we remain excited about the trajectory of nuclear microreactor development for government applications. A few weeks ago, BWXT with partner Lockheed Martin was selected to advance the design for a nuclear thermal propulsion system for a joint effort with NASA and the Department of Energy. Under this new award, the team will focus on maturing the design for the reactor, including the fuel, reactor core, shielding, instrumentation, and control systems, as we leverage corporate investments to integrate into a conceptual design. This program builds upon the years of work that BWXT has already accomplished with NASA on nuclear thermal propulsion technology. Recently, that work included the testing of multiple coated low enriched uranium fuel types for a reactor leading to a final fuel design next year. This project gets us one step closer to a demonstration mission that would illustrate the fundamental advantages of using nuclear technology for power and propulsion for space applications, which BWXT is uniquely suited to provide. In addition to working with NASA, we are finalizing our contract with the DOE as part of the Advanced Reactor Demonstration Program. This program accelerates the development of technology required for the next generation of nuclear power production and a variety of high-temperature industrial applications. We also continue to make progress for the DOD microreactor program and the areas of fuel and reactor design. Together, this comprehensive set of programs for high-temperature gas, nuclear reactor design, manufacturing, and tests continues to differentiate BWXT and positions the company to successfully participate in these exciting emerging markets in the future. From a government budget perspective, We continue to monitor and are encouraged by the bipartisan support for recapitalization of the Naval Nuclear Fleet and BWXT programs across the board as House and Senate Appropriations Committees prepare their fiscal year 2022 markups. We were also reassured that during the Senate Armed Services Committee confirmation hearing for the administration's nomination for the Secretary of the Navy, Carlos del Toro, pledged to continue the evaluation of strategies to increase the production rate of Virginia-class submarines and reaffirmed his support for Columbia as the Navy's top procurement priority. Beyond the defense budget, we are also encouraged by the administration's posture on nuclear energy, given its investments in nuclear energy research and consideration of accommodative policies. The White House's National Climate Advisor, Gina McCarthy, publicly outlined nuclear energy's role in renewables at a White House press conference in April. This was quickly followed up by the President's government fiscal year 22 budget request, which saw several important proposals, including a plan to increase the Office of Energy Efficiency and Renewable Energy by 65%, increase the Office of Nuclear Energy by 22%, and increase the funding for DOE's Advanced Reactor Demonstration Program, or ARDP, by nearly 50%. As we have discussed in the past, we plan to participate in the commercial nuclear market differently than we have approached other markets where the government customers' intentions and funding are more visible. Generally, we intend to support commercial advanced reactor development by participating in the supply chain as a designer and manufacturer of components and fuel, while funding opportunities to devote capital and resources in our proprietary technologies through customer RFPs that have more visible outcomes and require more modest investments. For example, last December, we were one of five companies that was chosen for the Department of Energy's ARDP Risk Reduction Awards. Through a 2080 cost share program, BWXT and the DOE will smartly invest over $107 million into research and development of risk mitigating technologies in fuel and manufacturing to mature American-made small modular reactors. Similarly, we are also quite enthusiastic about what we see in Canada. The Canadian government is facilitating the creation of a Canadian small modular reactor industry to meet its clean energy standard. Canadian nuclear laboratories have set aside considerable funds for advanced nuclear reactor research and development funding and formed a closer relationship with the U.S. Nuclear Regulatory Commission to facilitate faster deployment. One of the major Canadian utilities, Ontario Power Generation, hopes to field advanced reactors by the latter part of the decade. setting the stage for a strong market in which we could grow as a Canadian domestic supplier of choice. In recent years, many commercial players have delayed investments, given headwinds from low power prices and subsidies from alternative renewables. But owing to our patience, persistence, and very long-term view, we have maintained our capabilities in this market, including the only North American facility and infrastructure capable of supplying large nuclear components. So as responsible nations race to confront climate change, we expect a renewed focus on nuclear solutions where BWXT is well positioned to be a major player in an expanded supply chain to help solve these global problems. David?