BWX Technologies, Inc.

Ladies and gentlemen, welcome to BWX Technologies' second quarter 2022 earnings conference call. At this time, all participants are in a listen-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, Mark Kratz, BMXT's Vice President of Investor Relations. Please go ahead.

Thank you, Amber. Good evening and welcome to BWXT's second quarter 2022 earnings call. Joining me are Rex Jevedin, President and CEO, and Rob Lemasters, Senior Vice President and CFO. On today's call, we will reference the second quarter earnings presentation that is available on the investor section of the BWXT website. We will also discuss certain matters that constitute 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 will frequently discuss non-GAAP financial measures, which are reconciled to GAAP measures, in a separate presentation that can also be found on the investor section of the BWXT website. I would now like to turn the call over to Rex.

Thank you, Mark, and good evening to everyone. Earlier today, we reported robust second quarter 2022 results. Revenue was up 10%, net income and adjusted EBITDA were up 26%, and earnings were up 32% per share. We also delivered good operating cash flow, which was up 29%. These results were driven by a combination of strong site and commercial field services performance, along with favorable timing of activities that were originally planned for the third quarter. It is worth noting that we delivered these positive results in spite of some production inefficiencies in the naval component manufacturing business at our sites in Ohio and Indiana. Strong second quarter performance reduces uncertainty for the year and leads us to increase underlying operational guidance and narrow the earnings outlook for 2022. The entire team continues to do a commendable job of supporting the ongoing operations while simultaneously building strategically significant new business lines in advanced micro-reactors and nuclear medicine. Since the last earnings call, we've achieved several important milestones on both fronts, so let me offer you a quick update on those. In the commercial operations segment, the BWXT medical team has completed all operational qualifications and registration batches for the Tech 99 FDA submittal. The data collected from those batches demonstrate our ability to supply a competitive offering that matches industry standards for product quality. the team is now finalizing the FDA package. Furthermore, we continue to build an impressive portfolio of other products in the medical business. In June, we announced the signing of a commercial agreement to supply Bayer with high-purity Actinium-225, an alpha-emitting radioisotope that has highly desirable characteristics for targeted cancer therapies that improve patient outcomes. In developing that product line, we have already successfully irradiated material for the first batch and expect to begin low-level production later this year to supply Bayer with this product for clinical trials. Over the last two years, we have positioned BWXT Medical as a global leader in nuclear medicine manufacturing. The base business is growing smartly, and we've invested heavily in the Tech 99 generator line, and we have developed and expanded relationships with global-scale pharmaceutical companies, leading irradiation partners, and other important manufacturing value chain participants to stake out a unique competitive position in the market between irradiation services and finished product manufacturing. As the business transitions from a build-out phase to a commercialized ramp phase, we are making corresponding leadership changes, recruiting external resources where necessary, and dedicating some of BWXT's best executive talent to accelerate our progress in this exciting market. Dr. Jonathan Certain, BWXT's corporate chief technology officer for the past two years, is taking leadership of the BWXT medical business as its president and CEO. He will oversee the ramp of the commercial Tech 99 production, as well as a pipeline of new products in development. Jonathan is not new to that business unit, having overseen the company's entry to the nuclear medicine market a few years ago and tackling some of BWXT medical's most daunting technical and operational historical challenges. We have built a world-class leadership team in medical that is prepared for the next stages of growth. We hope you will be able to meet the management team and see all the capabilities we have built in Canada, Ontario over the past couple of years when we host investors, customers, and other stakeholders at BWXT Medical's headquarters in the near future. In the commercial nuclear power business, we are seeing a step up in demand and volume for 2022. particularly for some of the outage services that are scheduled this year. Last month, we also announced a contract valued at over $100 million for major component replacements for five of Bruce Power's reactors, providing incremental long-term visibility into our clean energy business. Beyond the work we do in the can-do market, we remain cautiously optimistic that small modular reactors will gain traction in North America and globally. The pipeline of interested utility and power generation customers continues to build in the wake of forward-leaning players like Ontario Power Generation and the Tennessee Valley Authority, both of whom have announced plans to build GE Hitachi's BWRX-300 small-module reactor at existing grid-ready sites. In government operations, we are excited to build the first advanced microreactor in the United States for the DoD Strategic Capabilities Office, named Project Pele. In June, we announced that BWXT was awarded a competitively bid contract valued at about $300 million for the fabrication of a full-scale microreactor prototype slated for completion in 2024. The team is aggressively ramping up the program and we are making incremental capital investments for this exciting new line of business. Beyond terrestrial applications, we continue to pursue space-based microreactor solutions. In June, The DOE, in conjunction with NASA, awarded three teams a 12-month contract to develop a preliminary design for a 40-kilowatt class fission power system for the lunar surface. And we are pleased to be partnering with Lockheed Martin on this strategically significant effort. BWXT is also preparing to submit a proposal to DARPA for the demonstration of a space-based microreactor, which is anticipated to be awarded around the end of the year for a national security space propulsion application. It has been our long-held vision that multiple national security and space agencies of the federal government would see the capabilities of these terrestrial and space demonstrations to fulfill their special mission needs for nuclear power and propulsion. If that demand signal translates into orders, BWXT would be well positioned to enter a stage of low-rate initial production in the back half of this decade. Such a buildup could put us on a trajectory toward our long-term aspiration of replicating the core nuclear naval franchise and supporting the U.S. government with our specialized and unique nuclear capabilities across sea, land, and space domains. And of course, to update you on the strength of our core naval franchise, conditions remain supportive from a federal budget perspective as we continue to tackle challenging operating conditions at certain sites. As I mentioned earlier, this quarter we experienced production inefficiencies at some of our northern U.S. plants. where we make steam generators, missile tubes, and other components. These challenges are similar to some of the issues we experienced last year around workforce disruptions connected to COVID. More recently, our difficulties have been attributed to manufacturing choke points, labor shortages, and the challenge of building out capacity in a production environment. These factors, coupled with the general macro pressures many industries, including our defense peers, are facing around wage pressure, supply chain issues, and hiring set up for a tough environment as we face increasing demand. The team has put in place an aggressive set of action plans to address these conditions, including intense recruiting, an intercompany movement of experienced personnel, as well as focused investments to alleviate key production bottlenecks. A prime example of that is the recent appointment of Sharon Smoot to lead nuclear operations within BWXT's government segment. She is a proven executive with over 30 years of civilian Navy service in the United States Navy and a variety of impressive positions, including most notably leadership of naval nuclear shipyards. On the legislative front, we see strong bicameral and bipartisan support for increased shipbuilding for national security investments more broadly. Both the House and Senate have proposed budgets above the President's request for key programs, nuclear naval shipbuilding, Project Pele, and site management and environmental restoration for DOE and NNSA. Those and similar actions validate our long-term government operations growth thesis and increase our confidence in a firm outlook we've been spending over the coming years. In summary, BWXT remains positioned for growth over both the short and long-term horizons. The business is highly differentiated with major content on programs that are well-funded across the government space and reaching inflection points in commercial nuclear clean energy and nuclear medicine. That diversity in the work we do across the portfolio serves as a distinctive advantage that positions the company to outperform in the face of challenges in a choppy macro environment. With that, let me turn it over to Rob.