BWX Technologies, Inc.

Ladies and gentlemen, welcome to BWX Technologies' fourth quarter and full year 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, BWXT's Vice President of Investor Relations. Please go ahead.

Thank you, Joel. Good evening, and welcome to today's call. Joining me are Rex Jevinen, President and CEO, and Rob Lemasters, Senior Vice President and CFO. On the call, we will reference the fourth quarter and full year 2022 earnings presentation that is available on the Investors 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 fourth quarter and full year results that were in line with our expectations as we closed out the year on a strong note. 2022 revenue and adjusted EBITDA each were up 5% and underlying operational profitability was up 9.5%, factoring out pension headwinds. Despite macroeconomic pressures this year, earnings per share grew by 2% and we brought down capital spending by over 100 million. Labor remains a focus area for the company as we experience growth in all our major markets. We continue to monitor hiring and retention metrics and are making progress streamlining our processes and advancing our training programs, particularly on the government side of the business. We remain cautiously optimistic that our efforts will deliver the net employment required to support our growth. Having said that, we believe the challenging labor dynamics will mask some of the potential growth for BWXT this year, but is ultimately a hurdle we will clear. Beyond labor, interest rates have begun to stabilize. While this presents a 2023 headwind to earnings, stable rates and excess free cash flow should enable us to overcome interest expense headwinds over the medium term. In December, the President signed the National Defense Authorization Act for 2023 into law. BWXT's core businesses remain well funded and our new growth areas are receiving increased budget support. Columbia Advanced Procurement and aircraft carrier funding saw significant increases. Virginia Submarine Advanced Procurement is steady and in line with our expectations. Budget for Project Pele is increasing, and the Army is receiving funding to support fielding. DARPA and NASA received increases to support a nuclear thermal propulsion space demonstration program. The National Nuclear Security Administration received increases for uranium processing projects, including uranium purification and down blending. And the Department of Energy site remediation and operations budgets were well supported. All in all, we see an improving macro backdrop of positive momentum in our government and commercial markets. Let me go into a little more detail for 2022 highlights and near-term opportunities in both of our reporting segments. Within government operations in 2022, we announced about a billion dollars in option orders for the core Navy franchise. We certified and shipped some of the first items for the Columbia program and continued steady production for Virginia-class and Ford-class components. For 2023, we anticipate wrapping up negotiations for the next multi-year pricing agreement, encompassing two years of scope, which will span orders through 2024. We eagerly anticipate the announcement of decisions for the AUKUS trilateral security agreement, particularly as it pertains to naval nuclear propulsion. We expect to hear additional details next month and remain engaged with our customer and other key stakeholders to support the nation's allies in deploying this unique technology to ensure global security. We continue to leverage our NRC category one licensed facilities to grow the business and provide the nation with critical services. In 2022, we were awarded a production contract for high assay low enriched uranium trisol fuel to be used for the first fourth generation micro reactor in the United States. Separately this year, we completed the first phase of uranium purification and conversion for the NN assay. Both of these programs will grow in 2023 as we undertake production runs for TRISO fuel and expand into the second phase of uranium purification. As you are all aware, 2022 was a hallmark year for BWXT with microreactors as certain programs transitioned from design contracts into prototype production. In June, the Strategic Capabilities Office awarded BWXT the $300 million contract called Project Pele. to build and deliver the first advanced mobile nuclear reactor in the United States. As we look to 2023, we anticipate growth in that program as we experience a full year of revenue and achieve key project milestones. Beyond Pele, we see ourselves in a strong position on Draco, a space nuclear propulsion demonstration mission. Early this year, NASA and DARPA announced they will be collaborating on this program to demonstrate a nuclear thermal rocket engine in space. enabling capabilities for both space exploration and other potential applications, including national security. We believe that our history with NASA's nuclear thermal propulsion work, combined with our innovative technology solutions, creates a favorable competitive position for our company. This program would be similar in size to Project Pele and would have similarly aggressive program goals. Lastly, on the government side, in early 2022, we successfully transitioned the Savannah River Mission Completion Contract and had a year of excellent safety and contract performance, resulting in higher site scores and income than we originally forecasted. In 2023, we look forward to the award of the Hanford Integrated Tanks Disposition Contract, which, if successful, would likely be the largest single contract in our government services portfolio. Switching gears to commercial operations, our base nuclear power business grew nicely. In 2022, we saw higher volume of service work related to life extension projects for a large portion of the Canadian fleet. Notably, the government of Ontario announced its support for the continued operation of part of the Pickering plant that was originally slated to shut down in 2024 and 2025. Under the new plan, units five through eight will continue to operate through most of 2026. Given the recent successes in other life extension projects, the utility plans to update its feasibility study on the potential refurbishment of those Pickering reactors, which would extend the operational life another 30 years. Both the near-term extension and the potential for longer-term refurbishment upcycle improve an already favorable outlook for our can-do business lines. Beyond traditional nuclear power, we established a meaningful stake in the small modular reactor market On the last call, I said that we are under an engineering design contract for GE Hitachi's BWRX300. With high interest in decarbonizing electrical grids, we anticipate continued growth and interest coming into 23. Ontario Power Generation intends to field this reactor by the end of the decade. And I have mentioned in the past that the Tennessee Valley Authority began the planning and preliminary licensing for the potential deployment of this same reactor at the Clinch Riverside. SaskPower also announced that it has selected the BWR-X300 for potential deployment in the mid-2030s. And just the other week, Fermi Energia announced that it has also selected this design for SMR deployment in Estonia. BWXT remains positioned to support SMR designers with engineering services and critical nuclear components manufacturing for these projects. In fact, we anticipate receipt of our first SMR production order sometime later this year. There's a broad consensus now that nuclear power will play a significant role in global clean energy production. This, combined with a renewed focus on energy security in the wake of the Russian invasion of Ukraine, is driving intense interest in grid-scale nuclear power. Now, turning to the nuclear medicine side of commercial operations, we saw a string of successes in 2022. Our base business grew double digits. and our Tech 99 generator FDA application was submitted, accepted, and granted a priority review status. Next week, the FDA will be conducting an in-plant pre-approval inspection of our Tech 99 generator line, and we look forward to working with the FDA to support this review. While our FDA submission is based on targets irradiated at the Missouri University Research Reactor, which limits activity levels and restricts our product offering to small generators, our ultimate solution is to irradiate targets on a CANDU commercial power reactor which will enable production of large generators comparable to those in the market today. Last month, we announced the completed installation of our target delivery system on the OPG CANDU reactor through our collaboration with Laurentius Energy Partners. We have now conducted a radiation test runs of our MOLLE targets, and as expected, these tests demonstrate that our process will yield high specific activity material needed to produce these large generators. Pending final FDA approval, we will enter the market with a product that has all the attributes our future customers have grown to expect. And this is a very exciting milestone for this foundational product. Beyond Tech 99 generators, we made substantial progress in 2022 on other products, most notably in therapeutic isotopes. Building on its heritage for innovation, BWXT Medical executed an agreement with Triumph for the manufacture of high-purity actinium-based products and followed up with the announcement of a commercial agreement to supply Bayer with Actinium-225. We also announced a partnership with Fusion Pharmaceuticals to supply this isotope in support of their exciting portfolio of targeted alpha therapies. We expect growth in this business to accelerate, driven by therapeutics and contract drug manufacturing opportunities that add new layers to BWXT Medical. Overall, 2022 was a year of meaningful strategic milestones for BWXT accompanied by consistent operational outperformance. I am energized by the tailwinds we see across the portfolio coming into 2023 and the future trajectory of this business. This year, we see near-term opportunities in every market as we approach our experience inflection points in EBITDA growth, return on invested capital, and free cash flow. This provides a clear pathway to the strategic and financial targets we articulated at our investor day 16 months ago. Let me turn it over to Rob to discuss 2022 financial results in more detail and to walk through the components of our 2023 guidance.