BWXT (BWXT) Q3 2025 Earnings Call Transcript

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Date

Monday, Nov. 3, 2025 at 5 p.m. ET

Call participants

President and Chief Executive Officer — Rex Geveden

Senior Vice President and Chief Financial Officer — Mike Fitzgerald

Vice President, Investor Relations — Chase Jacobson

Vice President, Strategy — Scott Deuschle

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Takeaways

Total revenue -- $866 million in revenue for Q3 2025, up 29% year over year, driven by growth in both government and commercial segments.

Organic revenue growth -- 12% organic revenue growth, excluding acquisitions.

Adjusted EBITDA -- Adjusted EBITDA was $151 million, up 19% year over year, compared to Q3 2024, led by double-digit growth in commercial operations and a slight increase in government operations.

Adjusted earnings per share -- Adjusted earnings per share were $1.00, up 20% year over year, with operating performance cited as the primary driver.

Book-to-bill ratio -- 2.6, fueled by multiyear national security contracts in the special materials business.

Backlog -- $7.4 billion total backlog, up 23% sequentially and 119% year over year, with new awards including a $1.5 billion defense fuels contract and a $1.6 billion, ten-year high-purity depleted uranium contract.

Commercial operations revenue growth -- 122% (38% organic) year-over-year growth in reported and organic revenue in commercial operations, driven by the Kinetrix acquisition, commercial power, and medical isotope growth.

Commercial adjusted EBITDA -- Adjusted EBITDA in the commercial operations segment was $36 million, up 163%, with adjusted EBITDA margin expanding to 14.2% from 11.9% in Q3 2024.

Government operations revenue growth -- 10%, including approximately 3% from the AOT acquisition, offset by lower microreactor volume.

Government operations adjusted EBITDA margin -- 19.2% adjusted EBITDA margin for government operations.

Free cash flow -- $95 million, projected at approximately $285 million in 2025, reaching the high end of guidance.

Capital expenditures -- $48 million in the quarter, $114 million year to date; 2025 CapEx projected at approximately 6% of sales.

Effective tax rate -- 23.6% adjusted effective tax rate; full-year tax rate expected to be approximately 21%.

2025 adjusted EBITDA guidance -- Approximately $570 million in adjusted EBITDA for 2025, midpoint of prior range.

2025 adjusted EPS guidance -- Adjusted EPS guidance of $3.75 to $3.80, reflecting a 7.5 cent increase at the midpoint, attributed partly to nonoperating items.

2025 commercial revenue guidance -- Approximately 60% commercial revenue growth anticipated for 2025 compared to last year, with organic growth in the high teens, and Kinetrix performance noted as slightly ahead of expectations.

2025 commercial adjusted EBITDA margin guidance -- Approximately 13.5% commercial segment adjusted EBITDA margin, lower end of prior range due to first-half material procurement costs.

2026 preliminary outlook -- Low double-digit to low teens adjusted EBITDA growth expected for 2026, high single-digit to low double-digit adjusted EPS growth for 2026, flat to slightly increased free cash flow for 2026 due to working capital needs.

2026 government operations revenue outlook -- Mid-teens growth in government operations revenue is expected for 2026, primarily from special materials, with over half driven by defense fuels and HPDU; margin pressure in early phases from customer-funded CapEx.

2026 commercial outlook -- Low double-digit organic revenue growth plus Kinetrix contribution anticipated for 2026, with adjusted EBITDA growth expected to outpace revenue due to favorable mix in commercial operations.

Microreactor segment -- Pele reactor core manufacturing on track for 2027 delivery; related Janus program identified as the next U.S. Army deployment opportunity.

Medical isotopes -- Four new electromagnetic isotope separator units increasing production capacity for ytterbium-176, a precursor for lutetium-177, to over 500 grams annually.

Kinetrix acquisition -- Performance described as "outperforming," with transmission and distribution, offshore wind cable testing, and licensing support contributing to growth.

Segment-specific contract mix -- Early phase government contracts to have below-average margin, with expectations for margin improvement as project execution progresses.

Naval propulsion -- Teams remain focused on submarine and aircraft carrier program deliveries; increased use of artificial intelligence and advanced manufacturing to improve productivity.

Rolls Royce SMR contract -- BWXT signed an agreement for design of steam generators and an MOU for future manufacturing, with the value in the $50 million to $100 million range per unit order.

Capital deployment strategy -- Ongoing evaluation of strategic M&A, with leverage capacity available for complementary acquisitions.

Summary

BWX Technologies (NYSE:BWXT) delivered record results for the quarter, reporting a surge in backlog from a series of large, multiyear government contracts in its special materials line, resulting in a total backlog of $7.4 billion. Management’s preliminary 2026 guidance signals sustained top- and bottom-line expansion, while near-term working capital investments are expected to limit incremental free cash flow gains. The company highlighted rapid commercial growth led by Kinetrix, robust performance in medical isotope production, and an expanding pipeline of critical infrastructure projects. Incremental margin gains in commercial operations and backlog visibility underpin management’s confidence in continued strong performance across both government and commercial segments. Strategic focus remains on operational efficiencies through process automation and targeted M&A that directly align with long-term market trends.

CEO Geveden stated, "deep backlog, and unprecedented end market demand position us to enter 2026 from a position of financial strength."

Early-stage large government contracts are expected to exhibit below-average margins for the initial phases, with improvement targeted through future execution.

Recent contract awards mandate new manufacturing facilities, representing customer-funded capital expenditure that will support specialized defense programs over a decade-long horizon.

Guidance for 2026 points to high single-digit to low double-digit adjusted earnings per share growth, supported by segment mix and improved commercial margins.

Management indicated that "the majority of the impact of our government shutdown is specific to our technical services part of the business within government operations where we run based you know, different joint ventures with external partners to do m and o and other environmental cleanup on DOE sites. I think the teams have done a great job of managing funding. Those majority of our sites are fully operational still at this point. And you know, we're kinda making sure that we're continuing with the mission. I would say we have not contemplated a long term shutdown in our guidance. And so to the extent that we're seeing extended shutdown, I don't see that as a major driver for 2025, but I would note that an extended shutdown into 2026 would create some risk."

The order pipeline for commercial nuclear components and SMRs is broad-based, with management expecting a commercial order acceleration in 2026 and new international opportunities under consideration, especially within Europe.

Industry glossary

Book-to-bill ratio: Ratio of orders received (booked) to revenue billed in a given period, indicating future revenue visibility.

Special materials: BWXT designation for materials such as enriched uranium or depleted uranium used in national security and defense-related nuclear applications.

SMR (Small Modular Reactor): Advanced, smaller-scale nuclear reactor designed for modular construction and deployment, often for distributed power generation.

HPDU (High Purity Depleted Uranium): Depleted uranium material refined to higher purity levels for specific defense uses.

Kinetrix: Acquired BWXT subsidiary providing engineering services, radiopharmaceuticals, and T&D infrastructure expertise.

AOT: Acquired company, referenced for its role in BWXT’s expansion within depleted uranium processing and special materials.

Pele: Defense program to develop a mobile microreactor for U.S. military applications, for which BWXT is delivering the reactor core.

Ytterbium-176: Isotope used as the precursor material for producing therapeutic isotope lutetium-177 for cancer radiotherapy.

Full Conference Call Transcript

Rex Geveden: Thank you, Chase, and good evening to all of you. I'm excited to report another strong quarter for BWXT, showcasing the effectiveness of our battle plan strategy and our leading position in nuclear solutions for the global security, clean energy, and medical end markets, all of which are enjoying unprecedented demand. Third quarter financial results exceeded our expectations, both driven by focused execution and revenue growth in government and commercial operations. We delivered 12% organic revenue growth and roughly 20% adjusted EBITDA and earnings per share growth alongside robust free cash flow generation.

Book to bill was a stout 2.6 this quarter, driven by large multiyear national security contracts for the production of defense fuels and high purity depleted uranium in our special materials line of business. This led to a total backlog of $7.4 billion, up 23% from last quarter, and up 119% year over year.

Chase Jacobson: Our year-to-date financial results

Rex Geveden: deep backlog, and unprecedented end market demand position us to enter 2026 from a position of financial strength. Our preliminary 2026 outlook calls for another year of record financial results with a posture to exceed our medium-term financial targets. Turning to segment results and market outlook. Government operations revenue was up 10% and adjusted EBITDA was up 1%. Both ahead of expectations. In the naval propulsion business, our teams are intensely focused on meeting delivery commitments for submarine and aircraft carrier programs and driving operational excellence.

In addition to traditional process optimization strategies, we are finding new ways to leverage artificial intelligence and advanced manufacturing to drive efficiencies around quality control and workflow in our facilities that will lead to improved productivity, throughput, and margin performance. Technical services is on a growth

Mike Fitzgerald: trajectory.

Rex Geveden: Powered by a win streak that unfolded over the last several years. Our team began transition for the strategic petroleum reserve M&O contract in early October and a BWXT-led joint venture with includes Conetrix is in the preferred bidder period, which is the transition period for management and operations of the Canadian Nuclear Laboratories. We expect to assume full operational control before the end of the year. In micro rad reactors and advanced nuclear technologies, the market is evolving positively. We are currently manufacturing the reactor core for Pele, which is on track for delivery in 2027.

Related to Pele, last month, the army announced the Janus program which aims to deploy a nuclear reactor on the military installation, no later than September 2028 building on lessons learned from project Pele. BWXT's qualification should be a differentiator for Janus and other important national security projects that are within our cost and capital risk tolerances. During the quarter, we announced a collaboration with Kairos Power to commercially optimize trisoped nuclear power. We are excited to have a partner that is aligned Google.

BWXT is currently producing trisulf fuel for project Pele, and a variety of other customers and will continue to evaluate options to enter the commercial market on a larger scale as the demand for advanced reactors grow. Lastly, over the last several quarters, we pointed to our special materials business line having some of the most exciting growth opportunities within the company. I'm pleased to say two of these opportunities both within the NSA, materialized during First, we were selected for the defense fuels contract valued at $1.5 billion to establish a domestic uranium enrichment capability. Purposes. We booked the first task order under the contract and are building a centrifuge manufacturing development facility in Oak Ridge, Tennessee.

Over the next several years, our focus will be on centrifuge manufacturing and for defense uranium enrichment. Second, we were awarded a $1.6 billion ten-year contract to supply high purity depleted uranium to the NMSA. This is a direct result of our foray into special materials and our deliverance strategy of expanding into the depleted uranium assay, through the AOT acquisition. Under this contract, we will build a manufacturing plant adjacent to our existing facility in Jonesboro, Tennessee capable of producing up to 300 metric tons of high purity depleted uranium per year that will be used for multiple defense purposes.

These are both exciting long-term projects for BWXT not only for the revenue growth, but also the demonstration of trust our customers put in BWXT to execute on mission-critical national security programs. Turning now to commercial Reported revenue grew 122% and organic revenue grew 38% year over year driven by the Fenetrix acquisition strong growth in commercial nuclear power,

Mike Fitzgerald: and medical isotopes.

Rex Geveden: BWXT medical revenue grew double digits driven by PET and other diagnostic product lines, for which the outlook remains favorable. We expect this trend along with the increasing therapeutic isotope sales for clinical trials to support continued revenue growth in 2026. Consistent with our commentary last quarter, the CAP 99 development is progressing nicely and is on track for an FDA submittal in the near future. In the therapeutics market, Penetrics commissioned four new electromagnetic isotope separator units that increased production capacity of detergent one seventy six the precursor material for lutetium one seventy seven, to over 500 grams annually. This expansion reinforces our role as a global supplier highly enriched stable isotopes needed for cancer radiotherapy.

Turning now to commercial power, where demand is very strong and our opportunity set is expanding across various geographies and with many of the leading reactor technology OEM providers. In the Candu market, we have a deep backlog of heavy nuclear components. Supporting life extensions in Canada, including the 48 speed generators. For the Pickering life extension, which are driving significant revenue growth this year. Beyond that, BWXT and Kinetics are tracking opportunities for international candy like extensions. The Canadian new builds we have discussed in the past other large-scale opportunities, including the Westinghouse AP 1,000, and multiple SMR projects.

In the SMR sector, we are a key partner with the majority of leading technology providers in this rapidly expanding market. To this point, we recently signed a contract with Rolls Royce to design steam generators for its SMR Royce along with an MOU for the manufacturing phase, highlighting the power of our merchant supplier position in the market. With that, I will now turn the call over Mike.

Mike Fitzgerald: Thanks, Rex, and good evening, everyone. Third quarter revenue was $866 million up 29% driven by both segments.

Rex Geveden: Excluding contributions from acquisitions,

Mike Fitzgerald: organic revenue was up 12%. Adjusted EBITDA was $151 million up 19% year over year driven by robust double-digit growth in commercial operations, a modest increase in government operations, and lower corporate expense. Adjusted earnings per share were $1 up 20% driven by strong operating performance. Nonoperating items were neutral on a net basis. Our adjusted effective tax rate in the quarter was 23.6%. And we continue to expect a tax rate of approximately 21% for the year.

In 2026, given a greater percentage of international earnings, following the Kinetics acquisition, Third quarter free cash flow was $95 million Third driven by solid earnings performance and timing of cash We anticipate free cash flow in 2025 to be approximately $285 million the high end of our previous outlook range. Capital expenditures were $48 million in the quarter and $114 million year to date. We anticipate full year CapEx to be approximately 6% of sales indicating an increase in the fourth quarter due to timing of spend on growth initiatives including capacity expansion for commercial nuclear, and a number of smaller projects in our government business.

In 2026, we expect CapEx to remain at 5.5% to 6% of sales supportive of our longer-term growth outlook.

Rex Geveden: Moving

Mike Fitzgerald: now to the segment results on Slide In Government Operations, third quarter revenue was up 10%. Driven by naval propulsion, long and fleet material procurement,

Scott Deuschle: special materials, and a roughly 3% contribution from the AOT acquisition. Partially offset by a decline in microreactor volume. Was up modestly compared to last year, resulting in adjusted EBITDA margin of 19.2%. We expect government operations revenue to be up mid-single digits organically in 2025 plus just over 2% contribution from the AOT acquisition and we continue to expect adjusted EBITDA margin of approximately 20.5%.

Rex Geveden: Turning to commercial operations.

Scott Deuschle: Revenue was up a robust 122% driven by contribution from the Kinetrix acquisition. Organic rep revenue growth was 38%. Driven by strong year over year growth in our commercial power business, and double-digit growth in medical. Adjusted EBITDA in the segment was $36 million up 163%. This results in adjusted EBITDA margin of 14.2%. A nice improvement compared to our first half results and up from the 11.9% in the same quarter last year. Margin expansion was driven by solid operational performance, and more favorable mix compared to recent periods. We now anticipate 2025 commercial revenue to be up approximately 60% compared to last year.

Driven by high teens organic growth and contribution from which is performing slightly ahead of our expectations to be approximately 13.5% the low end of our previous range due to the timing of the recovery of higher material procurement costs which acutely impacted our results in the first half of the year. Turning to our consolidated guidance for the remainder of 2025, and our preliminary outlook for In 2025, we anticipate adjusted EBITDA to be approximately $570 million the midpoint of our previous range. To be $3.75 to $3.80 to up 7.5 cents at the midpoint given the benefit from nonoperating items including foreign currency gains, and slightly lower interest expense.

Looking to 2026, we anticipate another year of strong financial performance with low double-digit to low teens adjusted EBITDA growth yielding high single-digit to low double-digit adjusted earnings per share growth given modest This should lead to another year of solid cash generation although near-term working capital investments related to the significant growth in our business will likely lead to flat to slightly higher free cash flow. In our segments, government operations revenue is expected to grow in the mid-teens led by growth in special materials, and supported by higher revenue enabled propulsion and microreactors. Of note, the defense fuels program and HPDU will account for over half of the segment's growth in 2026.

This growth includes a significant amount of what is the essentially customer-funded CapEx to build a unique infrastructure required for these programs. Meaning they are expected to have below-average margin in the first phases compared to the rest of our special materials portfolio.

Rex Geveden: As such, we anticipate government operations adjusted EBITDA

Scott Deuschle: to grow in the high single-digit percentage range compared to 2025. Ahead of our medium-term outlook for mid-single-digit growth in this segment. In commercial operations, we anticipate another year of robust revenue performance with low double-digit organic revenue growth plus contribution from Kinetrix. We anticipate adjusted EBITDA growth to outperform revenue growth driven by better margins due to the favorable mix and solid execution. Overall, we had a strong quarter, and we are well-positioned for another year of record financial results.

Mike Fitzgerald: Our backlog is robust,

Scott Deuschle: We have good visibility into the future, and we remain focused on driving improved margin performance, and cash generation in our business. With that, I will turn it back to Rex. For closing remarks.

Chase Jacobson: Thanks, Mike.

Rex Geveden: It is an exciting time for BWXT. The secular trends of decarbonization, electrification, and data center power demand combined with an increasing appetite for nuclear solutions the national security space, are meaningful tailwinds to BWXT. We are proud of our strong market position, and the customer trust we have earned. Built upon the expertise of our workforce, our differentiated infrastructure, and credentials, and our strategic organic and inorganic investments. We are winning in our core businesses and expanding into new, and exciting areas. During this period of exceptional growth, we are doubling down on operational excellence focus and expanding its application across the entire BWXT enterprise.

We are driving further process improvements increasing the use of industrial automation, and artificial intelligence to optimize cost structure, product quality, and cash generation to maintain our winning position and drive shareholder value. And with that, we look forward to taking your questions.

Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you are called upon to ask your question and are listening via speakerphone in your device, please pick up your handset to ensure that your phone is not on mute when asking your question. We do request for today's session that you please limit to one question and one follow-up question. Only. Thank you. First question comes from the line Pete Skibitski with Alembic Global. Your line is open.

Pete Skibitski: Evening, guys. Nice quarter.

Rex Geveden: I guess for anyone, I guess,

Andre Madrid: you know, certainly on an absolute basis, this is one of the bigger revenue beats of consensus that you guys have ever had, I think. So just wonder if you could clarify did you book any revenue on the two new contracts in the quarter? I know it went into backlog, but did book any actual revenue on those two new ones? And then just kind of the modest full year sales guidance increase implies a fourth quarter that will be down pretty sharply sequentially So I wonder if you could explain that also. I don't know if there's some conservatism or something else.

Mike Fitzgerald: I'll I'll stop there.

Scott Deuschle: Yeah. Thanks, Pete. So as it relates to the new contracts,

Mike Fitzgerald: very

Scott Deuschle: very modest contribution. So not a big driver here. One of the things I think that you're seeing a little bit and we've seen this trend this year in the second and third quarter is the seasonality around some of our large material procurements If you remember what we've discussed in the past is as we enter into our pricing arrangements, we ultimately will work to get some of those long lead material procurement done. As quickly as possible to lock in pricing. And so we've we've been working to try to do that in the second and third quarter. We had were able to accomplish that a little bit earlier this quarter.

In comparison to when we had originally forecasted it in the fourth quarter. So that is why you're seeing you know, a large beat this quarter, then ultimately, a little bit of seasonality in the fourth quarter just as some of those material procurements have shifted the right. I would say outside of that, we're seeing really strong performance in the shops, and, you know, we're continuing to see them outperform both on our government ops and our commercial ops segment. And so we're very encouraged by that. And highly focused on driving continued operational excellence initiatives within the factories.

Andre Madrid: Okay. Just one last one for me, maybe for Rex. Hey, Rex. I'm the new Janice program, it seems like this is supposed to be kind of a coco arrangement. Which I know you guys typically don't like to actually operate reactors in the field. So I wonder kind of what the approach is gonna be for BWXT here and it's just a simple team agreement is all that's needed, but was curious as to your thoughts on that.

Rex Geveden: Yeah. Hi, Pete. We certainly do intend to compete for that Janice program. It's very interesting. Government's obviously looking at putting a number of reactors at a number of different sites. And I think they'll pick at least at least two contract teams for that. Yeah. We typically don't own and operate reactors You know, that's normally the job of the of the nuclear utility. So it'll be a matter of finding the right teammates to go after that opportunity, but we'll do that. And we'll go in and compete hard for it.

Andre Madrid: Got it. Thanks so much, guys.

Rex Geveden: Thank you.

Operator: Our next question comes from the line of Robert Labick with CJS Securities. Your line is open.

Rex Geveden: Hi. This is Will on for Bob. With six months or so under your belt now,

Mike Fitzgerald: what are the key takeaways from the Kinetrix acquisition and what are some of the new market and revenue synergy opportunities?

Rex Geveden: Well, as I said on the call, Conetrix is out outperforming so far. In fact, you know, my speak more broadly and just say the two acquisitions that we did this year the Jonesboro acquisition AOT and the Kinetrix acquisition are both out outperforming. I think that, frankly, we created a lot of value there. We both bought both of those businesses well within our multiples. And both of them are doing quite well for us. For Kinetrix itself, the outperformance relates to the transmission and distribution business. Which is going which is growing very smartly right now because of things going on there. One is the aging infrastructure. We requires a lot of testing, so we're doing that.

And then we've got a nice business in offshore wind cable testing particularly focused in Europe. So we're seeing outsized growth there. The life extension programs at the Pickering plan are creating a lot of opportunities that Conetrix is well suited for. So we're attacking that one. And then finally, you know, we're seeing some business, sizable business around licensing support, to the Canadian nuclear utilities for the new the new build large projects large reactor projects in that market, and I find that encouraging from multiple perspectives. Obviously, for Connectrix, itself. But I think that demonstrates the seriousness of the nuclear utilities to proceed with their plans for large nuclear reactors.

So you know, a lot of goodness in the Kinetics business, and it's a really great match for BW. I'm my add that, by the way, that medical business of theirs is doing very nice, and there's a lot of talent in that part of the business, which has been helpful. And synergistic to BWXT Medical. Thank you. Just one more With X Natural, increase in the focus on energy production and security, where the biggest and nearest term opportunities for BWX to participate in the growth in nuclear energy?

Mike Fitzgerald: And how are you prioritizing investment into so many opportunities?

Rex Geveden: Yeah. I'd say we have we see demand everywhere. We see it on the commercial side of the business. We see it on the government side of the business. If you're speaking to commercial power in particular, I'd say the opportunities in order are kind of you know, small modular reactors everywhere, and you and you know that we face the market as emergency. Supplier. And we participate on the x 300. We participate on the TerraPower. Atrium reactor. We did a deal with Rolls Royce, so we're supporting that reactor and steam generator design. And ultimately manufacturing. And that's and that and the geography is you know, Canada, US, Europe, and Poland, The UK, and other places.

So that one is super interesting to us. I do expect to see SMR announcements in The US in the fairly near future. I'd say the large reactor off is expressing pretty strongly based on what I just said about the plans in Canada. I think they'll build at least eight you know, can do derivative large reactors at Wesleyville and at the Bruce site. And then and then, obviously, the Westinghouse announced for $80 billion worth of reactors in The US is, I think, quite a positive sign for the industry as it relates to capacity and the need for that. We're we're actively bidding on 81,000 components kind of every day.

So that's in the commercial side of it. Now Pete mentioned the Janice program, which is a you know, kind of a quasi commercial program because it's a contractor owned operated facilities for US military sides. So that one's interesting in itself. And, of course, we see commercial outlets for TriSo. Growth in nuclear medicine. So it's it's everywhere.

Andre Madrid: Thank you. Well,

Operator: Next question comes from the line Peter Arment with Baird. Your line is open.

Peter Arment: Hey, good afternoon, Rex, Mike, Chase. Nice results.

Rex Geveden: Hey. Could you, Rex, on the two on the two large contracts that you booked in the in

Mark Haywood Shooter: the quarter, the uranium enrichment and then the depleted uranium wards, think Mike mentioned that there's this is gonna be some government funded CapEx to help stand some of that up. And how does the revenue kind of cadence roll out as to when that when both of those programs kick off and I guess related to that, Mike, you said it would probably initially come in at some lower margins. Just how long what periods does that last? Thanks.

Mike Fitzgerald: Yeah. So

Scott Deuschle: for both of those contracts, they're kind of over an extended period of time. So I think for HPDU, we've announced ten years, and in DUCE, we've talked about that being roughly ten to fifteen year program. We will see a little bit of front loading as we build up kind of infrastructure investments on those in the early parts the year. But generally speaking, they're pretty distributed over the life of the of the period performance. So you know, maybe a little bit waiting early, but certainly, not significant. So it'll be relatively distributed over those ten or ten to fifteen years to depending on the contract that you're talking about.

The those contracts are structured as fixed price programs. As you know, we typically will enter into kind of a base level margin percentage and then ultimately work to outperform those over a period of time. Our special materials business has had a long history of being able to outperform. And so typically, we do not make any of those kind of large scale adjustments from an EAC perspective until we're probably around 25% or more on the contract. So I would expect that the kinda lower margin to last for the first couple years, and then ultimately, you know, we're we would be highly focused on driving improvement in that EAC and being able to recognize a higher profit.

Mark Haywood Shooter: Appreciate that color, Mike. And then just, Rex, just on Project Pele, could you just give us the latest update on how that's going? Because it sounds it sounds like you said delivery in '27. I thought that was is that later than previously planned? Just give us any more updates there. Thanks.

Mike Fitzgerald: Yes, Peter. That is later

Rex Geveden: than the contract originally called for. I You know, that said, the requirements for that program have been able evolving, particularly for all the national labs and that. And so it's not unexpected, and the program is doing very nicely. We are assembling the reactor core down in Lynchburg, Virginia right now. And do expect to deliver that reactor and that fuel to Idaho National Laboratory in 2027, and they'll fire it up and test it out there. So program's going great.

Scott Deuschle: Thanks, guys. Nice results.

Mike Fitzgerald: Thanks, Keith.

Operator: Next question comes from the line of Jeffrey Campbell with Seaport. Your line is open.

Jeffrey Campbell: First of all, congratulations on the strong quarter.

Rex Geveden: Regarding this, the

Jeffrey Campbell: announcing the $1.5 billion award said that demonstrate LEU production before being repurposed to produce HEU for naval propulsion

Rex Geveden: To be clear,

Jeffrey Campbell: will the capabilities to produce HEU be accomplished in the current appropriation, or will it require

Rex Geveden: So the that initial tranche of funding is about licensing, Jeff, licensing and preparation for the high enriched uranium cascade, which ultimately will be based in our clear fuel services business in Irwin, Tennessee. That combined with a centrifuge manufacturing development capability that we're doing up in Oak Ridge, Tennessee. So that actually the first tranche of funding does not relate to the production of the material itself.

Mike Fitzgerald: Okay. Thanks.

Rex Geveden: And regarding

Jeffrey Campbell: four new second generation electric, electromagnetic ice, Does the entirety of that 500 kilogram deuterium output now belong or will it belong to BWX? And were there any noteworthy differences between the first and the second generation? EMI, assuming?

Rex Geveden: Yeah. That's 500 grams of output that you're turning one seventy six, which, of course, is the base material for the one seventy seven. So it's an important precursor for that. Nuclear medicine product. It is there's no essential difference between these between this generation and the prior generation. It's really just an increase of incapacity of about of about 500%, by the way. So it's an impressive capability We haven't integrated Kinetrix medical business into PWXT's medical business for some good reasons. But those businesses are supporting one another and we're finding strategic and we're finding strategic synergies there. That are pretty powerful. You're welcome.

Operator: Next question comes from the line of Scott Duchel with Deutsche Bank. Your line is open.

Scott Deuschle: Hey. Good evening. Mike, could you slice up the ship's

Rex Geveden: set value of the steam generator content you won with the Rolls Royce

Scott Deuschle: So we haven't given specifics around that. I think you know, Scott, when we talk about the SMR opportunity with roles we've discussed, kind of similar to the rest of our SMR you know, in the 50 to a $100 million range. I think we're

Mike Fitzgerald: you know,

Scott Deuschle: squarely in the middle of that as it relates to the roles content. So we feel comfortable kind of being in that range from a roles perspective, but we disclosed, you know, the specifics

Rex Geveden: Okay. And then the press release announcing that when discussed the localization plan, for future manufacturing work, I think most of what roles Royce is currently bidding on is for reactors in Europe. So is the implication here that you may elect to build out manufacturing footprint? In Europe? If the demand is there?

Mike Fitzgerald: Yeah. I think I think Scott we were evaluating that

Rex Geveden: that and other opportunities for localization That seems to be the trend, and commercial nuclear power. So we'll certainly are considering it. Okay. And then last question. Sorry to sorry to be a pig. But, Mike, can you walk us through the puts and takes on 2026 free cash flow?

Mike Fitzgerald: That result in that guide of flat to slightly up. Heard some of the pieces in the script. I'm just curious if you could put a bow on it for

Scott Deuschle: Yeah. So I think you know, we've seen a pretty significant step change over the last couple of years. As we mentioned in our Investor Day, our kind of medium-term outlook was to see you know, continued kind of one day and call it cash conversion cycle days, is the internal metric that we use. That's roughly about a $1,010 million improvement each year We've seen a sizable improvement going 23 to 24 and then from 24 to 25. You know, if you remember the we started the year at low end of the range of two sixty five. Now we're we're guiding to two eighty five, rough approximately four twenty five.

So part of this is driven by of these investments in the newer contracts. We are able to negotiate some milestones on Deuce and HPDU that are hitting in the '25. Which is which is good, but it creates a step function as you look into next year. In just the timing of when you get to that next mile And so that's that's a little bit of what we're seeing. In addition to that, you know, we do have we're gonna be on the a little bit higher end of the range on CapEx. You know, we went up to 6% for this year We'll be five and a half to 6% of revenue for next year.

So you're seeing a little bit of you know, CapEx as we continue to impose in our growth initiatives across the board. And so when you kinda take a look at that, you're seeing that basically we're we're gonna end up flat based on even though we'll have a probably one day working capital improvement that's gonna be offset by call it, 10 to 15 million of timing related to kinda milestones payments for some of these larger new contracts.

Rex Geveden: Thank you.

Operator: Next question comes from the line of Jeff Gramppi with Northland Securities. Your line is open.

Jeff Gramppi: Evening, folks. Thanks for the time.

Scott Deuschle: I'm curious. When we look at this '26 outlook, what do you guys view as kind of the main

Andre Madrid: the main risk to achieving that outlook?

Chase Jacobson: And then maybe it's more of a '25 discussion point, but does an extended government shutdown represent a risk at all to this year's or next year's outlook?

Operator: Thanks.

Scott Deuschle: Yeah. So I think I'll start with the second question just on the government shutdown. And just to, you know, to clarify that the majority of the impact of our government shutdown is specific to our technical services part of the business within government operations where we run based you know, different joint ventures with external partners to do m and o and other environmental cleanup on DOE sites. I think the teams have done a great job of managing funding. Those majority of our sites are fully operational still at this point. And you know, we're we're kinda making sure that we're continuing with the mission.

I would say we have not contemplated a long term shutdown in our guidance. And so to the extent that we're seeing extended shutdown, I don't see that as a major driver for 2025, but I would say that would create some risk if it extended into '26 for an extended period of time. As far as kind of the puts and takes from next year, I would say

Mike Fitzgerald: yeah, there

Scott Deuschle: from an opportunity perspective, we continue to focus on operational performance and OpEx initiatives, which we've discussed a lot. When you look at our kinda guidance for next year, we are still working through some of the old pricing agreements that I've I've mentioned last quarter that, you know, I anticipated some of that to continue in through 2026.

Mark Haywood Shooter: So

Scott Deuschle: the extent that we can drive continued performance in the business, and we're able to you know, see that productivity we could have some upside as it relates to opportunities and EAC potential write ups We have not assumed a amount of EAC write ups in our in our current guidance. In addition to that, you know, based on the timing of some of the new special materials contracts, we've seen, you know, earlier this year, we had strong performance in those contracts. We'll continue to focus on performing well in that part of the business, and so that could result in you know, ultimately some opportunities to the to the guidance that we've laid out.

From a risk standpoint, I would say a lot of this relates to just kind of the overall timing of our commute commercial nuclear opportunities. You know, we're seeing a flurry of activity in RFP and RFIs. And we certainly have a decent visibility into when the timing of those orders are. But if you had some delays in the timing of those orders, it could have an impact or create some risk for next year. And then we always

Andre Madrid: well,

Scott Deuschle: we'll highlight just you know, defense spending, You know, we haven't seen a major impact on that, but that's always a potential risk. And, you know, I mentioned the extended government shutdown. That could be also a potential risk. So those are the big puts and takes.

Rex Geveden: Awesome. I

Andre Madrid: appreciate that thorough answer. That's really helpful. And it kinda ties into my follow-up. So Rex, you mentioned you know, this demand market is being unprecedented. It seems like the last couple of quarters have been more headline more on the government segment of the business. I'm curious how you see the commercial side playing out potential acceleration there. I mean it sounds like that the pipeline is robust. And so maybe is this something that you guys think kinda materializes or accelerates? From a kinda order backlog standpoint? Over the coming quarters? Or do you have that level of conviction or insight at this point in the cycle?

Rex Geveden: No. I do I do think, Jeff, that we'll see that order start to accelerate. I think, you know, obviously, the Westinghouse announced was maybe the first domino to fall. If you look at small modular reactors, OPG seems committed to building out those four We'll see who the next we'll see what the next announcement for SMRs is in The US. I think that should be Tennessee Valley Authority or another nuclear utility. There's a lot of chatter about that. I do fully expect that nuclear utilities in Canada go forth with the large bills pretty soon. Like I said, we have task orders, contracts already study the license for those candidate derivatives.

And so, yeah, a lot of things are falling into place, a lot of announcements, a lot of demand. And so I think next year for this business will be more about commercial orders commercial announcements than about government orders and announcements, which characterize twenty five. Got it.

Andre Madrid: Great. Thank you guys for the time. Appreciate it. It. Welcome.

Rex Geveden: Next question.

Operator: Comes from the line of Michael Ciarmoli with Truist Securities. Your line is open.

Michael Ciarmoli: Hey.

Mike Fitzgerald: Evening, guys. Thanks for taking the questions.

Ronald Jay Epstein: Maybe Rex,

Scott Deuschle: not to derail things,

Mike Fitzgerald: but maybe talk more about the

Robert James Labick: I guess, the boring portion of your business. No one's asked about navy subs. Shipbuilding, and just kind of maybe general thoughts. Mike, I heard you talk about the CapEx

Mike Fitzgerald: I think we still have a commitment to August out there, but any kind of general update

Ronald Jay Epstein: on kind of what you're seeing in terms of

Mike Fitzgerald: you know, VA Columbia cadence,

Ronald Jay Epstein: you know, how you're thinking about you know, whether or not August flows in at some point, you need more CapEx or more capacity?

Rex Geveden: Yeah. Thanks for the question, Mike. I think it's taken quite a positive turn here in the last quarter. Our boring business our boring business in naval nuclear propulsion. You know what? You know, office had been in question because it's being examined by the Department of Defense, but you saw the, you know, the sort of love fest between the Australian prime minister and the president. It looks like August is absolutely going forward now. We're also seeing at the same time, we're seeing positive things that shipyards. At both GD and HII seem to be turning corner on production. And I think that's quite a positive for all of us. And then, of course, there's an announcement.

A surprise announcement about South Korea.

Robert James Labick: And the

Rex Geveden: the idea that the South Koreans have built a shipyard for nuclear powered submarines in The US. Now that thing's excuse me. That thing was is not well formed from my perspective, but we don't know what that looks like yet. You know? But to the extent that The US involved in the nuclear propulsion system, that could be an interesting opportunity for us. And so I see a lot of upside in the business. Relative to a couple of quarters ago. We do need more capacity to meet the demand for the office program and we and we do have CapEx projects that underway with our customer at naval reactors. For that purpose.

So there's been that going on already. So full steam ahead.

Mike Fitzgerald: Got it. Got it. And then just one more, Mike. I think I've got this. I mean, the implied

Ronald Jay Epstein: government EBITDA margins look to be down next year. It sounds like it's it's just the front end loading of some of that lower margin work and

Mike Fitzgerald: you know, maybe even some of the other

Ronald Jay Epstein: pilot progression projects. But it's anything changing with that core Navy business? Or is

Mike Fitzgerald: it really just kinda some lower margin start up contracts that's weighing on the margin

Scott Deuschle: No. That's exactly right. You're you know, if you look at 2026, most of it is mixed pressure. Half of the revenue growth is driven by Houston HPDU. And as we mentioned, we start off at you know, pretty low margin. And then would it anticipate, you know, higher positive EACs in the future I would say, in addition to that, we are still dealing with a little bit of just the burn off of the pricing arrangements that we had entered into shortly before COVID. Before we saw significant labor cost in those types of things.

And so as I mentioned before, we're we're that mix will start to change next year, and you know, as we work through that and into the new pricing arrangements that we just recently entered into, So we're hopeful that we're gonna focus on that. The other thing I would just say is we're highly focused on operational excellence initiatives, and we have a large focus on margin improvement that we're gonna be driving into business. And we continue to focus on that every day. So we'll continue to make investments to drive performance in the in the business, and, hopefully, we'll we'll be able to outperform and see positive EACs next year.

Rex Geveden: Got it.

Robert James Labick: Helpful. Thanks, guys.

Operator: Next question comes from the line of Jed Dorsheimer with William Blair. Your line is open.

Jed Dorsheimer: Hi. Thanks for taking my question. And yeah, I'll echo the other sentiments. Congratulations on a great quarter here, guys. I guess just

Robert James Labick: first one, if I just kind of unpack

Jed Dorsheimer: you know, commercial growth. I noticed that you had separated out growth from Kinetrix and specifically in your radiopharma business. You know, that

Scott Deuschle: supply with Novartis, it looks

Jed Dorsheimer: you know, Plavicto got off label from

Andre Madrid: pre chemo, which expands. And so my question is, were you

Jed Dorsheimer: constrained in the quarter in terms of, you know, at the precursor?

Mike Fitzgerald: Or for the lutetium one seventy seven. And you know, previously, you had talked about, I think, thirty plus phase three. So I'm just wondering how we should expect radiopharma growth and whether or not that was limited by the bike capacity.

Rex Geveden: Yeah. I don't Hey, Jed. I don't think we were supply constrained for that product. You know, we're pretty far downstream. We do the we do the base material, the Uterbium one seventy six.

Robert James Labick: And

Ronald Jay Epstein: and

Rex Geveden: lutetium prost lutetium prost one seven. We produce the active pharmaceutical ingredient that goes to a customer upstream of us. But we no. We feel I'd we're we're not in a position of supply constraint for that product.

Jed Dorsheimer: As to

Rex Geveden: how that's gonna grow, I do expect the lithium growth to continue to accelerate. I can't predict that one for our business right now, but certainly, there will there will be higher demand in the future.

Jed Dorsheimer: Got it. And then just sticking with commercial, but switching to the reactor side. It sounds you know, if you received an RFP for you know, a Rolls FMR, for example, just to is an example here or even for you know, an AP 1,000

Ronald Jay Epstein: you know, that would obviously drive the backlog, but wouldn't contribute anything to growth next year. Is that correct? I just wanted to make sure that it seems like that would be the case

Jed Dorsheimer: but just wanted to confirm. Confirm it.

Andre Madrid: In other words, '26 is the year of you know, RFPs wins. And

Jed Dorsheimer: you know, while most of the reactor side would be Bruce and OPG up in Canada. Correct?

Rex Geveden: Yeah. Yeah. That's correct. Yeah. We don't we don't have a lot of that kind of scope in the forecast, if that's what you're asking.

Jed Dorsheimer: Yeah. You know, it's one of my

Rex Geveden: Right. From my perspective, the growth numbers that we put out there for '26, those kind of those kind of early targets for growth I don't see much I mean, I frankly don't see much risk on the revenue side because we book so much business in naval reactors, special materials, and even on the commercial side, and on the medical side. So it's a it's a low risk outlook from the standpoint of revenue. We just need to drive margins. But, yeah, anything that we would get on the commercial side, say, from the AP 1,000 be added to that. Great.

Jed Dorsheimer: Thanks, guys.

Rex Geveden: Thank you.

Operator: Next question comes from the line of Andrew Madrid with BTIG. Your line is open.

Andrew Madrid: Rex, Mike, Chase. Good afternoon.

Operator: Hey. Afternoon.

Andre Madrid: Could you maybe give us a status update on Draco? I know you said last quarter, it kinda lives on through NASA. But we did see you guys call out some weaker

Andrew Madrid: micro reactor volumes in the quarter, and I wanted

Andre Madrid: know if it was attributable to this.

Rex Geveden: Yeah. That's exactly right. So the Draco program, it devolved into you know, single agency support. It was it was DARPA. It was a DARPA and NASA joint program Now it's a NASA nuclear thermal propulsion program called Sentry. And the funding hasn't really shaped up for that in a meaningful way yet. We do have some task orders under that under that contract, and we're able to keep our team together, but it's a lower level of revenue. And it's hard to predict what the outcome of that will be. Certainly, NASA seems to be focused on lunar efficient surface power right now, and we've assembled the team to go attack that opportunity.

But nuclear thermal propulsion is still in need. On the civil space and national security side, so I do think that program goes forward in some form in the future. It's just hard to predict right now.

Andrew Madrid: Got it. Got it. No. That makes sense. And, Mike, on I think you called it out earlier, but on the 80 bill nuclear partnership that was recently announced, I mean,

Ronald Jay Epstein: what

Andrew Madrid: gains could be, you know, captured there if any? I mean, how do we assess that opportunity for you guys if it is an opportunity?

Scott Deuschle: Yeah. I don't think I mean, we haven't given specific guidance on what the size of that opportunity is at this point.

Rex Geveden: I'll just add to that. That the opportunity there is for component manufacturing, which is obviously right in our sweet spot. So it could be you know, steam generators, reactor pressure vessels, those kinds of things. And so I think the opportunity set's pretty interesting, but it's not specific yet. Got it.

Andrew Madrid: Got it. Super helpful. I'll leave it there. Thanks, gentlemen.

Operator: Next question comes from the line of Ron Epstein with Bank of America. Your line is open.

Ronald Jay Epstein: Hi. Good afternoon. This is Alex Preston on for Ron today. I was just curious on m and a. Right? Obviously, talked through a couple of times, IoT and Kinetic is performing really well. Curious if you could just walk us through a little bit about the environment you're seeing any appetite going forward for more investments It seems like you'll be well within your sort of two to three times leverage range going even to, like, the end the year?

Robert James Labick: Like,

Rex Geveden: Yeah. But maybe I'll make a broad comment about that, and then flip. Flip it over to Mike. We've been historically pretty pick up picky about doing acquisitions because our philosophy there is to go and get things that amplify our strategic intentions. In the nuclear space. And so I think that means you're necessarily limited on the number of targets But that said, we did a couple of really good ones this year with the metrics and AOT, and we've done some very good ones in the past.

Robert James Labick: Nornion was a

Rex Geveden: was a good acquisition for us. The GE Hitachi assets in Canada, very good acquisition for us. I would say that we are interested in acquiring right now because as I said on the call, or as I said in one of the answers, we certainly can get assets within our multiple So you've got an opportunity to create value there. So we're continuing to look I think it's super interesting, and we'll acquire if it matches what we're trying to do strategically. Otherwise, we'll stay away from it.

Scott Deuschle: Yeah. And I think we feel comfortable where we are from a leverage standpoint. One of my priorities is to continue to clean up some of the balance sheet and create some capacity and direct out of the opportunistic about acquisitions going forward.

Robert James Labick: Got it. Appreciate the color. Thank you.

Operator: Next question comes from the line of Pete Skibitski with Alembic Global. Your line is open.

Pete Skibitski: Yes. Just a quick housekeeping question, I guess, for Mike. Mike, the $15 million step up in D and A in 2026, this is a small EBIT impact. But I was just wondering, does that relate to the two new contracts in government? Or is that, you know, from Tech ninety nine or something completely different?

Scott Deuschle: It's no. It's it's not related to either or the I mean, first part of this is the timing difference between when we get recovery under you know, cost accounting standards and financial accounting standards. But no major step changes that relates to tech ninety nine. That won't happen until that program has gone through full approval. And then from the initial investments, that we've been doing related to the new contracts, you know, we're starting to spend that, but those aren't placed in service. So you're not gonna see you know, a significant step up of that in '26. It'll kinda bleed in over a period of time.

Mike Fitzgerald: Got it. Okay.

Pete Skibitski: Thank you.

Operator: And our last question comes from the line of Scott Duschel with Deutsche Bank. Your line is open.

Scott Deuschle: Alright. I saved this question from the end call because it's probably where it belongs. But, Rex, is Rare Earth handling or process at all an area of strategic interest to the company? Given your

Robert James Labick: existing experience in the handling and process of hazardous materials? Thank you.

Rex Geveden: So I don't think so, Scott. You know, our capabilities are around special nuclear materials and the materials handling and accountability systems that go with that. We just we just aren't involved with rare earths typically. I mean, apart from you know, you turn me one seventy six, but just not in our playbook. And so I would say, the answer to that is broadly no. Okay. Thank you. Welcome.

Operator: That concludes the question and answer session. I would like turn the call back over to Chase Jacobson for closing remarks.

Rex Geveden: Thank you

Mike Fitzgerald: Desiree. Thank you everybody for joining us today. Appreciate your questions. We appreciate your interest in BWX

Ronald Jay Epstein: We look forward

Mike Fitzgerald: to seeing many of you and speaking with you in the coming days and weeks and seeing you at investor events. If you have any questions, please reach out to me. At investors@bwxt.com. Thank you.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining in. You may now disconnect.

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