BWXT - Earnings call transcript Q3 2019

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Operator

Ladies and gentlemen, welcome to BWX Technologies Third Quarter 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. Instructions will be given at that time.

I would now like to turn the conference call over to our host, Mr. of Director BWXT's, Kratz Investor Relations. Mark ahead. go Please

Mark Kratz

BWXT's Good earnings XXXX joining morning, thank you and third call. quarter for

Joining SEC me and provision Chief earnings today Officer are statements Safe discuss Rex Geveden President Harbor constitute that those filings. Black, today's we and forward-looking Vice release described certain On the matters and involve and yesterday's Senior President including Officer. found and risks in Financial and call BWXT will uncertainties, David Chief Executive in

financial measures, in available non-GAAP replay are reconciled Copies We these our measures provide will call along on a which to GAAP section of presentation, website. the of are also Investors of today's and materials. quarterly the with materials, documents, earnings

And with I Rex. turn that will it over to

Rex Geveden

good third all up to reported lead robust Operations to results by these growth capacity on of results attention and highlighted expanded as a expand the to and we revenue meet to focus XX.X%. doubled earnings non-GAAP even sustained year of morning quarter we was to consolidated with per same XX.X%. the The quarter us Yesterday, per record production record to with quarter in share increased strong $X.XX nearly was a by a guidance segments XXXX needs. in business, on Combined execution Navy margins about Group second growth achieved the $X.XX Nuclear earnings and compared everyone. Thank share. sustained operating driven to you, last results period Mark, Revenue detail, shipbuilding

long-lead contract pricing do Nuclear secured we agreement This planned Few the most contract contract XXXX. reached extend for the $X announced an XXXX. of annual ago for into into multi-year of originally production also basis. an of supports material. review, final a million were nuclear to recognized Furthermore, signed that government recently not we we favorable on several quarter, follow, addition, and in that includes contract $XXX options Group the we repeat billion In visibility leading XQ pending multi-year, nuclear annual material additional Operations Navy's and typically platforms to weeks a which all strategic purchases approximately anticipate in adjustments

concert add that multiyear of about agreements, as having billion the a which capacity the the is will about with in continue workforce at $X build all have $X.X total about XXXX the US announced XXXX, in of expenditure February rate Nuclear nuclear in is the in for with agreement maintaining ahead. to aforementioned to NOG. pricing propulsion we we this growth to continue capital employee Operations Group brings BWXT people, plants. which Combining recently billion The we production of incremental segment XX headcount added naval In our two business work the indicative high secured

of the Outside of to end repair repairs of the XX% tube the the campaign missile expect missile up of propulsion still in and positively of repair remainder about welds backlog complete by year complete. XXXX. nuclear We missile with majority or the the is tube in the tube wrap trending

are XXXX. through currently standing agreement continuing front, major all budget operating the negotiated On pricing a we has BWXT orders although resolution under

continue to the of plans. The to requested revise procurement is and Navy Virginia-class by the end an the Navy's year. funding the planning assessment budget in support structure incremental its The XXXX discussions force submarine appropriators across have Navy for now

the assumptions have long-term nuclear However, changed. our not guidance operations segment for

the next year, Virginia-class two Power the due that with submarines continue has aircraft catalyst to to Columbia the Nuclear every provide years, to We of the the in decade. field class assumption want an per cyclicality. five Ford-class update service seasonal carrier growth. continue work of work XXXX growth and outage the provide a for contemplate recurring In addition Group on trended do a Canadian refurbishment to I down is over

because taken planned ahead, fewer are reactors are now being there offline look for we As outages scheduled refurbishments.

We We XXXX to in XXXX now eight and expect bottom. previously from recurring rebound six planned expected a outages in cyclic XXXX. out just

this result in headwind, doesn't see until full for not extension business of that will a part in while mostly some complete. So a we time the life after the are rebound projects

isotopes growth However, in is the segment NPG seeing business. good the medical

quarter. call, isotope were the on launched as in last Third the and revenues XXX we we said third quarter oxyquinoline Indium up,

steps commercialization And commercialize the to efforts the our in nature that just Germanium plans for product radiopharmaceutical our compared process within production approval last took to to FDA is publicly line. while modest underscore XX. I generic market to this moly-XX Indium X-XX announced week want navigate is we the moly-XX, we for and similar

We construction focus we industrialization moly-XX to the At technetium-XX and time every on under system in or companion technology of this major in generators. continue the have point contract.

review also manufacturing tech-XX of the the the reflected for BWXT a capital peer initiated are moly efforts These generator We increased expenditures preparations for on testing design. segment. formal in and target began

made due schedule We timelines. completion our updated milestones schedule. facility the to also moving a of of construction change the product modifications introduction is not it This change not item one critical in out published path does a to minor and of quarter

first XXXX. to the commercial We continue project quarter production of in

the as half of income the half in first Group Services third a strength and than Nuclear continue are for anticipated, second close the we and segment. strong seeing anticipate to the substantially quarter year more the In we

so last give discussed delayed call next high-level we tracking DOE set, a me been some you As opportunities have the opportunity XX-months. are on the we let over

until Hanford about hear Contract we are Plateau delayed appears for The we the weeks, coming Cleanup mid-XXXX. tanks the Central In award competing. to Cleanup Contract, which for the Hanford expect

River we Oakridge and to late the slated 'XX. year, Idaho compete Savannah awarded early for plan contracts are and XXXX to which cleanup Next in be

anticipate River contract re-compete with also XXXX. up the and operations late We in XXXX awards be Savannah in for will management likely

and Idaho, Beyond Y-XX. that, include other we will DOE Pantex, may be opportunities looking for that

discuss matters. over now other turn the segment to me financial guidance, Let to David and call results,

David Black

segment driven volume, missile production quarter Operations a $XXX.X record higher Nuclear robust lower Thank tube to long-lead delivered activity, Group material with revenue higher you, results, Starting offset and partially XX.X% by higher purchases up with downblending. growth by fuel year-over-year million. This Rex. was

for tube $XX.X of new volume Operating was to the also double to absence higher to volume sharp non-recurring million charges, backlog missile due prior the favorable than future adjustments, period more quarter adjustments assumptions. contracts the year related income including agreements and and contract

volume quarter, Group produced in and year, a medical activity. in of recurring service field Nuclear driven growth the to increase by component The lower Power partially offset third X.X% quarter work third the million radioisotopes compared when higher refurbishment $XX revenue last in by

non-GAAP slightly was million. prior the period up income - segment operating year slightly quarter Third versus $X.X to

to were Third operating the NPG first quarter margins as in completion non-GAAP lower of project as two China the estimated cost long-term changes quarters than due well the for project. XX% another

contributed million was down Nuclear in quarter, the operating versus the $X Group in completions more year by income third lastly, contract than last Services of the million operating about quarter improved offset performance XXXX. third $X.X And as

to company results. now Moving

higher better segment XX% third and record year. EPS lower tax expense of As absence mentioned lower by share pension and partially Rex a income. third charges, up quarter count, tube margins, all-time missile The non-GAAP solid interest rate were from operating offset volume, higher was at last quarter an $X.XX

The to prior comparable CapEx XXX% over capital $XXX versus year million, bringing quarter the up were company's year-to-date third expenditures period. million, the $XX

generated shareholders cash of third XXXX company the capital dividend in of through The The quarter Directors continue another quarter XXXX. share year recently of from the We in to also return the third significantly period. in $XX to of $X.XX quarter Board cash payments. fourth $XX prior operations per in the versus of million up declared dividend payable million

a investments, Gross of million and at cash debt XX, in balance notes, credit the totaled $XXX $XX of third facility. million million. in XXXX, ending under of After cash including deploying capital and $XXX we million in senior the loans term had short-term $XXX borrowings end the restricted revolving September $XXX quarter net of million

credit We in $XXX credit remaining also the a have of and result million as of million $XX availability. facility had under letters

now Turning to guidance.

the per robust updates $X.XX non-operating to and of revenue about performance the The $XXX incorporates and non-GAAP mentioned, Rex operating XXXX for guidance two we be about have consolidated the prior from earnings We guidance income, other pension As expect items and benefits now primarily to $X increased share other and the EPS about to-date non-GAAP rate. by $XX to million X%. growth including million effective up tax income guidance. for post-employment related other year, the

guidance tax planning the for benefits XXXX, effective lowering are XX% initiatives. We as recent about rate recognize to we for from the the tax

has guidance now $XXX in most million, have the expect timing makes be $XXX for change driven by XXXX XXXX capital capital XXXX approximately moved to about now we million. updated into also which was expenditures, of and the which We

be now expected to was to As last capital peak a discussed year year. but an the XXXX will similar 'XX, expenditure call, on be elevated it

of income. still while to expenses, margins, with taxes interest will continues higher to about half development XXXX expect expenditures pension We that guidance the EPS to volume, lower toward $X.XX increased XXXX first robust other from count, and capital and and now elevated reported expecting share and the of from operating returning Overall, contemplate maintenance half remain reduced non-cash year. of income back EPS headwind levels tailwinds and in research, lower

to digit will to of Rex five-year opportunities the guidance to XXXX progress towards EPS from turn the are call the over components we technology. non-GAAP new to other continue results. low-double long-term I lastly, we a remain over reiterate And and unchanged. EPS All outlook three-year initial XXXX nuclear guidance in period of XXXX CAGAR making discuss back

Rex Geveden

of XXXX NOG growth consolidated David. is Thank NPG. We growth driven anticipate you, up BWXT. to X% year another be and for strong shaping about by revenue

per expect repeat XXXX. X% project share year one-time the of were generator I in XQ for adjustments NPG. about nuclear China operations steam add that the next from and would guidance the XXXX that pressure not in that margin will in elevated completion earnings expect we We of realized some XXX modest from growth

guidance announced for Last about lead the We Existing we to meaningful restart when Nuclear BWXT over advanced February. expand will Triso coming business formal I next month the more at capacity results Production immaterial growth the would Fuel in comments could demand the nuclear cost. we and we some emerging with of an that line in year conclude technologies years. course report year will issue end that

have and doing production equipment, this a Idaho to reactor We type the are decade Laboratory. a over the manufacture only using at the for that and advanced so that support been experiments fuel National of test scale half company

demonstration This such being systems. nuclear of for Triso in in element micro multiple cases. reactors use success that developing essential the fuel have in future done and an the is would DoD, be DOE, preparation project including could NASA,

complex and making the the first is uranium I'm additive example, other Triso, industry. geometrical nuclear-based recently technology in a have research Beyond technologies, forms used on encouraged the the for team to manufacturing by progress we print

We high which are novel Artificial to lead utilizing in reactor ways performance to entirely optimize new of Intelligence systems. also design, will expect we safe classes

position align to with new clear unique efforts government these and BWXT future our of All needs markets value capabilities enter with propositions. and competitively these

And Operator? open with that, the line operator the questions. ask for will to I

Operator

the first time, [Operator Bob this with your at Labick CJS question. ahead comes go gentlemen, today Instructions] and we'll Please Ladies from question begin question-and-answer Securities. Our session. from

Bob Labick

start schedule, Good to a remains is your to QX you putting risk to drags the the XXXX is the are and wanted you - morning, any for thanks in approval this the if chart. shutdown which into it scheduled for a reactor, relates the as timeline regulatory during or equipment special on taking or do isotope the have contingencies event and my Is that? I timeline bit little installation there this any questions. planned onto equipment for of with

Rex Geveden

commercial reactor, But need should operations going. to have and the - and delivery we target also plans thank we we contingency Ontario the nuclear can you other Generation. we outage a also install through through we for can have have discussions Power planned in get system the reactors available, ongoing that question, dedicated outage, or complexity those so do Bob. Yes, a either a we with recognizing We production of our

So we're changes outage any the in well schedule. prepared for

Bob Labick

follow-up. quick a Okay, super. And just then

As revenue and to arrangements you commercial XX-months you selling us to away, remind to in get timeline, obviously potential the can you place, the or it please? relates have have or and so either will agreements what you who anticipate, that need be

Rex Geveden

I any on disclosed clear we, about have view Yes, Bob that, as specifically. but about explicit said to been market, we channels have our occasions, haven't we a multiple anything haven't of

Bob Labick

understood. it, Got

much. very thanks Okay,

Operator

your question from Please next Our Barclays. with comes Matt Akers question. ahead from go

Matthew Akers

good guys. for question. Hey, Thanks morning the

the does positive volatile You adjustment mean, that have about at cause out right the another the guys sort kind there way of this milestones in big up that quarter this we into from XXXX. about could we of back this things are that time, kind I or here? talked year What's sort volatility to of like half of other the submitted saw quarter. definitely with and saw think coming of the

Rex Geveden

think Matt, as adjustments we on when I with is, a backlog, reason generally up have XXXX rate positive results. financial our we'll pricing changes would that in tend bit the agreements the effects our backlog Navy also of to but can client, not therefore negotiate and smoother end and only these with

And I so this I year. wouldn't don't next much as chunkiness - well, as anticipate year into

Matthew Akers

maybe seeing some Okay, guys of too talked bit on? on companies about, government a delaying cautious much that guess, some kind I of any like just are and the all, the little at more of guess thanks. service sound budget doesn't have then that And you being side, award it going I around services uncertainty the of just government there's

Rex Geveden

think don't space. I in the DOE so

management complex other on only by and look not of very request, into the the the decades, it's you If It's the the budgets same true has Department high for President's supported and in goes Energy see very management, budget budget and on around very contracts and the operations by visibility, environmental we also steady, that is steady goes laboratories. for but Congress. the well weapons

very So I looks from think perspective. that steady, my

Matthew Akers

Great. Thanks.

Operator

from Please with Credit question. next Our ahead go Robert comes question from Spingarn Suisse. your

Robert Spingarn

a go few you morning. it capex, back ago but 'XX? toward percentage should similar start half a back year 'XX back first first of half is trend Hi, you minutes could saw at basis? percentage were in normalizing clear on good that and the the you about and wanted pretty David I of clarify 'XX, in the to the this 'XX? ramp Does what to some a half just that a with of Or sales kind expect there you be half of of

David Black

roughly at as is, I last would it year what XXX quarter XXX, look months X.X% about year. same stay X% down year, So, next six the go was that at it this capital in level elevated then of end about revenue - our and would at it then to first we and of would that to was talked 'XX, was it the the of

timing year. go going So down we've to to now said into going is XXX, that but that move this to year next is

from XXX from changes that So it XXX to next to year. XXX, takes XXX

it XXX - 'XX... so So of or then level that elevated beginning

Rex Geveden

first of 'XX. The half

David Black

The X% once second half will go down to, again, to X.X%.

Robert Spingarn

the the being of do Got was then some think similar. And it, these you okay. the isotopes a and about comment ramp And markets? mentioned XX process then, How I approval others. earlier we Rex, the of the about on think sizes there Germanium relative and

or what higher I are think moly-XX I am product was properly? about was, with that understanding but the that margins add XXX, incremental because not the as here of comment already you this done you've

Rex Geveden

would something we XX% said growth the at and last marginal that the in gross margins into very a that in obviously that, than we've that expect leverage indium as good products call We so we higher in it. full got I it run margins. to let's to business plus Rob, germanium contribution margins, as Yes, add good rate, be 'XX like has call revenues serves said past, think operating incremental the XX and very XXXX that oxine

Robert Spingarn

How opportunity big words, are the their relative long-term? markets in other

Rex Geveden

big markets, to range, put to Yes. you Those that. like - this million those call are aren't very million $XX $XX it something in them

Robert Spingarn

the revenues then way And just the there in long-lead to one a to is boost other quantify Okay. thing, quarter.

David Black

contracts just are specifically what to or the in think, looking to long-lead? we're - the changes or is the I for one-time the mean, saying I you the

Robert Spingarn

is call that would you beyond Anything normal. out

David Black

said I would I up be get margins that pension, what do for plus low know then high-teens is very So we've the normalization. you and in would would always say that that there would a into the the our you are 'XXs I to have

that take for provided as quarter you if in X.XX out is and So been to really it normalization, this can one-time what that about margin difference adjustments that future. we've you take take margins, those - the talking the we

Robert Spingarn

Okay, all David. Rex. Thanks you, right. Thank

Operator

from ahead comes Michael SunTrust. question go your Ciarmoli next Our question. with Please from

Michael Ciarmoli

taking bit, Hey, maybe can just talked a the kind the Rex top-line, the questions. gave of the X% that good us morning on you parse guys. you Thanks color of on out for XXXX Maybe about side for you little business with some NPG outages.

outage NPG rate? little bit if headwind? to Does isotope segment add contribute those So growth more of or that that with next year growth some us could you just color Maybe a there? growth some give by the

Rex Geveden

morning, Michael. Sure. Good

and both I'd NPG growth are approximately and drivers they in balanced NPG itself. growth say that NOG with the So are

see higher volume, will from isotopes. higher the We sales

We we in the refurbishment cyclicalities that an the the projects as not probably upswing work had interrupted market. we're continuing as market parts that anticipated Canadian good the will we but seeing in the we in to on the sharp and the but see spare work of in Canadian by do do because outages, growth component

that refurbishment we're So we of bullish winning remain work. the quite significant the share are about and our opportunities

see let's the business year. that growing call the at, Navy business rate it next you'll So approximately as same

Michael Ciarmoli

out sounds the outages. getting just then, synergies And But it about going I I GE interrupting realizing a you as that are you've expected? of the guys is revenue when you guys back cyclicality doubling the benefits know full playing the, of mean, you Hitachi guys those got Okay. expected acquisition made are business, you like of to the talked the market, some these - seemingly

Rex Geveden

that we that if then was at XXXX, will describe year XXX business XXX, for million where growth look you finish Yes, in absolutely. XXXX. $XXX Yes, the business and next

top-line, the some attributable of that than moving as So on is to that's a just more that a player us Hitachi acquisition, GE faster robust the at that of of think bottom-line market quadrupling is time it the we that the in them it verge been and business made a at looked on of that the as deal. and the time and pro-formas outperforming strongly deal at pro-formas in look developed very the the us the acquisition at mirror, for certainly that's attractive and we of rearview

Michael Ciarmoli

one And the in I'll jump the back it. last just queue. then, Got and

some projects you of from in can layering of be opportunity some do about of restart, perspective for us we now quantify kind fuel think these time? if potential annual what potential the a an can On revenue revenue of there. should you basis Obviously, on downblending the that the materialize, over how sort

Rex Geveden

or Yes, nuclear like DOE the it characterize that maybe the high is at then altitude these work kind company all three we happens the or higher game go propulsion will think around cases all that example seen for a a about rate those and something and I'll for of of the Department a occur production ground higher for projects the from these in rate the what a reactors. capability, course R&D markets mission in Michael, or comes new to fuel production we've related reactor normally we of of of and so low then end new kinds of new and demonstration a after and and reactors way of that a thermal and we defense demonstration that for is for space markets the with of the as you'd see new and these it Defense NASA R&D budget will typically and or into a those spend fuel, reactors some a develop kind R&D co-funded get some our technology for course then and

of or in for future, XX% fuel the mean can that of the think complex a where fuel in depending how at let's single-digit the it of in fraction XXs I the millions good think depending about chain that so on opportunities of R&D certainly a business way we and generating XX% the those of and programs of is, imagine in is And millions kind I call and the so, that demand. to on it numbers on are the supply demonstration as depending hundreds XXs I think millions that you

Michael Ciarmoli

Got it. in back guys. I'll Thanks, jump queue.

Operator

Skibitski Peter Our next your with from question from Global. go Please question. ahead Alembic comes

Peter Skibitski

good momentum were Hey, front, even out lot us, the quarter. from morning up seen there's over of small right? some to you it DOD to I've follow Nice thinking certainly reactor RFIs David and year-to-date there out been there Rex I think a quarter, there about bring on looked talking guys. the last whole this organizations. like

XXXX kind any relative be kind add and this year appreciated. other becoming as area this is is breakthrough, is color the that to way of you always do So could near this potential out timing recollection about you you my same term, the there feel would of interesting being put this that

Rex Geveden

and the the a surface and the dialog space, Chiefs Council, these there, for of power sure, weapons and President propulsion including there, NASA in good off Joint remote that I established I level speak others we Yes, applications so National there have, interest administrators at for Thank nuclear you by think thermal which national morning. and the basis. did reactors the many Pete. Right, Space power are directed have in the in micro Chairman forward chaired grid energy Vice

interest for this the House of propulsion mission appropriation for you appropriations NASA So of Should Senate at Bill, piece be normal certainly I through as see great million and in the now the if and of start that level, of XXXX interest all demonstration the agencies and hear through expect and beyond think, that progress occurring a way of some you example applications look get we'll I that. is in nuclear bills RFIs I Bill national but from variety a in do we to cycle said activity appropriations XXX would demonstration it's that. and contractors, XXX million kind kind reactor, flux believe reactors across of the a from the the Army you've DoD all there capabilities flow in thermal so, meaningful on and get yes, the terms that. then to sort government those think interested seen others done not in of political can this we'd office funding strategic Pete, and the these at the timing the for is for there deal assuming in we is

Peter Skibitski

great, appreciate That's color. I the

give X% you ask the almost the are seems like Let your that it's extended go of that? it, an XXXX growth full-year going XXXX, CR potentially is CR how would it's CR guys on to calendar giving even me into target or a impact to much

Rex Geveden

to Canadian on obviously We're proceed All that not to pace, the too sensitive our will The those our in and in terribly business. it Virginia. record Columbia Navy normal three do with has we'll at it, technical nothing forward I in approximately things funded going get think that of are business business. are then services levels programs of

So a into not sensitive CR. whether year-long get that to we all

Peter Skibitski

shot contracts it. nuclear the last getting reverse that the and Do a full for How David. are in of one-time think about you David, I have appreciate thinking net free kind Then and conversion at can process you year-to-date I build-in cash basis? Navy Okay. year income? one a through you of on quarter to imagine on that's guys terms fourth related. on

David Black

obviously we're these early business so at revenue along capital working going to increased additional amount especially NPG be that of have you're parts and to an with the I into going built contracts. that's of NOG both mean, starting

back, come So now at capital be to in be healthy it I think strengthened. will probably but a working eventually but the right will you mean continue near-term, know I

Peter Skibitski

guys. Thanks it. got Okay,

David Black

Thanks, Pete.

Mark Kratz

for believe third us that XXXX concludes conference Thank everyone last our quarter Alright, you joining this call. morning. our call. was I operator. This

further you. please If me you questions, at (XXX) XXX-XXXX. Thank have call

Operator

attending and that conclude Ladies We presentation. you call. does conference gentlemen, today's today's for thank

your now may disconnect You lines.

BWX (BWXT) 5 Nov 192019 Q3 Earnings call transcript