Ladies and gentlemen, welcome to BWX Technologies' Q1 2023 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, Chase Jacobson, BWXT's Vice President of Investor Relations. Please go ahead. Thank you, Hannah. Good evening, and welcome to today's call. Joining me are Rex Geveden, President and CEO, and Robb LeMasters, Senior Vice President and CFO. On today's call, we will reference the Q1 of 2023 earnings presentation that is available on the investor section of the BWXT website. We will also discuss certain matters that constitute forward-looking statements. These statements involve risks and uncertainties, including those described in the safe harbor provision found in the investor materials and the company's SEC filings. We will frequently discuss non-GAAP financial measures, which are reconciled to GAAP measures in the appendix of the earnings presentation that can be found on the investor section of the BWXT website. I would now like to turn the call over to Rex. Thank you, Chase, and good evening to everyone. BWXT has started 2023 with good momentum. Earlier today, we reported strong Q1 results that were ahead of our expectations. Our recent wins highlight that BWXT is at the forefront of the nuclear industry, and it's becoming more apparent that our technologies are in high demand as our government and commercial clients seek to address their national security, clean energy, and medical requirements with nuclear solutions. Q1 2023 revenue was up 7% and adjusted EBITDA was up 17% compared to the Q1 of 2022, driven by solid volume, good operational performance, and higher performance fees in our technical services business line, despite ongoing labor challenges. Adjusted earnings per share grew 2% as adjusted EBITDA growth more than offset the unfavorable impact of non-operating items as we had anticipated. We are maintaining 2023 financial guidance and continue to believe we are positioning BWXT for long-term sustainable growth. While we had a strong Q1, we are still early in the year and uncertainties persist in the macro environment. Accordingly, we still see the midpoint of our EPS guidance of $2.80-$3.00 per share as the most likely outcome. I'll start out with some highlights in government operations, where there have been a number of developments that highlight how our growth investments are bearing fruit. First is the AUKUS Trilateral Security Agreement, which was jointly announced in early March by the President of the United States and the Prime Ministers of the U.K. and Australia. Under the agreement, Australia will procure at least 3 and up to 5 Virginia-class submarines in the early 2030s. Following that, Australia will procure a new submarine class, the SSN-AUKUS, for which the final design and industrial manufacturing investment necessary to build these units will be thoughtfully planned in the years ahead. The recently announced updated 30-year shipbuilding plan indicates that the Navy anticipates building additional Virginia-class submarines in the 2030s as replacements for those that will be sold to Australia. Although this has yet to be worked into the published schedule, we believe this thinking aligns well with the Navy's long-term submarine fleet goals, and BWXT will stand by for a more comprehensive planning and decision-making process from the Navy, our allies, and the Congress. This strong naval spending backdrop serves as a good tailwind for our naval propulsion franchise at BWXT, but also lifts the business prospects of the two acquisitions we made almost 1 year ago to the day. Dynamic Controls and Cunico are both important suppliers of precision parts to the U.S. and U.K. Navies. I visited both companies in the Q1. I believe their unique and highly engineered proprietary valves, manifolds, and fittings could expand our scope to both the U.S. and U.K. Navies right at the moment a strong supplier base will be most needed. While government operations performed well in the Q1, similar to the last few quarters, staffing remains a challenge and could limit our ability to staff to the demands of our programs. The labor market remains tight. We are intensely focused on continuing to grow our workforce. In the Q1, we found ways to work efficiently despite hiring efforts starting a little slower than we had hoped. As streamlined hiring and training processes that we implemented over the last begin to kick in, and we integrate this less experienced workforce, we may see modest noise in the margin performance quarter to quarter over the near term. There have been multiple positive developments for BWXT in recent months outside our naval business. Specifically, in April, we announced two major contract awards. First is a 5-year, $428 million contract from the National Nuclear Security Administration for Phase II of uranium conversion and purification services, building on the pilot phase that we completed last year. We hold the only Category I license to handle and work with these special materials, and the award shows NNSA's confidence in BWXT's ability to manage and execute critical programs on its behalf. A BWXT-led joint venture was awarded the 10-year Hanford Integrated Tank Disposition contract by the Department of Energy. This will potentially be the largest single contract in our government services business. In the technical services group in early 2022, we transitioned onto the Savannah River Mission Completion contract alongside the same team we are partnered with at Hanford. 1 year into this contract, we continue to receive excellent safety and contract performance scores in excess of our original forecast. We are making good progress on our $300 million contract with the Strategic Capabilities Office called Project Pele to build and deliver the first advanced mobile nuclear reactor in the U.S. The contract is largely on schedule and generating revenue. The associated capital expenditures will be complete this year. We continue to see ourselves in a strong position on DARPA's DRACO project, the first demonstration of a nuclear thermal rocket engine in space. DARPA is expected to receive a significant increase in funding for this project based on the president's budget request for fiscal year 2024. We're also seeing a growing interest in advanced reactors for commercial applications across a number of markets. This exciting opportunity for government investments to enable nuclear commercial markets is reminiscent of the Naval Reactors Program of the 1950s that kickstarted the commercial nuclear industry as we know it today. BWXT has a clearly established leadership position in naval nuclear applications, and we stand ready to support efforts to position nuclear to enable the global clean energy transition and for power and propulsion applications in terrestrial, space, and other domains. Moving on to commercial operations. Our core nuclear power business grew nicely and performed well in the Q1, driven by an increase in refurbishment and life extension projects on a number of reactors in the Canadian fleet. As I mentioned last quarter, the government of Ontario announced its support for operating extensions at units five through eight of the Pickering plant, and is launching a feasibility study on the potential refurbishment of these reactors, which would extend these reactors' operational lives another 30 years. Additionally, while still in the very early stages, the government is exploring the potential for new large-scale reactor deployment as it seeks to eliminate natural gas from the power grid by 2050. We continue to see growing interest in small modular reactors and are strongly positioned as a key player given our experience in the engineering design and manufacture of nuclear components. We formally announced our engineering contract for the reactor pressure vessel for GE Hitachi's BWRX-300 small modular reactor. Ontario Power Generation is constructing a grid scale project consisting of up to 4 of these reactors at the Darlington site, with the expectation to have the 1st of these completed and on the grid by the end of the decade. Other large utilities, including the Tennessee Valley Authority, SaskPower in Canada, Fermi Energia in Estonia, and Synthos Green Energy in Poland, have publicly expressed interest in utilizing GE Hitachi's reactor as well. We are excited about the opportunities for this and other small modular reactor technologies as we execute our new build strategy as a merchant designer, manufacturer and supplier for multiple developers in the market. Turning to nuclear medicine, the BWXT Medical business had a solid quarter and is tracking for over 20% organic revenue growth in 2023. We face the market as a full service player in radioisotopes with a base of diagnostic isotopes, additional layers of therapeutic isotope manufacturing, and contract drug manufacturing, which we will touch on later. In the near term, we continue to focus on our Tech 99 product deployment. Our goal is to be fully ramped at commercial scale in 2024 with a generator product that is essentially identical or superior to those on the market today. The FDA conducted a pre-approval inspection meeting in Canada in early March, we believe we have a good handle on the gating factors for approval of our new drug application. We are completing the work necessary to prepare for approval and commercialization with MUR data. Given the installation of the target delivery system in February, we now have OPG irradiated sample runs to supplement our filing pending ongoing discussions with the FDA. This enhanced data and our in-depth exchanges with the FDA give me confidence that our team will bring this important product to market on the schedule we have forecasted and help stabilize the nuclear medicine ecosystem with this critical and foundational diagnostic tool used in thousands of procedures every year. As we continue to work towards commercializing the Tech 99 product in 2024, we also see expanded sales of key therapeutic active pharmaceutical ingredients like lutetium and actinium that support innovators and pharmaceutical companies in critical clinical trials and may ultimately give way to fully scalable quantities if their therapeutic drugs are approved. On contract drug manufacturing, we are involved in several discussions that would meaningfully expand that component of our business beyond what we currently do today for Boston Scientific's proprietary therapeutic cancer treating drug called TheraSphere. To sum it up, we are off to a good start in 2023 and are excited about the near and long-term opportunities ahead of us. Despite the ongoing labor challenges that we are facing in the core Navy business, we are on track for robust high single-digit adjusted EBITDA growth and a meaningful inflection in free cash flow this year. We are growing across the organization, providing a clear pathway to our medium-term strategic and financial targets. Let me now turn it over to Robb to discuss the Q1 financial results in more detail and to discuss our reaffirmed 2023 guidance. Thanks, Rex. Good evening, everyone. I'll start with some total company financial highlights on slide four of the earnings presentation.Q1 revenue was up 7% on a consolidated basis, with government operations up 7% and commercial operations up 9%. Q1 adjusted EBITDA was up 17% to $111 million, driven by higher revenue and better margins in the government operations. This is partially offset by a lower contribution from commercial operations and slightly higher corporate expense as expected. Adjusted EPS grew 2% to $0.70 per share as the strong adjusted EBITDA growth was mostly offset by lower pension income and a higher interest expense. We have an EPS bridge on slide five detailing the puts and takes for the quarter. Free cash flow was a use of $43 million compared to a use of $58 million in th Q1 of 2022. We had a modest use of operating cash in the quarter in line with seasonal patterns as working capital related to our long-term government operations contracts generally builds early in the year as well as higher cash taxes. Capital expenditures were down to $30 million, consisting mostly of maintenance CapEx and modest spending related to growth initiatives. Moving now to the segment results on slide 6. In government operations, Q1 revenue was up 7% to $460 million, driven by higher naval nuclear component production and microreactor volume that was partially offset by lower long lead material. Q1 adjusted EBITDA on the segment was up 22% year-over-year to $104 million as higher revenue, favorable mix, and timing of technical services performance fees was offset by inefficiencies due to the staffing shortfall Rex discussed. In commercial operations, revenue was up 9%, driven by higher component manufacturing sales and increased field service activity in our commercial nuclear business, as well as higher BWXT Medical revenue. Q1 commercial operations adjusted EBITDA was down approximately $2 million as revenue was skewed toward component manufacturing and field service refurbishment activity and less outage work compared to last year. This was partially offset by ongoing cost controls in the business. Turning now to guidance on slide 7. We are reaffirming our 2023 guidance for the 5 key metrics we provided last quarter. We project revenue of about $2.4 billion, up mid to high single digits organically compared to 2022 results. We expect modest adjusted EBITDA margin expansion to approximately 20%, leading to adjusted EBITDA of about $475 million, up high single digits compared to 2022, driven almost entirely by organic growth. As we discussed when we provided our detailed guidance last quarter, we expect the lion's share of EBITDA growth to come from uranium processing and our core Navy business, including recovery of estimated costs on the manufacturing of non-nuclear components. The second driver of growth is from a full year of 2022 wins that are underway, such as Savannah River and Project Pele. The third bucket is from a mix of new awards in our services business, such as Hanford Tanks contract we recently announced and other wins we believe are forthcoming. Adjusted EBITDA growth in 2023 is expected to be offset by non-operational items such as lower pension income and higher interest expense, consistent with what we've discussed over the last couple quarters. We expect adjusted pre-tax income of around $350 million and adjusted EPS in the range of $2.80 to $3 per share. We look forward, we remain confident in reaching our 2023 financial targets, and we will continue to push on hiring new employees and training our workforce to enhance our position for the future. This and the timing of potential cost recoveries in non-nuclear components will likely be the biggest swing factors in our guidance. Looking forward, on a quarterly basis, we now expect Q2 to essentially look how we originally thought Q1 would. Q1 outperformance was driven by naval manufacturing efficiency, TSG performance fees we expected to hit later in the year, and the timing of expenses compared to our previous forecast. We expect that Q2 will now be about 20% of the full year EPS guidance midpoint, followed by subsequent increases in the third and Q4. Otherwise, we expect the year to play out essentially as we did when we first gave guidance at the start of the year. Finally, on cash flow, we see a clear path to achieving $200 million of free cash flow as we drive more operating cash flow and manage our capital expenditures. Overall, BWXT is growing across the portfolio and is building on strategic successes and competitive positioning that enable another strong year of operational growth and position us to accelerate and achieve our medium-term financial targets. With that, we look forward to taking your questions. Certainly. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to repeat that question, please press star then two. To ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question is from the line of Pete Skibitski with Alembic Global. You may proceed. Good evening, guys. Nice quarter. Hey, thank you, Pete. Um. Hey, Pete. Hey, Rex, maybe you could quantify some of the labor trends that you're seeing. It sounded like you were a little short in the Q1 on net hiring. Can you give us a sense how short you were and then maybe what the goal is on a net basis to the balance of 2023? Yeah, Pete, thanks for the question. Good to hear you. Maybe I won't get too specific on that, but let me talk about sort of the process and how we're thinking about it. When you look at, you know, bringing new people into the business, we have to build a pipeline of those people because there's a lot of steps in it, including getting employees cleared, doing the background checks and all that, as you would know. We think about filling the pipeline, we think about the conversion rate from the pipeline into the business, getting through all those steps, through all those gates. Then of course, the third factor there is the retention of the workforce. So you've got to worry about sort of the leakage against the first two. I mentioned on the previous call, and I think on the call before that we had done kind of a Kaizen event to sort of optimize the pipeline and conversion processes, taking time out of each step, trying to eliminate some steps. I'd give us kind of an A for that. I think we've really got the right process in place. We've been filling that pipeline up. We started a little lower than we had a little slower than we had anticipated, but we've seen it inflect upward over the past few weeks. I'm feeling pretty good about where we are. The pipeline's full, the conversion rate is pretty good. The retention part of it is going favorably as well. You know, we had approached, you know, nearly double-digit, voluntary turnover about this time last year, and that's moved a couple hundred basis points in the favorable direction, so less leakage there too. I'd say a little bit behind schedule, but generally in pretty good shape. Yeah, maybe I'll add something there just on the numbers of that, because we track this on a daily and weekly basis. The way I'm looking at it, Pete, the statistics that are really showing through for us is as you build that pipeline, as Rex said, adding to the top of the funnel and then getting people quickly through, we have probably about the peak level of pending potential employees in the clearance process as well as just true pending starts. We're trying to find, you know, room for those two classes of people and those who really move through the pipeline here shortly. When I look at that number, that's a couple hundred that we build to. The progress that Rex is talking about on the funnel and getting employees in is really starting to build. The attrition also, you know, we've been dealing with coming into a new year. As you know, you get retirements kind of as you turn the calendar. You have bonus activity and employees decide to do different things before they move to a different location. That generally all happens kind of in the first, Q2. I'm also seeing the attrition moving down from that double-digit rate that we had seen a couple of years ago back toward, not all the way there, but back toward that kind of industry-leading, you know, mid-single-digit attrition rate. If we have the combination of those two, we should really be able to turn the corner. Some of our peers feel like they're turning the corner and we feel the same way that it could happen, you know, pretty quickly. We're waiting for that to come through. That's one of the reasons we're a little bit conservative on just how the year is gonna develop and specifically the Q2 as we see those new employees. Those do come with a little bit of inefficiency. If we're right on the hiring front, that could be a positive ultimately for the company and could just put a little bit of strain on Q2. We're pretty excited about where we sit here today. That makes sense. Sounds like there's some real momentum there. I'll just ask one last one, guys. Just on government backlog, it's been declining for, you know, four or Q5 now. Are you guys close to re-upping your next kind of three-year order? You know, should we expect anything different from that new order when it happens? Yeah, I think you could expect more of the same, Pete. We are still working through that process. Nothing surprising or negative going on there. We've got a, you know, a full, a set of components in that next pricing agreement. We're working through some of the details. There are some complicating factors this time through, obviously trying to deal with labor inflation, commodity inflation. Also there's some discussions around Columbia acceleration. All of those factors have complicated it a bit. We'll clearly sort through that with our customer and get to an endpoint in the fairly near future. Okay. Appreciate the call, guys. Thank you. Thanks, Pete. Thank you. The next question is from Peter Arment with Baird. He may proceed. Thanks. Good afternoon, Rex, Robb, Chase. Hey Rex, you've been pursuing a lot of these, kind of service related awards, NNSA, Hanford, Savannah. Could you maybe walk us through a little bit how you expect this to kind of ramp up or when do we hit kind of steady state on some of these contracts? Yeah, sure, Peter. Maybe I'll change altitude and give you a little backdrop on this. You know, when I came into the business in 2015, we were at a pretty low point because we were coming off the Y-12 Pantex issues and had to rebuild the portfolio with some, you know, with some performance history trouble. We pivoted over to the environmental market, really sort of rebuild that portfolio and have had, I think, striking success in it. You know, that equity income contribution from that business has approached $50 million last year. The way that business builds as we've characterized it, when you look at these large ones like Savannah River, Hanford, Y-12, Pantex, and others, you can think of those as contributing $10 million-$20 million each, maybe a little more in equity income. As you know, that shows up below the line because we're not consolidating revenue. Think of that as an EBITDA booster. That's one of the reasons we like this business, right? You get margin accretion with it. It's capital. There's no capital intensity at all. It's a very high ROI kind of business. You layer in $10 million-$20 million for those big ones. Then we've got a bunch of, not a bunch, but we've got a handful of smaller contributors. We're involved in the Portsmouth environmental follow-on. We're involved in a thing called OSMS, which is a depleted uranium hexafluoride conversion contract at Portsmouth, Ohio, and Paducah, Kentucky. Those would be, you know, anywhere from a few million up to maybe about $10 million, depending on the scale of those. You know, I think it builds and builds for us. We really are in a very strong position in the environmental remediation market. Now we're pivoting back to that period of time when we're getting into the recompetes on the National Nuclear Security Administration side of it, the M&O contracts. Y-12 is coming. Pantex is coming first, probably this year or next year. Y-12 to follow by about a year. Ultimately, obviously, you'll have the recompetes out at Los Alamos, Livermore, Sandia, you know, Nevada Test Site, all those that are out there. We're really building it. It's really built pretty strongly, and I think we have nice opportunities ahead. Appreciate that, those details. Just one quick one, unrelated. On SMRs, just, Westinghouse was out with a new AP300 SMR in the last week or so. Is there any opportunity here do you see to work with them? Then maybe just any updates you want to give on kind of the SMR conversations you're having. Thanks. Yeah. I would say, Peter, that as I said in the script here, you know, the way we face the market is, you know, we don't have our own reactor to take to market. That's a pretty long putt to make, I think, generally. We've positioned ourselves at the top of the supply chain, and we like to provide design services, design component manufacturing, ultimately maybe fuel manufacturing servicing, and that kind of thing. That's the position we occupy in the supply chain. In that position, because we haven't picked a winner and haven't made equity investments there, we're in a position to support any number of players. We've been public about our relationship with GE, there are others that we work with. I would think of Westinghouse as one of those, one of a handful of legitimate opportunities to really participate meaningfully in the growth of that market. The people who are promoting their own designs and hoping to build reactors talk about very large quantities for those things. Who knows? You know, we'd certainly like to run along with them and benefit from the growth in that market. Yeah, Peter, maybe I'll add that... Appreciate it. ... we find ourselves in a unique position where because we have such a stable business in Canada, and because Canada has really had the foresight to invest ahead of some of these trends, as the SMR, you know, market develops, we should have excellent manufacturing capabilities. As you know, we have the stable, you know, Canadian business that we've had for years. That's a second, you know, part of the market that we've been servicing. Canada has really been, you know, a leader in terms of selection of an SMR with GE Hitachi. All those line up to sort of build backlog and capability for us ahead of some of our peers. Now, Canada is also obviously taking a look at large-scale greenfields of future CANDU plants. That's even a fourth area for us. We're kind of uniquely positioned in Canada given that backdrop. We'll help Canada as well as other SMR designers as that market develops. Appreciate all the color. Nice results. Thanks, Peter. Thank you, Mr. Arment. The next question is from Bob Labick with CJS Securities. You may proceed. Thanks. Good afternoon, congrats on all the exciting news you've announced. Thanks. I wanted to start. Sure, absolutely, yeah. I wanted to start with isotopes Mo-99, the Tech 99 process with the FDA. I think it's been about six months since you announced the priority review. Just curious, I know you said you're on track. I have a bunch of questions, you're on track to be launched commercially fully next year, et cetera. What has been the feedback so far? Kind of what are the next steps here? You know, what might we hear over the next, you know, six months as it relates to the approval process? Yeah, Bob, I don't think much has changed in our perspective since the last call. We're on that 6-9 month clock as we discussed. We're kind of standing by the mailbox to see the outcome of our pre-approval inspection. That hasn't changed. We're in a regular dialogue with the FDA. I won't be too specific about that, but we, you know, we're in a good dialogue with the FDA, and it has a positive tone to it. We're standing by for the results of that pre-approval inspection. Okay, great. You touched on the, you know, OPG Darlington, you know, Molly as well. I guess, Is it, I guess, safe to say you're still kind of in that holding pattern there to decide when that may, like, go to approval with the FDA? Or how should we think about that timeline? Yeah, that's a good question, and that's a subtlety that we know, we certainly need to make clear. You know, the, the FDA new drug application was submitted with data for targets that we irradiated on the University of Missouri Research Reactor. Because of the flux that we get in that reactor at that site on those targets, it's a limited amount of generators we can offer to the market down on the, on the small end, a few curies. The OPG irradiation is where we really need to move our targets so that we can offer a full, the full spectrum of targets. Our strategy had been to go ahead and go through the FDA process with MUR and do a supplemental with targets that are irradiated at the OPG site on the Darlington reactor. We've been having some internal dialogue and some discussions with FDA about whether we might go ahead and supplement our filing now with targets that are irradiated, you know, and with the full spectrum at OPG so that we could maybe move to market a little faster and get that full product offering in, you know, say, in first part of 2024 as we had forecasted. That's the discussion that's going on, and we'll see how that goes. If we could pull that off, then we would avoid a supplemental filing, and we could just sort of wrap it up. It would have some implications on the timeline for formal approval, but it might be a positive effect in terms of the full commercial offering. Okay, great. That's exciting. I guess we'll just sit back and wait and see how it all plays out. It sounds like, in general, things are moving ahead, at least as planned, if not potentially faster with OPG. Is that right? Yes. We, yes, we feel we're in a good position on it and, we're standing by. Yeah. Yeah. That's, that's the right way to think of it. Okay, great. Really, we got our eyes on being commercial with a full-scale product, right? That's really why we focus on that in the transcript. Any of these deviations of paths, if you will, or supplementing with data, we view that as we would only do that if that ultimately was accretive to our timeline. That's what we're trying to judge. We'll be in communication with FDA in order to make sure that we can bring this product, frankly, to the market, really needs this product. We wanna make sure that we get through all those hoops to ultimately present the market with the full-fledged product. That's what we're focused on. Okay. Super. Just shifting gears and kind of following up on the last discussion on SMRs. Can you just give us a sense right now? I mean, it's gotta be a relatively small TAM right now and sales for you, but what's the ramp period for revenue and the opportunity for you and your TAM? I know it's changing as, like, seemingly a year ago it was almost nonexistent. It's much bigger now. Can you frame the opportunity set, you know, this year, next year in SMRs for you, and then 3-5 years? Like, without painting into a single year or quarter, just how you think this plays out and how big of an opportunity can it be in a 1, 5, 10-year period? Yeah. Let me try a little bit on that one. I would say when you think about where we are in small modular reactors, we'd be involved in design activities. For example, on the BWRX-300, the GE Hitachi one, we're designing the reactor pressure vessel. I think it's somewhat likely we'll design other components for that reactor. Of course, our goal is to move from manufacturing and into design, which would mean ordering forgings, doing machining operations at our Cambridge plant and some other locations that we're looking to expand to get more capacity. When you think about the developmental cycle on a plant, the design and component manufacturing occurs really on the sort of on the front end of that timeline. Think of a seven or eight-year timeline, let's call it, when you think about the OPG 1, to get that first reactor on the grid. I'd say our activities are kind of on the, in the sort of, mainly in the front half of that, with some sustaining activities in the back half of it. And we also said that for that particular reactor, we think of our scope as about $100 million per reactor. You know, if, if OPG goes to a 4-pack up there, you can get a sense of the scale of that opportunity. I would think that second units 2, 3, and 4 would feather in, you know, a couple of years each behind the first one, let's call it. But that's certainly up to the utility. The other ones, you know, TVA's looking at the same reactor at Clinch River. They're going through an environmental assessment right now and doing some studies of that. I could see that one, you know, following the OPG one by lagging that one by a couple, 3 years. So, you know, it's just gonna layer up that way. Maybe not so unlike our Navy business. It's very long cycle, and it layers in over years. I can't put a number on it today, but I think it's could be a substantial part of our business, our commercial business in Canada in years to come. Okay, super. I appreciate the extra detail. Thank you. You're welcome. Thanks, Bob. Thank you, Mr. Labick. Our next question is from the line of Scott Deuschle with Credit Suisse. You may proceed. Hey, good afternoon, guys. Hey, Scott. Yeah. Rob, something you touched on briefly in the prepared remarks is this assumption and guidance that you'll get an equitable adjustment on certain contracts. I think this is in your prior quarter guidance as well, maybe just baseline us on why you think you'll get that, and then the timing for when you expect to receive it? Thanks for the question. It is true that we brought that up last quarter, and we're tracking to working with that customer, working with the Navy to get equitable adjustments, specifically in the missile tubes program. As you know, last year, we took a charge of a little bit over $10 million. Frankly, we've been at that contract for the past couple years. Different changes have been made to that contract that we've worked with our customer to just essentially expedite and in the interest of, you know, standing up that capability on U.S. shores, we did all that work to make sure that that was all accomplished on time and within their plans. Now as that contract is wrapping up, we plan to actually ship our final missile tube here in the next couple months. We'll ultimately be wrapping that up, that's the time where we need to circle back on not only that charge that we took last year, but the pain that we've experienced the past couple years of delivering on that contract. We're working with that customer to try to itemize those changes, trying to figure out the best way to find a solution. We find them to be very reasonable, that's the process that we're going through right now. We're not exactly sure of the timing. That's why we wanted a little bit of flexibility of when that hits. Got it. The dialogue with the customer at this point on this specific item is trending favorably? Like, there's some suggestion that they will actually give you this relief? That's right. The discussion has always been constructive. You know, this is a legal matter, so I'm not gonna, you know, get in front of it. I definitely feel like the communication is good. They've paid other suppliers in different instances, and so we know that they're a credible party. Yeah, we plan to get something there. Okay. Rex, just on Hanford Tank, you know, maybe you can give us a sense for what protects this award from an unfavorable protest outcome. You did win this award before and it got protested and sustained, just curious, like, did anything change in the government's design of the RFP or how they evaluated responses to the RFP in a way that we can, as analysts, kind of rely that this award will actually feather through to EBIT upside for BWXT next year? Yeah, Scott, I'll have to speculate a little bit here. Just one minor correction there. In the last case, the protest wasn't sustained. What happened was there was a protest that was registered. The government sort of rethought its position and decided to withdraw that award and add some additional scope to it. That's the reason you see the scope going from, it was a $13 billion award at the time we received it the last time, and now it's $45 billion. They did change the scope pretty significantly on it. Right yeah, were dealing with some complexity in the protest for certain. Who knows, you know, who can say how this would come out? I would say that we have a very strong and a very experienced team, and so we feel good about our position. We are certainly hopeful that the customer has decision conviction around that award. The team that we have on this one is the same team that we assembled for the Savannah River one. That award survived without protest about this time last year. Actually, about a quarter before that, before this quarter last year. We're certainly hopeful. It's not uncommon for contracts on this scale to go through protest periods and, you know, typically what that does is delay the timeline by about a quarter. It would be typical. You know, we're prepared to endure that, but certainly hopeful about the outcome. Okay. Then just last housekeeping question for Rob. Anything to offer on Q2 cash flow expectations? No, we haven't guided specifically, quarterly cash flows, as you know, we're sort of building. Q1 was always expected to be a negative cash flow as we have, you know, higher tax payments, higher bonus payments to our employees, retainages that we deal with in the Q1. It slowly builds. Definitely the third and Q4 are larger than either the Q1 being negative or Q2. It'll slowly build over the course of the year. Okay. Thank you. Thanks, Scott. Thank you, Mr. Deuschle. The next question is from the line of Michael Ciaramoli with Truist. You may proceed. Hey, good evening, guys. Thanks for taking the questions. Nice results. Thanks. Hey, Rex, just, I guess on the labor front and within government, you know, what can you parse out maybe what specific programs are kind of commanding the most labor resources? Is it sort of the bread and butter of Virginia-class, Columbia ramping up, or is it more you need heads for some of these new awards and new programs you're working on? Yeah, it's actually all the above, Mike. It's I would say it's concentrated in our Navy programs, where we've got obviously the Columbia ramp, you know, combined with the constant 2 Virginia-class, and then of course Ford is always a present component there. Just sort of climbing that hill of growth, in this, you know, post-COVID, in this post-COVID macro environment has been challenging. For whatever reasons, the problems that we've had have been more acute on the U.S. side than on the Canadian side. I'd say the concentration has been more around the Navy business. We do, you know, we certainly are challenged to get all the engineering talent and technical talent that we need on, for example, Project Pele. Should we prevail on DRACO, we have to go up another ramp. it's all sort of growth problems, but we're getting our arms around it. Got it. Got it. Are you guys actually on time with your Virginia-class? I know we keep hearing, you know, chatter from the Navy. They're not delivering 2 per year. It's more like 1.8. Are you sort of on track on the various, you know, reactors you're working on for the various subs? Yeah. You know, knock on wood, we've been able to stay off the critical path relative to shipyard need dates. We certainly have to put our shoulder into it every day to stay off that critical path. Okay. Just shifting, I guess, to commercial. You know, the margins, I think you called out mix, but, you know, they were certainly at a multi-year low. I just anything else that any other color you can give there around those margins? Maybe, you know, I'm assuming there's a pretty big profit drag tied to the Tc-99m. You know, is that part of the driver here in terms of some of the margin pressure? It's Robb, I'll take that one. Yes, it was actually, the margin and the result ourselves, in terms of EBITDA was pretty much in line with what we thought how the quarter was gonna play out. The Q1 always is a little bit lower for us if you look back the past couple years. In the Q1, we experienced a pretty significant outage in our medical business, specifically at one of our facilities, in Vancouver. That limits our ability to sort of grow the medical businesses. As you know, that's a higher margin business. Over the next Q3, we'll experience a ramp in medical that really we didn't experience in the Q1 as well, because of the outage. The second factor, which we touched on, is that within plan for us, and in line with how we were thinking about it, the Q1 really experienced a significant amount of refurbishment field services work, which is lower margin for us than even other types of field services work around outages or otherwise. That's just how the calendar worked. As you look at Q2, Q3, and Q4, you can even check, you know, last year, we do have, you know, quarters where we experience, you know, mid-teens margins. It can be choppy as different projects flow through, as different products flow through, and as the medical business ramps. We're not worried about the Q1. Obviously had a great revenue result, in the Q1 too, that we're proud of. Okay. Got it. Last one, housekeeping. I think I heard you, Rob, you said, 2Q EPS, 20% of full year. That puts you at, I guess, $0.58-$0.60 down sequentially, down year-over-year. It sounds like you just had more of those benefits pulled into the Q1, and obviously everything remains on track with a little bit more of a back-end loaded ramp. That's exactly right. In fact, yeah, that's how it pencils out. Okay for EPS. That's what we guided actually the Q1. Really what happened was, I mean, you know, Q1, we had two things really happen in our geo business where we really outperformed. On the core naval business, we just had great timing, mix, you know, volume, and very good performance. That was about a half of the outperformance, in terms of geo. That's sort of a pull-in, if you will, which then leaves you a hole in the Q2 because the volume is just not there, so you don't get as good of absorption. That's the first factor. Then the other half of the outperformance from a from a margin standpoint is we had TSG performance fees that really fell in the Q1, and we thought that was gonna feather in over the second and potentially later in the year. As well as just great expense control in in our advanced technology group where we're building the microreactor program. As that sort of levels out and that business ramps, we also see that sort of building. Then the final factor that I'd just say is that our merits from a, you know, employee standpoint kick in on April 1. So that's that's a that's a headwind that ultimately will just grow through during th Q2. The final thing, which I, you know, talked about was as we bring in, you know, increased workforce, that could put a strain on. We're trying to be conservative there. You're right in line. All those are transitory Q1 goodness and Q2 a little badness. We build just as we thought for the Q3 and Q4. Got it. Perfect. Thanks a lot, guys. Thank you. Thank you. Thank you, Mr. Ciarmoli. The next question is from Ron Epstein with Bank of America. You may proceed. Hey. Yeah, good evening, guys. A lot of stuff's been asked so far, maybe a couple places we can go. In terms of potential new awards coming down the pike here, what should we be looking for that you guys are looking for? Rex, if you could speak to maybe some of the other things that are going on in terms of the resurgence of nuclear power, kind of post what happened in the Ukraine and so on and so forth, that would be great. Okay. Hey, Ron. Yeah. By the way, maybe it's worth saying that, you know, we've had multiple targets to go get over the past few years, Savannah River, Hanford, Pantex, and many other things on the commercial nuclear side of the business, for example. We've been sort of remarkably successful in converting those opportunities into wins for us. I feel really very good about the foundation of growth that we've built. When you look at what else is in the pipeline, you know, I'll risk my credibility here because we've been saying this for a couple quarters, the DRACO award, we believe is imminent, and we feel well positioned for that one. That one's in the pipeline. There's a contract called OSMS, this has to do with uranium hexafluoride conversion services I mentioned earlier in an answer with the Department of Energy. The Portsmouth environmental remediation contract is out there. Importantly, on the medical side, and I said this in the script, we'd be looking at potentially announcing supply agreements around Lutetium-177, perhaps other actinium ones and other active pharmaceutical ingredients or contract manufacturing opportunities. In commercial power You know, there's a whole slew of things. There are other small modular reactor opportunities that we have. We've got opportunities to participate very meaningfully in the Pickering refurbishment projects and the potential new builds, the large reactor new builds should Canada become interested in deploying new CANDUs, we'd be well positioned to support that. Not to mention international nuclear new build opportunities. There's a bunch out there, and we have an opportunity to meaningfully address a lot of it, so I'm pretty excited about that. The second part of your question, Ron, would you repeat that one? I wasn't sure I caught it. You got it there. You kind of hit everything on that. Maybe changing gears. We've talked about recruiting people, but what have you seen in terms of labor inflation? I mean, what do you actually have to do to attract people and retain them, and how does that hit your bottom line in terms of your personnel costs? Yeah. Well, I mean, we've certainly seen pressure there and, you know, we're certainly having to respond to it to attract the right kind of people and retain the right kind of high-quality workers. We certainly will try to reflect those cost changes in our pricing agreements and we will certainly try to get backlog relief on any of those changes, but that all has to be worked out. So far, I think you'd have to say that we're bearing up through it pretty well. I think we've been able to manage supply chain costs and labor costs and managing it to the point that our results are holding up well enough. Rob, you may wish to add to it. No, I mean, on the supplier front, it really, hats off to that group. As you know, when we sign one of those pricing agreements, we try to race out, and lock as much of the material down because we have such foresight. We took a look at the backlog, and, about 90% plus of the backlog we already have either purchased the supplies, hedged or, you know, to fray the risk on our customer or otherwise. Staying really good there. On the labor front, Rex is exactly right. I think we always had a pretty compelling package for our employees, but we've addressed, what we've heard in the market. As I just mentioned to the prior, on the prior question, we're absorbing that. Starting April 1, the merit increases that we have at different sites are bleeding into the business, and we're absorbing that and moving on. We're pretty proud to be able to hit the type of growth that we're experiencing on EBITDA and even on the earnings basis with those, you know, inflation of our employees ratcheting up. Got it. Got it. Maybe on the, you know, the capital deployment front, are you guys looking at any M&A at all? If you are, how does it look out there and what are you seeing? Yeah. You know, not a lot has changed in terms of our overall view that within... You know, our goal is to acquire within our core franchises. There's some, you know, dream deals that we always want to do. We always try to maintain some capacity. If any of those shake loose, specifically on the naval side, we're prepared for that. There's always different hearsay that those assets could break loose, we stay close to that situation. Outside of that, we have growth markets in microreactors, nuclear medicine, and fuels, we're always looking at creative acquisitions that would accelerate those. That's really where we're spending most of our time, and most of those would be, you know, tucked in acquisitions. We're not looking to add another lane of growth. As you can see from our growth last year, underlying growth of, you know, 9%+ on EBITDA, and then this year, 8%. We really are setting ourselves out on a organic growth story, and all that CapEx is really coming to bear. We're focused on our core businesses, on executing our organic growth. If M&A is the cherry on top, then we'll do it. We do not plan to throw any Hail Marys here on the M&A front. Got it. Thank you. Thank you. Thanks, Ron. Thank you, Mr. Epstein. The next question is from David Strauss with Barclays. You may proceed. Thanks. Good evening. Hey, Dave. Hey. Hanford, or is that still? I think previously you had quantified that as a $55 million kind of equity income opportunity. Is that still the right way to think about it? If this doesn't get protested or even if it does, what could that do, I guess, over the near term to numbers? Do you have anything in numbers for it this year? Yeah. To be clear, the $55 million was the total JV. Maybe I'll tell you a little bit how we think about it. There was a headline number of $45 billion for, you know, some headlines say 10 years. Really, there's a performance period of 15 years. That's one thing to note. The second thing is that the $45 billion does include scope that, you know, would potentially be outside of, you know, peer earning product for ourselves. When you window that down into kind of what the annual run rate will be, and it'll build to this, we see it as sort of a $2 billion annual run rate to the JV. We make some amount of that is, you know, subject to performance and so forth. We make a margin on that, and then ultimately we share that with our partners. When you do that math down, you can kind of see that this, Rex talked about any one of these opportunities to BWXT could be $10 million-$20 million of operating profit. I would say when you pencil through that math of us getting a significant share and us having a good margin on this, I would say it's gonna be in the upper end of that, $10 million-$20 million. We'll build to that, and who knows, in the next couple years as we perform well, it could even inch over that. Okay. Great, that's helpful. I might have missed this, but how is Pele going? Are you kind of pacing to that $10 million monthly kind of revenue run rate on Pele? Yeah, it's going fine, David. Yeah, we're ramping that program. I don't have a specific revenue number in my head, but it's in that, it's on that order. Okay. Rob, anything special on the working capital front to, You know, this quarter obviously was a big drag, then, maybe an update on kind of the longer term objective to bring down that working capital. Yeah, thanks. It's a topic near and dear to my heart. Yeah. We've been really looking at this really in 3 buckets of working capital opportunities. We have the accounts receivable front, we have the accounts payable, and then our unbilled, which is basically SIP, offset by advanced billing. When we look at all three of those, we're just kind of charting that out and seeing where we could get more and more efficient. On the receivable side, take for instance, we're looking at billing efficiency and lining up milestones and thinking about how we're working and billing specifically related to milestones. On the AP front, we're actually surprisingly enough, we don't have a vendor portal yet, we're in the process of building that to get more efficient payments with some of our vendors and lining that up with our contracts. On the unbilled side, we're just working on optimizing workflow and being aware of as we sign new contracts, really focusing on cash. When you swirl those three up, really that's leading to operating cash flow this year, which, you know, working capital is frankly the part that we can control other than the P&L, which comes through, you know, net income. We're working hard obviously on that. That's what the call's all about. On the working capital side, we really see a path to getting a day, a day and a half each year by the combination of those factors. We're in the 60s. We've been as low as the low 50s. If we take out a day and a half, maybe two days per year, we're slowly gonna be adding back working capital. I think that's a good target to basically push the $300 million+ each year by a day or two. We'll see growth plus that incremental step up. Great. Thanks a lot. Thank you. Thank you, Mr. Strauss. Our last question is from Tate Sullivan with Maxim Group. You may proceed. Hi, thank you. Can you talk about the $428 million specialty metals contract you announced last month, and when the Phase II of that contract might start and how it relates to Y-12, being down in terms of down blending capability, please? Hi, Tate. It relates exactly to that capability at Y-12 and the 9212 facility down there. It's stockpile maintenance activity, and we think of it, and the DOE has described it as a bridge contract. We are already in the phase two on that. In fact, we had a bridge, a modest bridge contract between phase one and phase two so that we would have continuity of our workforce and our activity from one phase to the next. It's already in, it's already in motion. Okay. Thank you very much. You're welcome. Thanks. Thank you, Mr. Sullivan. There are no additional questions waiting at this time. I will turn the call over to Chase Jacobson for any further remarks. Thanks everyone for joining us today and for your interest in BWXT. We look forward to speaking with many of you and seeing you at upcoming investor events. If you have any questions, you can reach us at 980-365-4300 or by email at investors@bwxt.com. Thank you. That concludes today's conference. Thank you for your participation. You may now disconnect your line.