Ladies and gentlemen, welcome to the BWX Technologies First Quarter 2024 Earnings Conference Call. 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, Kathleen. 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 first quarter 2024 earnings presentation that is available on the Investors section of the BWXT website. We will also discuss certain matters that constitute forward-looking statements. These statements involve risks and uncertainties, including those described in the safe harbor provision found in the investor materials and the company's SEC filings. We will frequently discuss non-GAAP financial measures, which are reconciled to GAAP measures in the appendix of the earnings presentation that can be found on the Investors section of the BWXT website. I would now like to turn the call over to Rex.

Thank you, Chase, and good evening to all of you. This afternoon, we reported the BWXT first quarter results. We delivered 6% organic revenue growth, 9% adjusted earnings per share growth and remarkably good cash flow compared to historical seasonal patterns. Operating performance was in line with our expectations, and we are reaffirming our full year guidance, calling for mid-single-digit revenue and adjusted EBITDA growth leading to adjusted earnings per share of $3.05 to $3.20. Before I get into the segment discussion, I'd like to spend a few minutes on our recent announcement to expand the Cambridge plant, which is already North America's largest heavy nuclear equipment manufacturing facility. As we discussed on recent calls, demand in the commercial nuclear markets is robust with new and ongoing life extensions of CANDU reactors in Canada and the international market, the potential for large new builds and the incipient demand for small modular reactors. With this tangible future demand and our existing commercial nuclear backlog of over $700 million, we are moving forward with a project to increase the Cambridge facility footprint by 25% and upgrade it with advanced manufacturing equipment. Over the next 2 years, we will invest about $60 million with construction starting in the third quarter of this year and planned completion in mid-2026. I would add that the expanded capacity enables more efficient execution of our existing backlog and room for new and exciting growth projects. While much smaller in scale, our intention is to get ahead of demand that we know is precipitating in this market just as we did with naval propulsion, microreactors and the medical business in recent years. This investment also enables our customers to signal supply chain strength as they compete for and secure more clean energy projects. In that vein, just last week, GE Vernova announced that BWXT is the first qualified company in the BWRX-300 supply chain group. Our customers require products that meet extremely high-quality standards with on-time delivery. By making meaningful investments now, we will be ready to satisfy the demand at the right time with market-leading credentials and capacity. Before making this investment, I personally engaged in discussions with our top customers and will be on the road visiting with others over the next couple of months to underscore BWXT's commitment to the industry and our need to generate appropriate returns for the value we provide. As capacity inevitably tightens, BWXT will occupy an enviable position given its world-class workforce facilities and experiential qualifications. Now turning to a discussion of segment results and the market outlook. Government Operations continue to grow nicely with 6% organic revenue growth in the quarter. From a demand perspective, I would like to touch on a couple of key areas. First, at a high level, the long delayed fiscal 2024 appropriations provided good funding across all our programs in Government Operations. Looking beyond this year, the President's fiscal year '25 budget supports the secular themes, namely the great power competition and global decarbonization that underpin BWXT's long-term growth story. The request prioritizes the Columbia Class submarine program and provides substantial investment in modernization of the submarine industrial base to sustain the shipbuilding plan and prepare for office. This was further supported with $3.3 billion in the defense supplemental bill that was just signed by the President. The FY '25 request supports clean energy, including investments in advanced nuclear technology development, which is important for growth in the micro and small modular reactor markets. More specifically, it fully funds NASA and DARPA's DRACO project, the first demonstration of a nuclear thermal rocket engine in space, a program in which BWXT is manufacturing the reactor hardware and complex coated fuel. Second, there's been a lot of recent news flow around delays in Navy shipbuilding at U.S. shipyards and changes in the procurement schedules reflected in the Navy's new 30-year shipbuilding plan. To address the shipbuilding delays, I will remind you that BWXT made early significant investments to ensure we could handle the workload associated with the serial ramp in Columbia Class orders concurrent with 2 Virginia class orders per year and carrier work going through our facilities. For the most part, we have successfully navigated some of the labor and supply chain issues as the shipyards during and post-COVID. Accordingly, we are somewhat decoupled from the shipbuilding delays. That said, we remain vigilant and continue to work with our customers to ensure the stability of our execution schedules. The updated 30-year shipbuilding plan released since we last spoke at Investor Day just over 2 months ago reflects pressures and trade-offs the Navy sees amid tighter times with varied priorities. While plans for the Virginia class are mixed, that is not particularly meaningful to BWXT given our backlog of work. But the Navy's potential adjustment to the Ford class aircraft carrier schedule would be more impactful because of the reactor scale and quantities. According to this new plan, CVN-82 will be procured in 2030 rather than in 2028 with advanced procurement starting in 2027 rather than 2026. For BWXT, this could mean that the carrier low in '24 and '25 could be extended another year. As we are doing in 2024, we will aim to offset this potentially extended lull with other programs. In any case, our visibility into the demand for naval propulsion, reactors, components and fuel work remains clear with steady procurement cadence of Virginia class submarines and serial production of Columbia Class submarines. Additionally, while still early, it is possible that the Navy could use an extended carrier lull to get ahead on August related work. BWXT has received funding for initial architectural and engineering facilitation work scope to support future increased workload demand, including potential AUKUS activity. While the cadence of orders on any specific ship set could shift from year-to-year, we believe the 10-year compound growth rate for our naval propulsion business of 3% to 5% that we laid out at Investor Day remains achievable. The nation is doubtlessly committed to its long-term goals for the nuclear fleet and changes under various administrations or other Washington dynamics have not historically supplanted the national security imperative. Our microreactor projects for both land and sea are progressing nicely. Project Pele, the terrestrial microreactor we are developing with the Strategic Capabilities Office, is in the procurement phase, and we are working alongside Idaho National Lab and the DOE to finalize the requirements for the authorization basis needed for licensing operation of the system. It is worth noting that Pele received the full funding request in the fiscal 2024 defense bill, highlighting the government support for this critical technology, one that could ultimately serve as a strategic advantage due to increasing needs for stable power at remote military bases and for applications including high-powered radars and the electrification of military tactical vehicles and weapons. Similarly, while in its early stages, DRACO was ramping nicely and was a key contributor to revenue growth in the quarter. Beyond DRACO, we continue to build on our space franchise as the U.S. and its allies increasingly invest in nuclear technologies to expand their presence and capabilities in this domain. We recently entered a teaming agreement with Rolls-Royce through which we secured a U.K. Space Agency contract for nuclear space power missions. This teaming agreement provides for expanding our collaboration beyond space and into other advanced nuclear applications, including microreactor and small modular reactor fuel and component development. While our microreactor strategy is primarily focused on defense applications, we continue to assess opportunities in the commercial markets. Our history of manufacturing nuclear reactors for the Navy along with our dedicated manufacturing footprint and significant technical expertise position us well as commercial opportunities materialize. In special materials, we've assembled a deep portfolio based on our strengths and technical capabilities in radiochemical processing, handling and accountability. Earlier this year, we announced a 2-year extension of our downblending contract building on the success of 2023 when we captured a 5-year uranium purification and conversion contract and a multiyear contract to recycle scrap material from the Y-12 National Security Complex into high assay, low enriched uranium. In March, a BWXT-led joint venture was awarded a 10-year Hanford integrated tank disposition contract by the DOE. We were first awarded this contract in April 2023. After multiple protests by the incumbent, the DOE decided to re-award the contract to the BWXT-led joint venture. While it is again being protested, we delivered a superior proposal as evidenced by our being selected twice. Assuming it settles in our favor, we expect the contract transition later this year. While we are encouraged by market demand, we also remain keenly focused on improving our operations. As I discussed before, we've made significant investments in our workforce and facilities. In the first quarter, we continue to realize benefits of our operational equipment effectiveness program as we saw improved efficiency metrics across our key sites. By way of example, a team tasked with improving tube sheet drilling, the process that requires immense precision, nearly doubled the efficiency of this work track. This is just one example of how our focus on OpEx is helping to drive profitability and offset inflationary impacts to the business. Turning now to our Commercial Operations segment. Revenue in the segment grew 7% in the quarter, and adjusted EBITDA was up 55%. Continuing a recent trend, growth was driven by increasing demand for medical isotopes and improved medical EBITDA contribution. As I described earlier in the call, demand in the commercial nuclear power market is strong. At the end of January, Ontario Power Generation formally announced that it will proceed with life extension of the Pickering site units 5 through 8. This is a substantial opportunity for BWXT that will drive backlog and revenue growth and provide another 10 years or more of visibility into our backlog of life extension work that began in that region in 2017. In the SMR market, we are working with GE Hitachi on the reactor pressure vessel for the BWRX-300 project with OPG and anticipate a full release of the manufacturing award in the coming months. And our opportunity set remains enticing as utilities in North America and Europe consider building SMRs to meet growing electricity demand. The expansion at Cambridge that I described earlier improves our position as the preeminent supplier of large nuclear equipment in North America. Turning to BWXT Medical. Revenue grew rapidly, building on the momentum from last year with base diagnostics and contract drug manufacturing expansion. We continue to expect full year medical revenue growth of about 25%. Demand for diagnostic and therapeutic isotopes is increasing, and rapid consolidation of the therapeutic space continued with AstraZeneca's announcement to acquire Fusion Pharmaceuticals, a key partner of BWXT and a leader in actinium-based drug development for up to $2.4 billion. We continue to see positive data points as various actinium and lutetium-based radiopharmaceuticals advance through clinical trials, driving significant growth in the addressable market. There are over 155 active clinical trials for drugs using these isotopes, some involving drugs that have already proven to be successful. For example, Novartis recently announced that it will seek approval for Pluvicto use in the pre-chemotherapy setting. Pluvicto is the market-leading lutetium-based prostate cancer drug with over $1 billion in annual sales and is currently only approved for post-chemotherapy settings. Approval would open a significantly larger patient set, highlighting the meaningful growth potential of this market. We are currently the only commercial supplier of non-carrier-added actinium and are supporting multiple clinical trials and plan to ramp commercial sales of lutetium significantly next year as we finalize our drug master file with the FDA. So overall, we had a good quarter and are reaffirming our 2024 guidance. BWXT is at the forefront of the nuclear industry occupying meaningful competitive positions in multiple markets. We are experiencing secular tailwinds over the long term and a portfolio that can withstand near-term demand and funding variability. We have a highly credentialed experienced workforce, unique infrastructure and world-class capabilities in manufacturing, processing and services and are enhancing these with organic investments. We are committed to providing our customers nuclear solutions to address critical missions in global security, clean energy, interventional oncology and other nuclear applications, positioning us well to achieve our medium-term financial targets. With that, I will now turn the call over to Robb.

Thanks, Rex, and good evening, everyone. I'll start with some total company financial highlights on Slide 4 of the earnings presentation. First quarter revenue was $604 million, up 6% organically on a consolidated basis, with similar growth in both segments. Adjusted EBITDA was $115 million, up 4% year-over-year as growth in Commercial Operations and lower corporate costs were partially offset by slightly lower Government Operations EBITDA. The lower corporate costs in the first quarter were mainly due to the timing of health care-related costs and are expected to return to a more normalized level over the next several quarters. We continue to see full year unallocated corporate EBITDA at flat to slightly lower than 2023. Adjusted earnings per share was $0.76, up 9% compared to $0.70 in the prior year quarter. As you can see in the EPS bridge on Slide 5, operations contributed about $0.02 to the year-over-year growth with the remainder split between slightly higher pension and other income, lower interest expense and a lower tax rate. For the full year, we expect the net impact of nonoperational items to be relatively neutral to adjusted EPS compared to 2023 as various items around timing of certain expenses, FX gains and interest expense that benefited the first quarter will have offsets over the next 3 quarters. Our adjusted effective tax rate was 22.5% in the quarter due to higher excess tax benefits of stock compensation expense. Nonetheless, we still expect a full year tax rate of approximately 23.5%, meaning you could see a tax rate closer to that level over the next few quarters. Free cash flow in the quarter was $3 million compared to a use of $43 million in the first quarter of 2023. Albeit modest, this was the first time we had positive free cash flow in the first quarter since becoming a stand-alone company, highlighting our focus on working capital management and CapEx discipline. CapEx in the quarter was $30 million, and we continue to expect full year CapEx to be flat to slightly down compared to 2023, inclusive of early spend on the Cambridge facility that Rex discussed earlier. Moving now to the segment results on Slide 6. In Government Operations, first quarter revenue was up 6% to $487 million, driven by higher naval nuclear component production, special materials and microreactor volume that was partially offset by lower long lead material procurement. Despite higher revenue, first quarter adjusted EBITDA in the segment declined modestly to $100 million. This led to an EBITDA margin of 20.5% compared to 22.5% in the first quarter of 2023, which benefited from a particularly strong mix and timing of certain items, both of which worked against us this quarter. For the full year of 2024, we continue to expect Government Operations EBITDA margins to be down only slightly from 21.1% in 2023 due to a few key dynamics. Those include grinding through onboarding inefficiencies and higher labor rates after growing our workforce by 10% last year, absorbing outsized revenue growth in cost plus microreactor projects and other new programs and the absence of the missile tube expense recovery in the fourth quarter of 2023. Providing quarterly margin guidance can be challenging. But at this juncture, our best view is that Government EBITDA margins in the second and third quarter will be similar to the 20.5% we reported in the first quarter with a typical slight seasonal lift in the fourth quarter. Again, all of this leaves us right in line with the Government Operations margin guidance we gave last quarter. Turning to Commercial Operations. Revenue was up 7%, driven by increases in field service activity in our commercial nuclear business as well as robust BWXT Medical revenue growth and partially offset by lower nuclear components and fuel handling volumes. Commercial operations adjusted EBITDA was up about $5 million to $14 million. The increase was driven mainly by improved performance in medical, which was partially offset by slightly lower contribution from commercial nuclear. This led to commercial EBITDA margin of 11.9%, up from 8.2% last year. We continue to expect Commercial Operations growth of high single digits to low double digits in 2024 with higher EBITDA margins compared to 2023. Turning now to guidance on Slide 7. We are reaffirming our guidance for the 4 key metrics we provided last quarter. We project total company revenue and adjusted EBITDA growth in the mid-single digits, leading to revenue of at least $2.6 billion and adjusted EBITDA of approximately $500 million. Included in this forecast is a year-over-year depreciation and amortization step-up of approximately $10 million, driven mostly by Government Operations as the new equipment and capacity we have invested in for our naval propulsion business and microreactor projects are more fully utilized. As such, we are reaffirming our adjusted EPS guidance of $3.05 to $3.20. As for the quarterly cadence of earnings, we expect slightly higher operating results on a sequential basis over the next 2 quarters and a seasonal pickup in the fourth quarter. On the sequential progression of nonoperating items, we expect the next 3 quarters to have higher net interest expense, slightly lower other income and a higher tax rate. In total, this should lead to EPS in the second and third quarters being relatively consistent with the first quarter and then a seasonally stronger fourth quarter. Lastly, we are maintaining our free cash flow guidance of $225 million to $250 million, driven by EBITDA growth and improved working capital management. Capital expenditures are expected to be flat to slightly down, inclusive of early spending on the Cambridge plant expansion and other select growth investments across our businesses. As discussed at Investor Day, we are keenly focused on driving improved free cash flow through both working capital management and CapEx discipline as we work toward our medium-term target of 90% free cash flow conversion. To sum it up, we had a good first quarter and are tracking to achieve our full year guidance. Our focus remains on capturing growth opportunities in our core businesses, innovating to pursue new markets and driving operational excellence and financial performance. And with that, we look forward to taking your questions.

Your first question comes from Scott Deuschle from Deutsche Bank.

Robb, just to clarify, was the year-over-year margin pressure at Government Operations this quarter entirely from the onboarding inefficiencies and cost plus mix? Or is there anything else in there that's dragging down the margins?

No. The year-over-year margin you mentioned, around 200 basis points, was influenced by some pressures we experienced. However, if you reflect on last year, you'll see that was the highest margin we attained throughout the year. It’s important to note that quarter had some favorable elements. One was a one-time positive boost from TSG performance fees that we typically see spread out over the next few quarters. Additionally, we experienced strong NOG volume, likely due to a general release as we navigated the workforce ramp-up. That first quarter reflected several positives, and if you review the script, it was about half of that peak. The latter half of the decline, roughly 100 of the 200 basis points, resulted not so much from inefficiencies but primarily from the current status of some of our new projects. As we accelerate the U-Metal project and the initiatives within our Advanced Technology group, specifically Pele and DRACO, these are all new ventures for us that currently operate at lower margins. So ultimately, half of the decline stemmed from last year’s exceptional performance that represented a true high point, while the other half came from the ramp-up of those new projects.

Okay. That's helpful, Robb. And then, Rex, I think this multiyear pricing negotiation was supposed to have finished up last year, I want to say. So it seems to be taking quite a bit longer than normal. Just curious if you can shed any light on what's driving that delay and whether you got a bridge contract to help you kind of get through until you get the actual multiyear done.

Yes. Sure, Scott. Of course, we completed the fuel part of that contract earlier. That one's in the bag. But yes, the rest of it, we've been operating under a bridge contract for a period of time while we work out the negotiation detail. I would say that the uncertainty around the FY '24 appropriations combined with the defense supplemental created some uncertainty about what funding would be available. And so I'd say now that those are water under the bridge, we're in a position to get this across the finish line now. But your assertion is correct, right? We've been executing the work scope under that pricing agreement for a long time now through bridge contracts.

Your next question comes from the line of Bob Labick of CJS Securities.

Rex, you mentioned the drug master file for lutetium. I was just wondering if you could give us a little more update on the process of seeking Canadian approval for the irradiation of ytterbium up there in your target delivery system and everything and then other steps that it's going to take to get all the way through the DMF for lutetium.

For lutetium. Okay. Well, so for lutetium and those other active pharmaceutical ingredients that's a pretty simple process. And what happens there is that the pharmaceutical companies that are planning to use that radioisotope will reference our product in their filing to the FDA. So it's a simpler and cleaner process, and the timing for that is we'll be in business on lutetium sometime next year and I believe the same thing for ytterbium.

Yes, that's right. Maybe just to give a little added color there. We're through the process of making targets. As you know, you need to get through that. And then ultimately, you'll place those in a source of irradiation. There are 2 sites that we're going to be looking to radio material first at the Missouri Reactor. That's sort of the first stage. And then ultimately, as you mentioned, Bob, in our TDS at OPG, we built that for tech, but that has capability around irradiating ytterbium. So we will have to go through some work to get that credentialed with the regulators, but that's in process as it relates to OPG. We don't see that as an impediment on there. And then ultimately, we're also standing up a processing line for that irradiating material to make active pharmaceutical ingredients. So that's one more step. And so we're rolling out the construction there. So kind of moving along nicely. As the market matures, frankly, we're seeing a lot of different customers for both irradiated material as well as for API.

Okay. Super. And then just sticking with isotopes. Obviously, you have a lot going on this quarter. I didn't hear any update on the moly-99. Any news from the FDA? Or when should we expect next information?

Thank you, Bob. I'd like to provide a broad overview of our product line and its current development. For products like this, there are three key phases: the research and development phase, which we completed some time ago; the industrialization phase, which we are currently in; and the commercialization phase, which has garnered the most interest. We are nearing the end of the industrialization phase, and this coincides with the commercialization of the product. During this phase, we have been working on the target delivery system as well as our radiochemistry and radiopharmacy operations, along with waste management systems among other tasks. It's important to note that we shifted focus from a MURR radiation campaign directly to the target delivery system, which did impact our timeline but ultimately prevented the need for a second FDA filing. Looking back, we believe this was a wise decision. Currently, we have successfully used our target delivery system, processing targets through the reactor at Darlington in a high-neutron flux setting to produce high-activity targets. We have tested all four target elevators and resolved some initial issues, and they are functioning well now. These high-activity targets have been processed through our radiochemistry and radiopharmacy systems, where we are making final adjustments to ensure the product is just right. We are very satisfied with the product quality, as it meets all pharmaceutical standards, and we are addressing the last items on our checklist for the FDA. Meanwhile, we are actively focusing on the commercialization phase, and there is significant enthusiasm in the market for this product. We have conducted product testing by distributing our generators to radiopharmacy networks and integrating our product with cold kits. We are now seriously finalizing supply agreements with these networks and working out logistics related to shipping costs and distribution with specific pharmacies. Overall, I am extremely pleased with our progress, and we are making strides toward the finish line.

Your next question comes from the line of David Strauss of Barclays.

Actually, Josh Corn on for David. I wanted to ask about the expansion of the Cambridge plant for the SMRs. If you could give us anything on when you might see some of that elevated demand start to come through and what the additional capacity might allow you to produce.

Yes. Sure, Josh. I'll start with that one. Robb may want to add. So the thing that kind of tripped us over on making a decision on that capacity expansion was the formal announcement on Pickering. That's a very big project. We'll be making the steam generators of which there are 48 for those 4 reactors, 12 per reactor. 48 steam generators are likely to be manufactured. Very likely we'll manufacture the feeders for that, heat exchangers and other kinds of components. It's a lot. And when you look at what we have in that plant right now, we're making all the steam generators, replacement steam generators for the Bruce site. We're making feeders for the Bruce site. We're making heat exchangers for the Bruce site. We're doing feeders for the Darlington refurbishments. And now we've got this activity on the small modular reactor and the reactor pressure vessel, and we expect to receive firm orders for that in the next few months, as we said on the call. So when you blend all that up, basically, if you walk through that plant, it is full. I mean it is full. And so we really need the capacity now. And our expectation is that we'll see the follow-on orders for the other 3 reactor pressure vessels. And there are other contents on that reactor, the 3 fueling systems and various other things for which we will compete. And then after that, the fast followers would be organizations like TVA, which is preparing the Clinch River site for the same type of small modular reactor. We hear of other utilities that are interested in that and then potential reactors that would go into Poland and other places that you've heard us talk about. So the demand seems to be coming in kind of a wave, and we've built out a capacity to be ready for that.

Yes. I might just add that we've done a lot of business cases. We've been talking about this with you guys even in the last couple of quarters. And I really wanted to do a business case to say, can we make the numbers work on the expansion with essentially the book of business that we have, right, and then leave the upside of being able to either serve international or U.S. demand on the SMR side. That's sort of gravy to this. So as Rex said, as you have the Darlington OPG refurb come to an end at some point, you're ramping up on the Bruce Power and then ultimately the Pickering, all that refurb work, and then you have the GE Hitachi work of the first SMR and the likely follow-on, that really kind of makes you the business case. And then you want to have a tail of opportunity that ultimately pushes it to a really good business case. And that's when I looked at international growth, and either refurbs or you're talking now more about greenfields. And so all of that can't be priced in to counting on it but really will seem to be quite clever if that all comes through. So we're pretty excited about the economics of that build-out.

Your next question comes from the line of Peter Arment of Baird.

Rex, Robb, Chase, great results. Continuing with the topic on Pickering, could you discuss the refurbishment projects? At your Investor Day, you mentioned that the BWX content was around 10% of the total project cost. Would that be the same for Pickering? Also, when do we expect the ordering of the long-lead materials to begin?

On Pickering, I can't provide a specific percentage of total project costs. However, you can consider the opportunity to be comparable in scale to the Bruce reactors, where we secured a contract worth about CAD 600 million to CAD 650 million for building steam generators. If you account for some escalation and a greater quantity of steam generators, along with the addition of feeders and heat exchangers, you're looking at an opportunity in the vicinity of $1 billion. While I don't have the total project cost estimate from OPG, it's clear that it represents a significant opportunity.

Yes, I can take that one. Yes. So they're already talking about whether or not that long lead material could come in the near term. And they're also looking at a schedule to get after a set of those in a more sequential basis to ultimately drive down the cost. So I wouldn't be surprised if you get a more upfront or go working through that with the customer and see how quickly they want to go. But I think in the near term.

That's helpful. Regarding Romania, can you provide any updates on the export financing you mentioned? When should we anticipate order timing for that?

Yes, I can take that, too. It's still looking at kind of a year or 2 out until when it will sizably hit our books. That date is moving around, but they're moving forward. The OEM and EPC are moving forward. And so we're starting to see schedules put out and starting to get our business lined up. So I would say it's sort of, call it, 2 to 3 years out for it to be meaningful for us.

Just lastly on the CapEx part, Robb. So it sounds like you had already kind of planned for this. So CapEx doesn't seem like it goes up at all very much. Are we thinking about this kind of similar levels next year just given this announcement? Or do you think this is kind of like a little bit of growth CapEx that you're putting in place?

Yes. I would describe it by referring back to Investor Day, where we discussed having a little over $100 million, around $110 million, which represents about 4% of sales. We're currently wrapping up the microreactor projects from last year, which likely places us at the lower end of our guidance. The free cash flow range I'm considering includes several different scenarios. On the higher end, we could project capital expenditures around $125 million to $130 million. For this year, that could shift our CapEx as we expand our operations in Cambridge, but we anticipate mitigating that with the positive trends we're seeing in operating cash flows. This stability allows us to stay within our range, as even if we allocate an additional $10 million to $20 million to this project this year, we've already accounted for that. We can manage that with the successful initiatives we have regarding operating cash flow. I believe it’s a bit early to discuss projections for next year.

Your next question comes from the line of Pete Skibitski of Alembic Global.

Just one question for you, Rex. You mentioned earlier about the approved '24 baseline budget and supplementals, including the $3.3 billion in SIB funding. Does any of that SIB money go to your team, or is it primarily for other suppliers since you’re already equipped? Also, are there any differences between the '24 budgets and the new '25 budgets at NASA or DOE that might interest you?

Let's see here. On the submarine base industrial funding, it is for the broad submarine industrial base, which could include us, Pete. And that would, of course, come through our customer. I'd say there's more to come on that as to what if any of that would get to us. And would you repeat the second question again for me?

Yes. Just in the '25 fit-up that got released, with regard to NASA and DOE, I was just wondering if there's anything kind of new or interesting nuclear-wise that you saw in those budgets, the plans there.

New and interesting nuclear-wise. Probably not, but I would say that we're continuing to see sustained and very good support for the programs of record like DRACO and Pele. And hopefully, that will continue.

Your next question comes from the line of Michael Ciarmoli from Truist.

Nice results. Rex, could you clarify the multiyear pricing? You mentioned there might be a delay regarding the fiscal '24 and '25 budget. Is the Ford CVN schedule influencing the situation with the new multiyear contract?

Yes, when we are negotiating agreements with our customer, there are many factors to consider. This includes the shipbuilding schedule, the available budget, the quantity of spares they wish to order, and issues related to cost escalation. Currently, this situation is particularly complex due to inflationary pressures affecting labor and materials. It’s about navigating through these elements. Additionally, it's not uncommon for other defense contractors to be working under bridge contracts while they negotiate similar aspects. We're considering everything including the fiscal year 2024 appropriation, supplementary budgets, and the shipbuilding schedule as we figure out our position. We will definitely resolve this.

Got it. Robb, regarding the medical and Tc-99, have there been any changes in your perspective? It seems like the Tc-99 approval might be delayed, but are you still confident in the revenue trajectory for 2024 and 2025 for overall medical reaching $200 million and potentially improving the margin into the mid-30s?

Yes, I don't believe there is any significant change overall. We don't expect any technology to have a substantial impact this year in 2024. We discussed this last quarter. We're aiming for commercial progress, but the immediate effect will be minimal. As we previously outlined, our target will primarily come from a few key areas: our core portfolio, the therapeutics portfolio, and the tech portfolio. In reviewing those areas, there has been notable growth with Nordion. Therapeutics is surprisingly strong from a market perspective. We need to secure some contracts, particularly regarding lutetium, and we are the only commercial supplier for actinium, so there's potential for upward surprises there. Despite the challenges we've faced in tech, it is starting to align well. The market is looking for a third player, and I wouldn't be surprised if we succeed there as well. Therefore, our target for 2025 and 2026 of reaching $200 million in revenue still seems quite achievable.

Got it. And then just last one for me. Just, Robb, given your background, what were your thoughts when you saw Fusion kind of pre-revenue, pre-EBITDA getting acquired for $2 billion, knowing what you guys have in terms of your medical business?

I believe it was a strong acquisition for the buyer. We are collaborating closely, and as you know, we've announced our partnership with several key companies, including Fusion. We have been consistently impressed with their products and their expertise in sourcing actinium, which is essential for their drugs. The acquirer's press release highlights their commitment to bringing this capability to the parent company. This involves not just their current products but also their supply chain knowledge, where we play a supportive role. In an indirect manner, this affirms our strategy, emphasizing the importance of that knowledge for the company's strength. I've always been clear that we are not in the drug business, which means valuations are typically revenue multiples. Our role is more about providing essential resources. However, we are a crucial part of the ecosystem, and I believe we will be valued appropriately when we implement our comprehensive business plan. I appreciate everyone's patience regarding that. If we meet our targets, I believe the valuation of the entity could be very attractive.

Your next question comes from the line of Ron Epstein from Bank of America.

When considering the pace of submarine production, it appears that the Virginia class has slowed down in relation to the industry's capabilities. What effect does this have on your operations? Are you directly affected by this situation, or are you delivering your products independently? How should we approach this issue?

I briefly mentioned this earlier, but I want to clarify that we are somewhat decoupled from the shipyards. Primarily, our customers are naval reactors, not HII and GD, and we supply our product based on their schedules. The shipyards receive these products as government-furnished items, which creates a level of separation for us. Another point to consider is that this is the President's budget request related to the shipbuilding schedule. However, it won’t have much significance until the authorizers and appropriators finalize the budgets for 2025 and beyond. We are still in the early stages of Virginia production. Peer companies like HII have emphasized the importance of maintaining funding for the production rate, and there is strong support for the Virginia program. Additionally, BWXT and the industrial base need to increase production rates to meet requirements for AUKUS. The Virginia rate should rise to 2.3 for ten years or more, which necessitates building up industrial capacity and workforce capabilities. Slowing down production does not seem practical to me. We will wait to see what the appropriators decide, but I am not overly concerned considering the strength of our backlog and the strategic importance of the Virginia program.

Got it. Got it. Yes, that makes sense. And then I think you spoke to this some, but can you speak to what's going on with labor for you all? I mean, labor has been a challenge for, it seems like, everybody across the space. I mean has it been any different for you? Are you retaining people, hiring people and potentially the people that you're going to need to bring on board to eventually ramp up to meet the demand for the Navy?

Yes, I have a couple of points to share about that. I've addressed this in previous calls, but we've revamped our talent acquisition process under Bob W's leadership in the past year and a half. As a result, we hired 10% of our total workforce last year, as mentioned in the script. There are two aspects to consider: we mostly met our growth requirements despite higher attrition rates post-COVID compared to historical levels. Overall, we’ve managed to succeed in both areas. However, it remains a tough labor market. We are reindustrializing the U.S. economy and trying to increase submarine production, which is challenging due to the scarcity of resources. When Robb mentioned the pressure on our margins, it relates to onboarding so many new employees amidst this turnover. Our efficiencies remain strong, and we’re producing our products with expected profit margins. Nonetheless, we have a significant number of employees in training and dealing with overhead costs due to this situation. I believe we've handled these challenges well, and we need to keep pushing forward. Robb, would you like to add anything?

No, I think you expressed it well. We have proactively invested in capacity and made efforts to address workforce issues ahead of others in the industry. This is how BWXT operates—by quickly tackling problems. As Rex mentioned, our utilization at our primary component sites has increased almost 400 basis points year-over-year. We are managing this effectively and will continue to do so throughout the year. Therefore, we remain confident in our guidance, indicating that we can integrate all this workforce while continuing to progress. I believe we will emerge from this situation stronger.

That concludes our Q&A session. I will now turn the conference back over to Chase Jacobson for closing remarks.

Thanks, everybody, for joining us today. We will be speaking with many of you in the coming days and seeing many of you over the coming months. If you have any further questions, you can feel free to reach out at [email protected]. Thanks.

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