Earnings Call Transcript - BWXT Q1 2025

Operator, Operator

Ladies and gentlemen, welcome to BWX Technologies First Quarter 2025 Earnings Conference Call. At this time, all the 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.

Chase Jacobson, Vice President of Investor Relations

Thank you, Frans. Good evening, everyone, and welcome to today's call. Joining me are Rex Geveden, President and CEO; and Robb LeMasters, Executive Vice President and CFO. On today's call, we will reference the first quarter 2025 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 in 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.

Rex Geveden, President and CEO

Thank you, Chase, and good evening to all of you. BWXT had a solid start to the year with good first quarter financial results and multiple strategic wins. Our first quarter financial performance exceeded expectations highlighted by double-digit year-over-year revenue, adjusted EBITDA, and adjusted earnings per share growth. We had solid execution across our businesses and benefited from an increased pace of work and timing of material procurement. From a demand perspective, we had another quarter of robust bookings performance led by commercial operations whose backlog now stands at $1.3 billion, up 78% year-over-year. In government operations, our win streak continued with the award of the management and operations contract for the Department of Energy's Strategic Petroleum Reserve in April. Additionally, the NNSA published its intent to award the Domestic Uranium Enrichment Centrifuge Experiment or DUECE contract to BWXT on a sole-source basis. These two contracts highlight our unique value proposition in energy security. With our strong first quarter results as a backdrop, I'd like to spend a few moments discussing BWXT's all-weather portfolio, the trust our customers place in BWXT, and how we are positioned in the current macro environment. First, the secular drivers of our business, global power competition, decarbonization, and increased demand for nuclear technologies are persistent, creating near and long-term opportunities for BWXT that are mostly independent of short-term economic variability. On the government side of our business, U.S. shipbuilding and more specifically, the naval nuclear fleet and nuclear modernization are top priorities for the administration. Our roles as the sole source provider of nuclear reactors, components, and fuel for the U.S. naval nuclear propulsion program and as a trusted supplier of other products and services to the DOE and NNSA position us well in the current environment. Similarly, on the commercial side of our business, our customers are making long-term investments to meet growing electricity demand and satisfy decarbonization goals with clean nuclear power. We have the largest heavy nuclear equipment manufacturing facility in North America in Cambridge, Ontario, where we are expanding capacity. Further, we are augmenting our nuclear services portfolio through the pending acquisition of Kinectrics. In other words, BWXT enables mission-critical long-term investments to which our customers are committed. I will remind you that our supply chains are mostly contained in the countries where we operate. In the U.S., we have a long-standing largely domestic supply chain to meet the strict national security requirements of our customer. In Canada, we have a growing workforce that currently stands at about 1,900 across five major operating sites serving the CANDU and SMR market with a mostly indigenous supply chain, requiring little or no cross-border movement of input materials and finished products. All of this is meant to remind you that while no company is impervious to macro disruptions, BWXT is positioned to weather any storm given our long-cycle contracts, alignment with customer priorities, and strong balance sheet. Now turning to our first quarter results and market outlook, which further affirm the resilient characteristics of our business. Government operations had a strong quarter with 14% revenue growth and 17% adjusted EBITDA growth, albeit off a relatively easy comp, driven by timing of material procurement under our new pricing agreement with Naval reactors, the continued ramp of U-Metal, and the A.O.T. acquisition. Higher revenue and solid operating performance drove segment adjusted EBITDA margin to its highest level since the fourth quarter of 2023. In naval propulsion, our focus on operational excellence drove improvements in utilization and efficiency. Our backlog supports our revenue outlook for modest growth in 2025 with steady production on Virginia-class submarine reactor cores, increasing production of Columbia-class components, and early AUKUS-scope. These help offset the lull in forward-class aircraft carrier propulsion systems through 2025 and likely 2026, which we began discussing upon publication of the latest 30-year shipbuilding plan in early 2024. From a longer-term perspective, the administration's prioritization of the Navy and its industrial base to defend the South Pacific underscores our 10-year forecast of a 3% to 5% revenue CAGR in this line of business. Our recent wins and ongoing operations at multiple DOE sites within Technical Services are also a testament to government confidence and trust in BWXT to support its most crucial missions. In the first quarter, we completed transition and now lead the Hanford Integrated Tanks' disposition contract, which is the largest TSG project in our portfolio and one of the largest environmental restoration projects in the world. Just recently, BWXT, as a minority JV partner with APTIM, was selected to manage and operate the strategic petroleum reserve sites in Texas and Louisiana for the DOE. While this contract brings a relatively modest earnings contribution in the near term, it highlights our value-based competitive positioning in this space. Following this win, BWXT is providing services at 13 DOE and NNSA sites in the U.S. and is actively tracking new opportunities in the U.S. and Canada to further grow this exciting business. In special materials, perhaps one of our most underappreciated businesses, our growth prospects are beyond exciting. We closed the A.O.T. acquisition on January 3rd, have fully integrated it financially, and are working with customers on large-scale opportunities to supply high-purity depleted uranium for national security missions that would create a strong upside to our M&A business case within the first few years of our ownership. In that same vertical, we are more than halfway through a one-year study for the build-out of a national security enrichment plant. We are receiving positive feedback from the NNSA, which recently published its intent to issue a sole-source contract to BWXT for a pilot plant. For that purpose, we acquired 97 acres of land in Oak Ridge, Tennessee. We will keep you posted as this exciting part of our business evolves. In our microreactor business line, the Defense Innovation Unit launched the Advanced Nuclear Power for Installations Program or ANPI to provide energy security for U.S. military bases. BWXT and a handful of other companies were selected to be eligible to receive awards under this program for which we are well positioned given our heritage of Paylay and TRISO Fuel in addition to our facilities and experiential qualifications. Turning to commercial operations, results in the segment met expectations with revenue and EBITDA growth in both commercial power and nuclear medicine. In commercial power, we had another very strong quarter of bookings, leading to a record segment backlog of $1.3 billion, up 39% from last quarter and up 78% year-over-year. This is mainly driven by the booking of the remainder of the Pickering life extension steam generator contract, augmented by other key wins across the portfolio. Importantly, even excluding the Pickering contract, our book-to-bill would have been above 1.0, highlighting solid underlying demand in the market and supporting our forecast for double-digit organic commercial power revenue growth in 2025. Concerning future plans, our largest customers, Bruce Power and Ontario Power Generation, are investing in their existing nuclear generation capacity as they look to undertake large-scale new builds. On top of that, Energy Alberta recently submitted an initial project description for the proposed Peace River nuclear power project that calls for up to 4.8 gigawatts of CANDU capacity. This expands the large-scale new build opportunity in Canada to nearly 20 gigawatts, more than double the country's current nuclear capacity and obviously representing a meaningful long-term opportunity for BWXT and the entire CANDU supply chain. In the SMR market, the Canadian Nuclear Safety Commission authorized construction of the first BWRX-300 unit at OPG's Darlington site, a significant milestone for North America's first SMR project. Our work on the reactor pressure vessel continues at pace, and we continue to anticipate multiple follow-on orders in Canada, the U.S., and Europe. As I previously mentioned, we are investing to meet customer demand. The expansion of our Cambridge manufacturing plant, which will create nearly 50% more capacity, is ahead of schedule and the acquisition of Kinectrics, which offers a broad set of life of plant services, is on track to close by midyear. Also, as the U.S. nuclear power industry seeks partners for plant life extensions, new SMR deployments, and perhaps large-scale reactor build-outs, BWXT stands ready with our scaled domestic nuclear manufacturing quick plant print and a highly credentialed, nuclear-qualified workforce. There are several compelling industry groups coalescing around a whole-of-industry approach to propelling the commercial nuclear enterprise in America, similar to the group formed by TVA and its application to the DOE for an $800 million SMR development grant. These groups will require strong nuclear partners, and BWXT is prepared to support this exciting growth. Turning to BWXT Medical, we had a solid quarter with double-digit revenue and adjusted EBITDA growth, driven by our PET diagnostic product lines. We remain on track for full-year revenue growth of over 20%. As discussed on the last call, with our medical business based in Canada and a portion of our sales going to the United States, we've been working closely with our customers to assess the impact of potential tariffs. Today, our products are covered under the U.S. MCA free trade agreement, which exempts radiopharmaceutical materials from tariffs. Nonetheless, we continue to watch this closely and are working to limit future cross-border risk and product delivery disruption. On Tc-99, consistent with prior updates, we are perfecting our product as we proceed toward FDA approval. Looking forward, the market for nuclear medicine remains highly enticing with increasing volumes of SPEC and PET scanning procedures and pharmaceutical companies investing heavily in novel radiotherapeutic drugs. Of note, Novartis just received FDA approval for Pluvicto, its blockbuster lutetium-177-based prostate cancer treatment, to be used in pre-chemotherapy settings, which is estimated to triple the number of patients eligible for the treatment, highlighting the market's growth potential. In conclusion, we had a very good financial performance in the first quarter, supported by our growing backlog and accelerating nuclear demand. Our customers are investing for the future, and our value proposition rings true as we prepare for growth and navigate any macroeconomic condition. With that, I will now turn the call over to Robb.

Robb LeMasters, Executive Vice President and CFO

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 $682 million, up 13% with growth in both segments. Adjusted EBITDA was $130 million, up 13% year-over-year, driven by robust double-digit growth in government operations and modest growth in commercial operations. This was partially offset by slightly higher corporate expenses. We continue to expect corporate EBITDA expenses in 2025 to be slightly lower than the $16.8 million reported in 2024. Adjusted earnings per share were $0.91, up 20% compared to $0.76 last year due to the operating items previously discussed, complemented by a lower tax rate and slightly lower interest expense. That was partially offset by lower pension income in other net on the income statement. Our adjusted effective tax rate in the quarter was 18.3%, in line with seasonal patterns due to the timing of excess tax benefits on compensation expense. For the full year, we expect our adjusted effective tax rate to benefit from the ongoing tax planning initiatives discussed last quarter. In fact, with a better line of sight to qualified research expenditure credits and geographical mix from growth in our Canadian commercial nuclear power business, we now expect our 2025 tax rate to be only slightly higher versus 2024, a modest improvement compared to our original expectation of a 20 to 40 basis point increase. Free cash flow in the quarter was $17 million, driven by timing of advanced billings and working capital management in what is seasonally our lowest quarter of cash generation. Capital expenditures in the quarter were $33 million, or 4.9% of sales, compared to our expectation for full-year CapEx to be in the range of 5% to 6% of sales. Lower CapEx in the quarter was mainly due to timing of spend on the Cambridge expansion, which is expected to ramp throughout the year as the project is progressing ahead of schedule, as Rex mentioned. Consistent with our prior view, we anticipate full-year free cash flow of $265 million to $285 million. Moving to the segment results on Slide 6. In government operations, first quarter revenue was up 14%, driven by growth in naval propulsion, special materials, and about a 1% contribution from the A.O.T. acquisition. Adjusted EBITDA was $117 million, leading to an adjusted EBITDA margin of 21.1%. As Rex mentioned, we had good operating performance but also benefited from timing of certain long-lead material procurements. We continue to expect government operations to generate mid-single-digit revenue growth in 2025, consisting of low single-digit organic growth plus contribution from the acquisition of A.O.T. and adjusted EBITDA margins of approximately 20%. Turning to commercial operations. Revenue was $128 million, up 10% year-over-year, led by double-digit growth in Medical and solid growth in commercial power. Within Commercial Power, higher revenue was driven by SMRs and Pickering component volumes, partially offset by lower field services work due to the wind down of the Darlington life extension project and timing of outage work, which can vary significantly on a year-over-year basis. Adjusted EBITDA in the segment was $14 million, up modestly year-over-year. However, adjusted EBITDA margin was 10.9%, down 100 basis points as good operating performance was offset by two main factors; first, as we discussed last year and contemplated in our guidance, we faced unfavorable mix and cost absorption due to the decline in field services related to the pacing of life extensions and outage schedules. Second, we experienced heightened inflation for specialized raw materials in our CANDU Fuel business line. This temporary impact will be with us through the second quarter until we begin to contractually recover these cost increases in the second half of the year. For the full year, we anticipate commercial operations revenue growth of approximately 50%, consisting of double-digit commercial power growth, over 20% medical growth, and contributions from the Kinectrics acquisition. Our EBITDA outlook calls for 14% to 15% EBITDA margin, although we now see the lower end is more likely due to higher raw material cost issues in the first half of the year. Turning now to our 2025 total company guidance on Slide 7 and 8 of the earnings presentation. We are reaffirming our guidance for the four key metrics we provided last quarter for revenue, adjusted EBITDA, EPS, and free cash flow. I will note that we refined the ranges for several items listed on the right side of Slide 8, which I referenced throughout my remarks. Looking at the quarterly cadence of earnings. As discussed, our first quarter EPS outperformance was largely due to the timing of work in government operations as well as a slightly lower tax rate. For perspective, compared to our expectation, a little over $0.10 in earnings per share came from higher operating income, mainly due to higher government operations segment income from material procurement timing from Q2 into Q1 and just over $0.01 from more favorable taxes given the tax planning initiatives I discussed earlier, that will remain with us for the remainder of the year. As the material procurement related item normalizes, we now expect the second quarter to be our lowest earnings quarter of the year. This should equate to a little over half of our full-year EPS coming in the second half of the year, consistent with our prior view. To conclude, we had a good start to 2025. Our financial performance, strong bookings, and outlook highlight the quality of BWXT's broad capabilities in the nuclear industry, serving global security, clean energy, and nuclear medicine markets. We are intensely focused on execution and are investing in our company to support customer demand. With that, we look forward to taking your questions.

Operator, Operator

Your first question comes from Scott Deuschle from Deutsche Bank. Please go ahead.

Scott Deuschle, Analyst

Hey, good evening. Robb, it looks like there were some negative EACs this quarter of about $11 million based on what's in the 10-Q. Were those EACs all at government operations? Can you share in more detail what the offsets were that allowed the segment to deliver these pretty strong margins, honestly, despite that headwind?

Robb LeMasters, Executive Vice President and CFO

Yes. No, it wasn't all in government operations EACs. It's about half and half between the commercial and the government business in terms of those EACs in that footnote. The half from the commercial operations, we talked a little bit about that zirc cost impact. That was actually the material zirconium that impacted us on the fuel business. And so we'll start to recover that, as I mentioned, during the second half and ultimately into 2026. So we'll earn that back, but that obviously causes sort of a negative offset there. And then the GEO business is really a little bit of this, a little bit of that across that segment, nothing to call out, and nothing big on the positive side.

Scott Deuschle, Analyst

Okay. And then, Rex, in terms of the recent funds that have been appropriated to support the shipbuilding industry, do you see BWXT as in line to get any of that funding? I mean, your performance would suggest you don't really need it, but just curious if maybe there are opportunities for you all in terms of getting additional government support?

Rex Geveden, President and CEO

Yes. Thank you, Scott. To be clear, you're talking about all the elements in the reconciliation bill?

Scott Deuschle, Analyst

Yes, well, the continued resolution that included, I think, an extra $5.5 billion for the industry?

Rex Geveden, President and CEO

For the CR yes, okay. Not much there for us in the CR. The reconciliation bill is interesting. That's a question you didn't ask, but there are interesting things in there for domestic defense enrichment and for acceleration of DoD nuclear reactors and some things like that. So we're a bit optimistic about what could come of that.

Scott Deuschle, Analyst

Thank you.

Rex Geveden, President and CEO

Thank you.

Operator, Operator

And your next question comes from Pete Skibitski from Alembic Global. Please go ahead.

Pete Skibitski, Analyst

Hey, good evening, guys. Rex, can you maybe go further on the whole reconciliation package? I mean, I think there are some potential changes at NASA. I don't know if that means we're more inclined to go to Mars now and maybe what that could mean for you? And then also just the shipbuilding office setup, a lot going on there? Could you maybe add some color on all of that?

Rex Geveden, President and CEO

Yes, to the best of my ability, I will, Pete, and hey there. So yes, the reconciliation bill, as I mentioned, has some funding for accelerating defense enrichment. There's some funding to accelerate DoD reactors, there's some additional funding for the strategic capabilities office. There seems to be maybe some funding in there for coated fuels like TRISO and some things like that. And of course, there's a pretty big chunk of money for a second Virginia. I think that goes with FY '27. So there's a lot there. In terms of the Office of Shipbuilding, it's too early to tell how much, what, if any of that would influence us, Pete. I would say that's generally positive. I certainly like the White House's posture on the emphasis on nuclear shipbuilding specifically and also commercial shipbuilding, which I believe this nation needs more capacity for. On the Space one, hard to say exactly what the, if you're talking about the language that came out in a skinny budget from the White House, it's hard to tell exactly what that propulsion language was about. I suspect it's related to SLS. In terms of nuclear, we're getting pretty good vibes from NASA about their appetite for nuclear thermal propulsion and then I kind of expect that to go forward.

Pete Skibitski, Analyst

Okay. And I wasn't quite sure at DOE, if you saw any step back in terms of support of any of the advanced nuclear stuff you do there that goes through DOE, did that all look pretty kosher to you guys?

Rex Geveden, President and CEO

Yeah. I'd say almost the opposite, Pete. This idea of energy dominance that's being promoted by the administration certainly includes a strong nuclear element. I would say that the Energy Secretary, Chris Wright, seems very, very pro-nuclear from every encounter we have. So yeah, if anything, it feels like full steam ahead on advanced nuclear and acceleration of nuclear projects.

Pete Skibitski, Analyst

Got it. Thank you. Maybe just one quick one for Robb. Hey, Robb, just on the raw material issue at commercial and calling it back in the second half. Second quarter is typically your highest margin quarter at commercial. Does that change this year because of that impact?

Robb LeMasters, Executive Vice President and CFO

It does. Thanks for flagging that. Yes, generally, as you know, that is a higher-margin quarter where we actually do some outage work that can be a little bit higher margin that's going to be overwhelmed, if you will, by that zirconium sort of issue that we have and just kind of a couple of other mix items. I would say we're not going to have as great performance as it relates to the normal margin flow. And then it'll pick back up. I think we have a better schedule, frankly, in the second half than we even had last year and just in terms of timing of projects. So the way I would think about it is sort of lower margins in the first two quarters, which is a little bit of an anomaly for us in the commercial business. And then picking up even more than maybe one might expect in the second half.

Pete Skibitski, Analyst

Okay, great. Thank you.

Robb LeMasters, Executive Vice President and CFO

Sure.

Operator, Operator

And your next question comes from Bob Labick from CJS Securities. Please go ahead.

Bob Labick, Analyst

Good afternoon. Thanks for taking our question.

Rex Geveden, President and CEO

Hey, Bob.

Bob Labick, Analyst

Hey. So Rex, you said you're perfecting the process on moly right now. And so just kind of maybe the latest update and timeline on that. In the past, we've kind of thought if you were approved by September/October, then you can get into the contracting season for 2026, but now you have partners kind of waiting for approval. So I don't know if like September/October is still a timeframe that's necessary? Or how are you thinking about latest steps and then kind of like timeline to get into contracted sales in 2026?

Rex Geveden, President and CEO

Yeah, I certainly had hoped for approval in 2025, Bob, as we've discussed many times before. This last mile here has been pretty long for us to get a couple of product characteristics right. So, what I would say about that is there's still a window for approval in 2025. We did not forecast any sales in 2025. I think what we said consistently was that, if anything, we might be in the spot market for 2025. So our plan doesn't depend on that at all. We certainly hope for approval in '25, and we still have a window for that for sure. But honestly speaking, that could bleed over into the first couple of months of 2026 or whatever. But we're - we can see the finish line from here for sure.

Bob Labick, Analyst

Great. And just to clarify, the effectiveness and everything is there, this is, as you said, perfecting the product, the elution time, the rates, like - things like that? Or how should we think about the delays?

Rex Geveden, President and CEO

Yeah, we've been working on things. You have a number of items when you go through, when we went through our first FDA application that came back with a number of items that we needed to address technically. And so you sort of work your way through that list, of which there are literally dozens. Some of them are minor things and some of them are pretty significant things. I think we're well satisfied with product quality. We've been chasing down some contamination issues, which is very, very typical in radiopharma or pharma generally. So it's things like that. It's just kind of counting it flat, as I've said before, and we're certainly going to get there, but it's just a lot of details here in the last mile.

Bob Labick, Analyst

Okay. Great. And then Robb, you gave us some good color on the cadence of commercial ops going next quarter, and this next etc. With the very big increase in backlog from Pickering and Pickering being the biggest driver, how do we think about that when that rolls over the next year or two? Is there like a lumpiness to it? Is it smooth once we get there? Or is there any kind of general thought on transition to that growth and SMR growth and how it will affect commercial ops?

Robb LeMasters, Executive Vice President and CFO

Yeah, there's nothing to call out in terms of all of a sudden kind of surge in any one quarter or any one year. I think it's going to build pretty steadily. I would note that, of course, you have other refurbishment work that tails off, right, from refurbishments that we started a few years ago. So you kind of have a, we talked about last quarter that Pickering looks very strong on top of what we're doing at the Bruce. And then, of course, you have Darlington at some point that will kind of finish up. So I think it's going to be steady. We've talked about that growth rate being one of the higher ones within our overall portfolio, and I still see that over the next couple of years. Kinectrics as well kind of lining up and confirming that as we kind of looked inside their books, we also kind of feel like, oh, we have a different glimpse of that trajectory, and it's steady as you go.

Bob Labick, Analyst

Okay. Super. Thank you.

Operator, Operator

And your next question comes from Thomas Meric from Janney Montgomery. Please go ahead.

Thomas Meric, Analyst

Good morning, gentlemen. Thanks for taking the questions. I wanted to start on the enrichment contract and just kind of walk us through the next phases of the pilot program, if you can over the next few years? And then secondly, within enrichment, I just wanted to get a sense of how you look at the HALEU market for U.S. reactor owners, potentially being an obligated supplier of enriched product there and just what do you see as the returns in that market as well as the capital and operational risks of it?

Rex Geveden, President and CEO

Yes, that's a great question. Currently, we are in the conceptual phase of designing a pilot plant in collaboration with the NNSA. The next step would involve a sole source award for this plant. We are focusing on the DOE's technology developed at Oak Ridge National Laboratory, which utilizes a centrifuge-type enrichment method. This effort is centered on designing the manufacturability of these centrifuges, and the pilot plant will enable us to manufacture the centrifuges themselves. The process can be seen in two stages. The first stage is manufacturing, and the second is the actual operation of the plant for uranium enrichment. To meet stockpile needs, high enriched uranium is required, but we must initially process low-enriched uranium and high assay low enriched uranium, which relates to your question. This entire process must be conducted with unobligated materials, meaning they must be U.S. sourced. This complicates things because we cannot use commercial uranium that is not unobligated in the path to high-enriched uranium. The program could evolve in various ways. One possibility is that a commercial source could emerge for that low-enriched and high assay low enriched uranium, or the NNSA could develop the entire capability internally. There are a range of potential outcomes depending on the acquisition strategy and what commercially emerges. At this point, it's too early to predict the direction of the program. However, the pilot plant represents a promising near-term opportunity for us and will be a significant endeavor. Ultimately, we aim to be the company providing enrichment for defense needs regarding high enriched uranium, while the developments between these stages remain uncertain and we will have to see how things progress.

Robb LeMasters, Executive Vice President and CFO

Yes. The government has a positive perspective on utilizing the HALEU market to establish and test its capabilities. As you know, the amount of SWU required in that market is significantly different from that of the LEU. In other words, transitioning technology from 1% to 5% comes with substantial costs, while focusing on HALEU could allow us to pursue it with lower investment on the government's part. If this approach proves successful, it will provide them with an alternative. There is also another technology that may be considered for the LEU market, and we will observe the actions of the government, the DOE, and NNSA regarding this.

Thomas Meric, Analyst

Helpful on both. Thank you. Robb, I wanted to follow up on free cash flow seasonality through the year. I mean, I think we've covered a lot of the margin puts and takes, but maybe just to expand on that on the cash flow statement a little bit. Is there any reason to think free cash flow seasonality this year is markedly different than, say, last year or the year before? And that's it for me. Thank you, gentlemen.

Robb LeMasters, Executive Vice President and CFO

Yes. Thanks for the question. No, I see it as a typical pattern. We've gotten off to a really good start in the first quarter, which is great to see. We talked about the seasonality of CapEx building over the course of the year, same thing with operating cash flow. So, I think that will make ultimately the back half look as it has in the past in the fourth quarter to be the most significant quarter in terms of free cash flow. But happy to get off to a good start here.

Operator, Operator

Your next question comes from Michael Ciarmoli from Truist. Please go ahead.

Michael Ciarmoli, Analyst

Hi, good evening, guys. Thanks for taking the question. Nice results. Rex, you mentioned, I think, some early scope on AUKUS and that's probably come under some scrutiny. But if I think about AUKUS and then that potential for the second VA sub, do those two items potentially change the slope of your kind of 10-year growth CAGR of 3% to 4%? Are they contemplated in there? Or are you feeling better about sort of both of those programs?

Rex Geveden, President and CEO

Yes. Hi, Michael, I don't think that fundamentally changes our outlook. I think what it does is it derisks our outlook a little bit. Because what's happening here, of course, is the Australians have made kind of a $500 million down payment against their $3 billion commitment to the Department of Defense, the U.S. government. And some of that's starting to trickle through. And what we have going on are capital projects related to capacity expansion in order to accommodate AUKUS. It's just early capital projects, frankly, slightly lower margin than what we do in the rest of the plant because it is in production programs, but it's also without risk because it's cost reimbursable. But yes, it just derisks our future and starts to ramp toward AUKUS.

Michael Ciarmoli, Analyst

Okay, perfect. And then just switching gears maybe to the ANPI program. Any sort of updated details there. I think maybe there were probably a couple more participants than maybe we originally thought. But how are you thinking about that opportunity, maybe incremental revenues? Or what's the expected cadence of that program?

Rex Geveden, President and CEO

Yes, Michael, there is currently a lot of uncertainty surrounding that situation. Initially, we anticipated that a smaller number of suppliers would be selected, but the final list actually includes eight, one of which is us, along with X-Energy, Westinghouse, Kairos, General Atomics, Radiance, and a few others. They have narrowed it down to this group from a very large pool of interest, and now they'll move into negotiations with these suppliers regarding what are known as OTAs, or other transactional authorities. This allows them to establish contracts that fall outside of federal acquisition regulations, making it simpler for them to enter a contracting framework with us and the other suppliers. I'm here to see how this develops. However, we currently lack clarity on the funding levels, potential opportunities, and probabilities. But we are eligible and ready to begin negotiations, with hopes of securing some business.

Michael Ciarmoli, Analyst

Okay, fair enough. I'll jump back in the queue, guys. Thanks.

Rex Geveden, President and CEO

Thanks, Mike.

Operator, Operator

And your next question comes from Peter Arment from Baird. Please go ahead.

Peter Arment, Analyst

Yes. Good afternoon, Rex, Robb, Chase. Nice results. Robb, just for clarification. On the Pickering life extension steam generator contract that was added to commercial operations backlog. Was that for the full amount? Or is that just for the initial steam generators?

Robb LeMasters, Executive Vice President and CFO

Yes. That finishes off the full order. I mean, there might be a little bit of cats and dogs, but that's the steam generator, the final 48, if memory serves. So that's the final dose. I think we got a little bit in the beginning and that just kind of gives us the final bit.

Peter Arment, Analyst

Thanks, that was helpful. Rex, you mentioned that with the new Secretary of Energy, it seems like there is positive momentum for nuclear energy. Have there been any discussions or new developments regarding small modular reactors, specifically with TVA or other stakeholders?

Rex Geveden, President and CEO

Yes. I think the Department of Energy is certainly pushing TVA to get the Clinch River site started as soon as possible. There are other discussions that I hear about that I couldn't necessarily disclose. But it feels like the DOE is leaning in very hard to enable the commercial capability for SMRs in the U.S., and we're certainly grateful to see it. We need some steam on that.

Robb LeMasters, Executive Vice President and CFO

Yes, I might just say, we feel pretty well positioned because, of course, we have strong manufacturing capability in the U.S., and with everything going on macroeconomically, they would be looking for a local solution whereas in other instances or other geopolitical environments, we might see different people desiring to ship material into the U.S. We see that all the more reason why we will be part of the solution.

Peter Arment, Analyst

Got it. All right. I'll leave it there. Thanks, guys. Appreciate it.

Robb LeMasters, Executive Vice President and CFO

Thanks, Peter.

Operator, Operator

And your next question comes from Andre Madrid from BTIG. Please go ahead.

Andre Madrid, Analyst

Hi, good afternoon, everyone. You called out the zirconium cost impact a bit earlier in the call. And I kind of want to just dive a little bit deeper there and get a sense of what you guys are seeing. I'm aware that, obviously, a lot of global supply is dominated by China. So recent tariff noise probably doesn't help the issue. I mean, how isolated is that impact? How able do you think you'll be to manage it moving forward? Any sense there would be helpful.

Rex Geveden, President and CEO

Yes, I could start, just financially talking about it. As we mentioned in the commercial nuclear power business, we do import certain materials into Canada from other markets into Canada. So that's the first thing to make clear about the geopolitical, right, it's materials into Canada from other geographies, sometimes also the U.S. We generally try to buy that sufficiently forward. We don't see other issues really affecting us. I mean, overall commodity prices going up is not a favorable thing for us, but we generally work with our customers and have clarity and hedge all that and kind of have that material on the ground in that business. So this was a very rapid change. And luckily, because we have really strong relationships with our customers, we actually have a pass-through mechanism, as I said, to mitigate some unforeseen risk to our business because ultimately, we weren't looking to bear that risk. And so we've had that for years.

Andre Madrid, Analyst

Got it. And then I guess, aside from that, and sorry just kind of rehashing the previous question that was asked on it, but AUKUS. Aside from the additional Virginia units that you guys are going to be contributing to, I mean, when will we get any further sense on component down selection and what your eventual role on the later program that's built in Australia will be?

Rex Geveden, President and CEO

Yes. So that you're talking about the SSN-AUKUS-scope, yes, following the three-to-five Virginias, we've said that we anticipate scope on SSN-AUKUS. We haven't been specific about that yet and really can't be. But as soon as we could disclose that scope, we will.

Andre Madrid, Analyst

Got it. Very helpful. All right. I'll leave it there. Thanks.

Rex Geveden, President and CEO

Thanks, Andre.

Operator, Operator

Our next question comes from Jeffrey Campbell from Seaport Research Partners. Please go ahead.

Jeffrey Campbell, Analyst

Good evening and congratulations on the strong quarter. I thought BWXT's entry into the SPR management was both interesting and perhaps not expected. Can you add some color on how the award came about and why you believe BWXT was chosen?

Rex Geveden, President and CEO

Jeff, I'll take a crack at that. Right. It was a very competitive field there. I believe there were six proposals that were submitted altogether for that activity. I thought it was a bit of a long shot for us. So we were certainly happy to win it with that crowded field. That said, we have experiential qualifications that go all the way back to our history as McDermott. We once managed that site as Babcock & Wilcox. So we know that world, and we've developed experiential qualifications in that world. I think the reason you see DOE taking a bet on us there is because we understand how to operate high-consequence sites, whether they're nuclear or otherwise. And there's, I think, a tremendous amount of confidence in the BWXT brand and the people that we bring to it. It gave us the opportunity to look on the horizon to expand into something new based on our performance history with DOE.

Jeffrey Campbell, Analyst

That makes a lot of sense. And on the medical side, I just wanted to ask how the actinium-225 effort continues to progress. We continue to see some chatter about lead-212 as a competitive approach. So I just thought I would check in on this?

Rex Geveden, President and CEO

Yes, we're doing well with actinium. I believe we are still the largest commercial producer of that product, which we produce at the TRIUMF Accelerator using a spallation method. We're also exploring other production methods, and we've discussed that in previous calls. So we have multiple sources for it, which is exciting. There are other isotopes emerging as potential cancer treatments. However, I don't see them as direct competitors. They are likely to compete alongside lutetium and actinium, as they behave differently in the body and target various cancer conditions and tumors in different stages of metastasis. Lead is another one that's in the product pipeline, along with lutetium, actinium, and possibly others. I'm quite excited about the potential of all of these.

Jeffrey Campbell, Analyst

Great. Thank you. Appreciate it.

Operator, Operator

There are no further questions at this time. I would like now to turn the call back over to Chase Jacobson for the closing remarks.

Chase Jacobson, Vice President of Investor Relations

Thanks, everybody, for joining us today. We appreciate your interest in BWXT and for your questions. We look forward to seeing and speaking with many of you at upcoming investor events in the next few months. If you have any questions, you can reach me at investors@bwxt.com. Thank you.