U.S. markets open in 5 minutes
  • S&P Futures

    3,845.50
    +6.50 (+0.17%)
     
  • Dow Futures

    31,610.00
    +145.00 (+0.46%)
     
  • Nasdaq Futures

    12,623.00
    -40.75 (-0.32%)
     
  • Russell 2000 Futures

    2,208.80
    +19.10 (+0.87%)
     
  • Crude Oil

    65.74
    -0.35 (-0.53%)
     
  • Gold

    1,692.90
    -5.60 (-0.33%)
     
  • Silver

    25.34
    +0.06 (+0.23%)
     
  • EUR/USD

    1.1878
    -0.0047 (-0.39%)
     
  • 10-Yr Bond

    1.5840
    +0.0300 (+1.93%)
     
  • Vix

    26.03
    -2.54 (-8.89%)
     
  • GBP/USD

    1.3845
    +0.0017 (+0.13%)
     
  • USD/JPY

    108.7030
    +0.3210 (+0.30%)
     
  • BTC-USD

    50,877.43
    +259.17 (+0.51%)
     
  • CMC Crypto 200

    1,028.68
    +85.51 (+9.07%)
     
  • FTSE 100

    6,646.68
    +16.16 (+0.24%)
     
  • Nikkei 225

    28,743.25
    -121.07 (-0.42%)
     

Edited Transcript of BWXT.N earnings conference call or presentation 23-Feb-21 2:00pm GMT

·35 min read

Q4 2020 BWX Technologies Inc Earnings Call CHARLOTTE Feb 24, 2021 (Thomson StreetEvents) -- Edited Transcript of BWX Technologies Inc earnings conference call or presentation Tuesday, February 23, 2021 at 2:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * David S. Black BWX Technologies, Inc. - Senior VP, CFO & Treasurer * Mark A. Kratz BWX Technologies, Inc. - Director of IR * Rex D. Geveden BWX Technologies, Inc. - President, CEO & Director ================================================================================ Conference Call Participants ================================================================================ * Carter Copeland Melius Research LLC - Founding Partner, President and Research Analyst of Aerospace and Defense * Michael Frank Ciarmoli Truist Securities, Inc., Research Division - Research Analyst * Peter J. Arment Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst * Peter John Skibitski Alembic Global Advisors - Research Analyst * Robert James Labick CJS Securities, Inc. - President & Director of Research * Robert Michael Spingarn Crédit Suisse AG, Research Division - Aerospace and Defense Analyst * Ronald Jay Epstein BofA Securities, Research Division - Industry Analyst * Tate H. Sullivan Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, welcome to the BWX Technologies fourth quarter earnings conference call. (Operator Instructions) I'd now like to turn the conference call over to our host, Mark Kratz, BWXT's Director of Investor Relations. Please go ahead. -------------------------------------------------------------------------------- Mark A. Kratz, BWX Technologies, Inc. - Director of IR [2] -------------------------------------------------------------------------------- Thank you, Jamie. Good morning, and welcome to BWXT's Fourth Quarter 2020 Earnings Call. Joining me today are Rex Geveden, President and CEO; and David Black, Senior Vice President and CFO. On today's call, we will discuss certain matters that constitute forward-looking statements and involve risks and uncertainties, including those described in the safe harbor provision found in yesterday's earnings release and the company's SEC filings. We will also provide non-GAAP financial measures, which are reconciled to GAAP measures in the quarterly materials that are available on the BWXT website. With that, Rex, I will turn the call over to you. -------------------------------------------------------------------------------- Rex D. Geveden, BWX Technologies, Inc. - President, CEO & Director [3] -------------------------------------------------------------------------------- Thank you, Mark, and good morning, everyone. Yesterday, we reported fourth quarter results, and we will get into that during this call, but I first wanted to thank our 6,700 employees for their hard work, grit and dedication to the BWXT mission through 2020. Despite battling a public health crisis and other business challenges, we met our commitments to customers and shareholders, made tangible progress toward future growth initiatives and produced financial results that were well above expectations. In challenging times like these, our corporate purpose, which is to employ nuclear technology to solve some of the world's most important problems is a clarion call that reminds us of our commitment to the highest safety security, ethical and environmental stewardship standards. We continue to demonstrate strong financial and operational results by staying focused on our mission while holding to our core values. In 2020, we exceeded revenue and earnings per share guidance, resulting in top line growth of 12% and earnings per share growth of 16%, setting new top and bottom line records for the company. Owing to our 2020 earnings performance, we achieved long-term guidance established over 3 years ago and are, therefore, retiring it today. The company's 2021 guidance reflects more modest growth but remains aligned with the multiyear strategy against which we continue to execute. Our future growth opportunities are driven by the company's mission and strategy, and we have the building blocks for continued growth over the medium and long term. Let me give you a quick business update and some insight into our focus for 2021 before turning the call over to David. The nuclear operations group finished out a strong year, but it was not without challenges, particularly in the fourth quarter. We saw a dramatic increase in active COVID case counts, leading to a meaningful number of absences toward the end of the year, which ultimately had some limited impact on shop volume. Almost all the active cases have been determined to be non-workplace transmission, so our protocols continue to effectively mitigate the probability of contracting the virus at work. On a positive note, we are seeing active case counts come down significantly relative to January and early February, similar to what we are seeing across the country. Despite the adversity, our business remains strong, and we do not anticipate a material impact from absenteeism in 2021. Our backlog remains robust, and the team remains dedicated to the customers and company's mission success. To that end, we completed the negotiation of the next multiyear pricing agreement that is on track for a formal contract award toward the end of the first quarter or early second quarter, pending final government approval. To remind everyone, this multiyear pricing agreement is very similar to the one we announced in February of 2019, a 2-year agreement, primarily supporting Virginia class and Columbia-Class fuel and component production. In the fourth quarter, we also shipped the second of 3 Virginia payload module missile tubes. The team has completed all well repair efforts, and we expect to complete the remaining backlog for missile tube production as that program rolls off in the coming year or so. In the Nuclear Power Group, our principal customers, Ontario Power generation and Bruce Power are effectively managing COVID protocols as we saw a pickup in the second half of 2020 with service outage activity. In the Medical business, signs of recovery persist as fourth quarter revenues were only down mid-single digits, and we finished 2020, down about 7%, driven largely by some deferral of demand, particularly for elective procedures. Last summer, we hired Martyn Coombs, a seasoned executive in the pharmaceutical and medical technology sectors to lead the BWXT nuclear medicine business. Since then, Martyn has been busy positioning the organization for future transformation, recruiting top industry talent, optimizing production and navigating near-term market disruptions. BWXT Medical is well positioned in 2021 to capture latent demand from a rebound in elective procedures and increased volume in other products. We expect the Medical business to grow about 30% over the course of the next year, confirming the strong platform we acquired in 2018 as part of the Nordion acquisition. In addition to a positive outlook in the base medical business, I continue to be pleased with progress, Martyn and the medical team are making towards technetium-99 generator commercialization. While there are no new significant milestones to report from the fourth quarter of 2020, we are rapidly completing major facility modifications in Kanata and we have begun (inaudible) equipment installation in the radiochemistry line. We expect to complete significant milestones in the coming quarters, and we will continue to provide updates. Lastly, in the Nuclear Services Group, the 2021 opportunity pipeline remains robust. BWXT led team submitted proposals for the management and operating services contract at Y-12 and Pantex, and the Savannah River integrated mission cleanup contract, both of which are expected to be awarded into transition late this year. Beyond the aforementioned contracts, BWXT remains postured to help the DOE with its evolving mission at Hanford, as that procurement process has been significantly expanded to include additional scope combining a previously planned separate contract, direct feed, low activity waste into the new opportunity. As we progress into 2021, we are acutely focused on completing the NOG capital campaign as we edify the company's premier position in naval nuclear reactors through outstanding execution. We also expect to provide incremental validation of our progress against significant medium and long-term opportunities, including achieving critical milestones in our disruptive technetium-99 generator product, continuing to rebuild the DOE site management and environmental remediation portfolio and standing up a strong presence in the emerging nuclear micro-reactor market. Capital allocation priorities for 2021 remain largely unchanged. We continue to see long-term shareholder value creation and preservation through the capital investments in the Navy business and the tech-99 generator production line. The Board of Directors increased the quarterly dividend 11% last week, resulting in a 250% increase since -- just 5.5 years ago. This action reflects the confidence in BWXT's ability to generate future cash. As the 2 key capital campaigns roll off over the next 24 months, we anticipate a strong return to free cash flow generation. In order to maximize long-term shareholder value, we will maintain a flexible and strategic view about how much of that cash we return to shareholders and how much we reinvest in the business. And with that, I will turn the call over to David to discuss financial results and the 2021 guidance details. -------------------------------------------------------------------------------- David S. Black, BWX Technologies, Inc. - Senior VP, CFO & Treasurer [4] -------------------------------------------------------------------------------- Thanks, Rex, and good morning, everyone. Starting with the 2017 to 2020 bridge, on Slide 4 of the earnings presentation, as Rex mentioned, we are retiring our long-term EPS guidance in the first year of the 3-year performance period since providing that target in 2017. Excluding the corporate tax law change, more than 90% of the multiyear EPS growth came from operations. Higher R&D cost and interest expense were offset with a reduction in share count from opportunistic share repurchases and additional pension income. Moving to 2020 results on Slides 5 and 6. Fourth quarter and full year revenues were up 11% and 12%, respectively, driven by outperformance across all 3 segments for the year. Fourth quarter earnings per share was up 4% to $0.74, resulting in full year earnings, topping our prior expectations at $3.03 per share, up 16% when compared with 2019. Fourth quarter and full year total company operating margins were down, driven by limited COVID impacts in the Nuclear Operations Group in the fourth quarter, and lower Nuclear Operations and Nuclear Power margins for the full year due to the absence of positive onetime items that occurred in 2019 and did not repeat in 2020. Operating cash flow was $196 million in 2020, down about $83 million from 2019, primarily driven by a single $89 million cash payment that we received on January 4, the first business day of 2021, which we historically had received before the end of the fiscal year. Capital expenditures totaled $255 million in 2020, a significant increase compared with the last several years as we continue to invest heavily in the core Navy business and expand into the new product line in medical radioisotopes. Capital expenditures were about $15 million below our expectations due to timing, and they are anticipated to be incurred in 2021. Despite heavy investment for future organic growth, the company generated strong cash flow to enable relatively low borrowings and maintain a flexible balance sheet. At the end of 2020, the company's leverage ratio was 2x. Moving to fourth quarter segment results on Slide 7. The Nuclear Operations Group generated robust revenue, which was up 15% to $426 million on higher long-lead material and naval nuclear fuel production. NOG operating income was $81.3 million, up from the prior year, primarily due to higher volume. This resulted in a 19.1% operating margin for the segment in the fourth quarter, slightly lower than last year, due to some limited impacts from COVID. Nuclear Power Group fourth quarter revenue was $107 million, up 10% compared with the fourth quarter last year, primarily from the Laker acquisition, higher field service activity and fuel production, partially offset by lower component volume. Segment revenue was down about 5.5% on an organic basis in the fourth quarter. The Nuclear Services Group delivered solid operating income of $8.4 million in the fourth quarter, up slightly versus the prior year period as better contract performance and lower costs were offset by higher business development expenses. Turning now to full year segment results on Slide 8. Nuclear Operations Group full year revenues were up 15%, and operating income was up 9%. Full year NOG margins were solid at 19.8% and slightly lower than last year due to fewer favorable adjustments to backlog contracts and some limited COVID impacts. Nuclear Power Group revenues were up 5% in 2020. On an organic basis, excluding the impact from Laker Energy acquisition, revenues were down about 5%. Segment margins finished the year at 14.6%, as business impacts from COVID were offset by the Canadian government reimbursements we recorded in the third and fourth quarters. The NPG segment secured $20.4 million in Canadian government COVID-19 relief to offset business impacts throughout the year. Not only has this program had a positive impact to financials, but it will have a lasting benefit as it has allowed us to invest in our workforce and maintain high operational readiness, enabling a quicker recovery as we emerge from the pandemic. Ultimately, this helps preserve BWXT's ability to have an enduring business in the Canadian Nuclear Power segment and the Nuclear Medical space in North America and globally in the future. And lastly, the Nuclear Service Group completed a robust year despite pressures from new award delays. Operating income rose by 60% to $27.4 million from improved overall performance. Turning now to 2021 guidance on Slide 9. We anticipate consolidated revenue to grow in the low single digits in 2021, with non-GAAP earnings in a range of $3.05 to $3.20 per share with the accelerating EPS growth throughout the year, driven primarily from the recovery in NPG and the timing of new awards in NSG. This leads us to expect a year similar to 2019 with a 45-55 earning split between the first and second halves of the year. CapEx is still anticipated to be high at about $250 million, only slightly below 2020 results due to timing events in items that moved into 2021. Although Navy CapEx is still elevated above maintenance levels, most of the heightened capital investment is expected to be related to medical isotopes this year. In the operating segments, NOG revenue is expected to be up slightly as we shift from higher material production in 2020 to more labor production in 2021. NOG margins are expected to expand slightly versus 2020 to more normal levels, which we have always described as high teens operationally with upside from the FAS/CAS pension reimbursement benefit. NPG revenue is expected to grow about 6% in 2021, primarily from an expected medical isotope recovery and increased product demand as well as anticipated higher field service activity on the power side of the business. NPG margins are expected to be approximately 13%, which does not include an assumption of any significant amount of government COVID-19 relief in 2021. NSG operating income is expected to be from $25 million to $30 million in 2021, about flat at the midpoint with 2020 results as new award opportunities are not anticipated until late in the year. Other guidance information can be found on the right-hand side of Slide 9. We do anticipate the higher income from pension will be offset from increased expenses from other segment operations, including R&D, corporate unallocated costs and a higher effective tax rate, which is all depicted on the guidance bridge on Slide 10. As we turn the page into a new year, the company remains well positioned to capitalize on future, near and long-term growth opportunities. As we mentioned on the last call, we look forward to providing new ambitious targets on financial metrics, enabling insight into the organization's ability to maintain healthy growth and profitability over the long term, just as we have in the past. One of our first actions in 2021 is to wrap up the multiyear budgeting process, and we expect to provide investors updated financial framework on the next call. And with that, I will ask the operator to open the line for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question today comes from Carter Copeland from Melius Research. -------------------------------------------------------------------------------- Carter Copeland, Melius Research LLC - Founding Partner, President and Research Analyst of Aerospace and Defense [2] -------------------------------------------------------------------------------- A couple of quick ones. One, the 30% growth in Medical that you mentioned, Rex, how does that compare to what you saw -- how much was it down in '20, just so we get a sense of calibrating that appropriately? And then, David, on the cash just a couple of pieces: One, which segment did that timing shift from Q4 into Q1 that payment on the fourth, what did that apply to? Just if you could give us some color, you got a big, big increase in contract assets year-over-year. Just any color on helping us think about what that is and how that liquidates over time? -------------------------------------------------------------------------------- Rex D. Geveden, BWX Technologies, Inc. - President, CEO & Director [3] -------------------------------------------------------------------------------- Yes. So Carter, on the isotopes business, we were down about 7% in 2020 compared to 2019, and most of that cratering occurred in Q2 last year. We saw some reasonable recovery in the third and fourth quarters, back to more normal levels. And off of that baseline in 2020, we expect about 30% growth in '21. So a nice rebound and some real organic growth in addition to the rebound on the elective procedures. -------------------------------------------------------------------------------- David S. Black, BWX Technologies, Inc. - Senior VP, CFO & Treasurer [4] -------------------------------------------------------------------------------- And as far as the cash, Carter, the -- NOG, obviously, is our big collector of cash. So it happened on the NOG segment. And as far as the growth of contract assets, I think, as we grow the NOG business, there will be contract assets as well as the NPG business, as we grow that and work with British Power and Ontario Power Generation. Once again, those assets will be building as we build, but then they'll be paid off according to the contracts that we have. -------------------------------------------------------------------------------- Operator [5] -------------------------------------------------------------------------------- Our next question comes from Bob Labick from CJS Securities. -------------------------------------------------------------------------------- Robert James Labick, CJS Securities, Inc. - President & Director of Research [6] -------------------------------------------------------------------------------- And look forward to the next call when you give the multiyear outlook. I was going to ask about that, so maybe I'll change the question a little bit. Without putting numbers to it until you finish your multiyear budget, could you talk about the primary drivers for growth over the next 3 to 5 years? And again, I understand that you'll give us numbers around it in 3 months, but maybe just like the components that you see as the biggest drivers for growth over the next 3 to 5 years? -------------------------------------------------------------------------------- Rex D. Geveden, BWX Technologies, Inc. - President, CEO & Director [7] -------------------------------------------------------------------------------- Sure. I'll take that one, Bob. Yes, there are a number of elements of growth here that should drive the business forward over the next few years. I mean, certainly, we've got -- we have planned growth in the isotopes business that we've talked a lot about. We do think even though we've had some delays in our thinking over the past couple of years because of various award timing things, we do expect some really nice growth in our technical services business in the NSG segment. And that will be based primarily on DOE awards for environmental management and for management and operations in the weapons complex and the research laboratories in that space there. We feel quite well positioned for that. Obviously, we've been building kind of a new vertical, if you will, in micro-reactors and so we have significant opportunities in fuel, reactor design, ultimately manufacturing for various defense, national security and space applications and maybe commercial applications in the long run there. And then I think this new Navy shipbuilding plan is interesting, and it certainly has some potential robust growth if the President requested budget to that shipbuilding plan and the authorizers and appropriators line up to it. So we don't have -- we haven't built that kind of growth into our strategic forecast at this point, but I think there's kind of interesting upside around that. So those would be the 4 primary elements of growth. -------------------------------------------------------------------------------- Robert James Labick, CJS Securities, Inc. - President & Director of Research [8] -------------------------------------------------------------------------------- Okay. Great. And then, just on the isotopes, you mentioned no material new milestones now but more expected in 2021. And the hurdles are, as we've talked about in the past, the industrialization and regulation. And just in terms of the facility modification completion on reactor equipment design and insertion, how long do you have to complete those steps just to maintain your current time line of mid-2022 revenues? And do you feel you're still on track? -------------------------------------------------------------------------------- Rex D. Geveden, BWX Technologies, Inc. - President, CEO & Director [9] -------------------------------------------------------------------------------- Yes. Bob, I think we're -- yes, our view fundamentally is unchanged. We've been tracking to the same milestones over the past year or so. We are making very tangible progress, the facility modifications in particular. We've kind of gone from dirt and concrete a year ago to facilities that are really buttoning up. So we can see the finish line from here. I'm very impressed with what the team is doing with the program and we're optimistic about it. -------------------------------------------------------------------------------- Operator [10] -------------------------------------------------------------------------------- Our next question comes from Pete Skibitski from Alembic Global. -------------------------------------------------------------------------------- Peter John Skibitski, Alembic Global Advisors - Research Analyst [11] -------------------------------------------------------------------------------- Congrats on hitting your financial targets there that you've had out there for a while. -------------------------------------------------------------------------------- Rex D. Geveden, BWX Technologies, Inc. - President, CEO & Director [12] -------------------------------------------------------------------------------- Thanks, Pete. -------------------------------------------------------------------------------- Peter John Skibitski, Alembic Global Advisors - Research Analyst [13] -------------------------------------------------------------------------------- Yes, guys, I continue to be confused about the Hanford contract. I think that's the one you won, and then it got protested. I think it got reopened. But our best and final offer is in on that contract or is that still an ongoing process? And just kind of update us on where we're at with that contract? -------------------------------------------------------------------------------- Rex D. Geveden, BWX Technologies, Inc. - President, CEO & Director [14] -------------------------------------------------------------------------------- Yes. What happened there, Pete, was we were awarded the contract. It did go into protest and then the award was canceled. And the reason -- what the DOE decided to do there was actually change the scope of that contract, as we talked about in the script. And so it was originally for management of the waste tanks at Hanford, they've decided to add some new scope. This direct feed low activity waste component, which was to be a separate contract, and that will all now be combined into one single large contract. They did publish -- the DOE did publish a notice that the RFP -- for draft RFP for that would be out in Q1 this year. So they're certainly moving pretty quickly on that one. So it's a delayed opportunity for us. We like our positioning on us, but it's also now a larger scope opportunity. The scope increase is about 60% from what the original scope was to be. So a delay, but a bigger opportunity. So in the net, I think that's okay for us. -------------------------------------------------------------------------------- Peter John Skibitski, Alembic Global Advisors - Research Analyst [15] -------------------------------------------------------------------------------- Okay. Are you keeping sort of the same teammates? And then what do you think maybe like a summer or late summer kind of an award time frame? -------------------------------------------------------------------------------- Rex D. Geveden, BWX Technologies, Inc. - President, CEO & Director [16] -------------------------------------------------------------------------------- So no comment on teammates because we're in sensitive stages on that. But in terms of award time line, I would hope it would be certainly towards the end of this year. But that's not fully known yet. -------------------------------------------------------------------------------- Operator [17] -------------------------------------------------------------------------------- And our next question comes from Robert Spingarn from Crédit Suisse. -------------------------------------------------------------------------------- Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [18] -------------------------------------------------------------------------------- David, I think, you referenced the NOG revenue mix changing as more revenues come from labor production rather than materials. Does this have an impact on margins? -------------------------------------------------------------------------------- David S. Black, BWX Technologies, Inc. - Senior VP, CFO & Treasurer [19] -------------------------------------------------------------------------------- No. Once again, what we talk about in margins in that business is all of our contracts within that business are 15% fee. So -- which is about a 13% margin. So that does not change throughout the contract on average. -------------------------------------------------------------------------------- Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [20] -------------------------------------------------------------------------------- Okay. And then, Rex, just moving to nuclear micro-reactors. What's your thinking on the TAM on that business? And I'm not sure what the best way to ask the question is, but let's say that if these reactors were to supplant maybe 1/4 of the diesel generator power that the Army currently uses, what might that translate to for BWXT? -------------------------------------------------------------------------------- Rex D. Geveden, BWX Technologies, Inc. - President, CEO & Director [21] -------------------------------------------------------------------------------- Yes. Rob, so we've been a little reluctant to try to scope out what the addressable market is there because it's still in the emergent stages, I would say. The way we've tried to describe it, and I think it's an appropriately cautious way to do it is that, where we are in that market is that customers who are interested in this kind of technology for power and propulsion applications are doing things like developing fuel technology, letting design contracts and various development contracts. And there are kind of 3 phases of this, right? There's technology development, which would then mature into demonstration programs, and we're seeing that with Department of Defense's Pele program. NASA is looking at a flight demonstration program for nuclear thermal propulsion in the long run. So you go from technology development, which -- and these contracts are kind of in the tens of millions. We've won fuel contracts that are in that range and design contracts in that range. These demonstration programs will be in dollar scope kind of hundreds of millions for launches and demonstrations or for terrestrial demonstrations. And then ultimately, and I think this is kind of a few years off, but ultimately, these would be production programs where you might be manufacturing, let's call it, 2 or 3 of these a year. And in those -- in that case, now you've got a revenue stream, let's call it, a few hundred million a year, is maybe a reasonable way to think about the scale of that opportunity. But we haven't published anything on what we think that total market looks like because it just needs to develop a little more before we get specific about it. -------------------------------------------------------------------------------- Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [22] -------------------------------------------------------------------------------- Okay. That's helpful. When you mentioned a few years out on the production side, 5, 6, 7 years, that kind of thing? -------------------------------------------------------------------------------- Rex D. Geveden, BWX Technologies, Inc. - President, CEO & Director [23] -------------------------------------------------------------------------------- I think that's about right because these demonstration programs are just getting going, and we would expect to see reactor demonstrations at Terrestrial 1 maybe in 2026, 2027 time frame, somewhere in there. A space demonstration program, I think, is a longer put and probably a bit beyond that. So let's say towards the latter half of the decade. -------------------------------------------------------------------------------- Operator [24] -------------------------------------------------------------------------------- And our next question comes from Peter Arment from Baird. -------------------------------------------------------------------------------- Peter J. Arment, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [25] -------------------------------------------------------------------------------- Rex, you mentioned the long-term -- the new Navy shipbuilding plan, at least that the Navy had put out there, but we obviously have to see the new administration weigh in. But if that was to happen, you did start to see a 3rd Virginia-Class in '25. How does that impact your kind of your trajectory to hitting the maintenance level, kind of CapEx? I know you thought you'd be in that range for 2023. Maybe you could just highlight that? -------------------------------------------------------------------------------- Rex D. Geveden, BWX Technologies, Inc. - President, CEO & Director [26] -------------------------------------------------------------------------------- Yes. We haven't scoped it out in detail yet, Peter. But I think you know from the shipbuilding plan that just was published, there are 3 additional Virginias in the 2020s, the ones that you referenced in '25 and '26, and there's another one in '29. Of course, for us, in long-lead material, that would start to impact us in '23, a 24-month lead time. So it's a significant looking opportunity. But what we've said is historically is that could probably accommodate a third -- a third Virginia in a particular year. And sort of wedge that into our existing capacity. If we do get into normal tempo on 3 Virginias, say, those 3 in the 2020s, and there's another 6 in the 2030s, we would have to do another build-out, and we haven't scoped that out specifically yet. But it would impact future capital starting in, let's call it, '23. -------------------------------------------------------------------------------- Peter J. Arment, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [27] -------------------------------------------------------------------------------- Okay. That's helpful. And then just sort of clarification back on the isotopes. Are you -- the plan for, I think, was previously that at some point, maybe in the second half of 2021, you'd be submitting for approval of FDA an application for moly-99, Tc-99. Is that still the plan? Or does that shift into '22? -------------------------------------------------------------------------------- Rex D. Geveden, BWX Technologies, Inc. - President, CEO & Director [28] -------------------------------------------------------------------------------- Yes. No, we haven't -- we've been reluctant to publish internal milestones on that. But we're still tracking to that thinking. The thing that we can control is when we submit the package to the FDA, and our view on that is unchanged. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- And our next question comes from Michael Ciarmoli from Truist Securities. -------------------------------------------------------------------------------- Michael Frank Ciarmoli, Truist Securities, Inc., Research Division - Research Analyst [30] -------------------------------------------------------------------------------- Maybe Rex or David, just to stay on kind of Peter's shipbuilding plans, I mean, we've sort of seen kind of aspirational shipbuilding plans. This one obviously has a significant amount of unmanned platforms. And we've heard Kathleen Hicks speak pretty aggressively against some of the big Navy. But taking into consideration what you just said, Rex, about the Virginia classes potentially impacting future capital. You've been in this big CapEx phase. How should we think about your longer-term free cash flow inflection? If you get some extra Virginia classes? I don't think we know the scope yet if large aircraft carriers are sort of sunsetted here, curtailed. We don't know if light carriers are going to have reactors. But I mean, do you guys feel confident that we'll get this sort of CapEx holiday and start to see some significant free cash flow inflection against various naval shipbuilding scenarios? -------------------------------------------------------------------------------- Rex D. Geveden, BWX Technologies, Inc. - President, CEO & Director [31] -------------------------------------------------------------------------------- Mike, our strategic forecast is for that 2 Virginia, layered with the Columbia on top of it and the Ford program, as we've been seeing it, which is on sort of on 5-year procurement cadence. And so in that case, certainly, our CapEx rolls off very significantly in next year and then rolling down to maintenance CapEx levels. So that's how we're forecasting the business right now. And so I do expect significant free cash flow generation and options for that cash flow when the time comes. We do hear some optimism from the Chief Naval Officer around the Navy budget. We've heard similar things from Congressman Wittman and Courtney. And so I don't know where this will go, but it's certainly not in our baseline. Our baseline is to roll off on the CapEx and start generating a lot of cash. -------------------------------------------------------------------------------- Michael Frank Ciarmoli, Truist Securities, Inc., Research Division - Research Analyst [32] -------------------------------------------------------------------------------- Okay. And are you hearing anything from the Navy customer about the light carriers and whether they will be nuclear-powered? -------------------------------------------------------------------------------- Rex D. Geveden, BWX Technologies, Inc. - President, CEO & Director [33] -------------------------------------------------------------------------------- Yes. We just haven't had any discussions around that topic. -------------------------------------------------------------------------------- Michael Frank Ciarmoli, Truist Securities, Inc., Research Division - Research Analyst [34] -------------------------------------------------------------------------------- Okay. Okay. Maybe just one more for me. The NPG margins obviously had COVID-related headwinds, some of the -- you talked about the Medical being down, I guess, 7% for the year. But even the 13%, if I were to look back historically on those margins, I mean, you guys were kind of doing 13% in '17, you had 16% in 2016, even 14% in '18. I'm assuming the plan is still that Medical will be highly accretive. I mean, do you see a pathway to margin expansion there, maybe even back up to those prior levels in the NPG group? -------------------------------------------------------------------------------- Rex D. Geveden, BWX Technologies, Inc. - President, CEO & Director [35] -------------------------------------------------------------------------------- Yes, I think so in the long run, that isotope's business is margin accretive, not only to that segment, but to the full -- to the integrated business at the enterprise level. So I think there's potential for margin improvement there in the long run. -------------------------------------------------------------------------------- Michael Frank Ciarmoli, Truist Securities, Inc., Research Division - Research Analyst [36] -------------------------------------------------------------------------------- Okay. Is it just -- what's holding back the margins, I guess, this year, even if those Medicals are going to grow 30%? -------------------------------------------------------------------------------- Rex D. Geveden, BWX Technologies, Inc. - President, CEO & Director [37] -------------------------------------------------------------------------------- Yes. I think the -- the 13% is kind of historically what that segment has done. You should see -- you're correct in thinking that the isotopes with their margin contribution should drive that some. But bear in mind, Michael, that as we go through this tech-99 generator product line development, we do have some expenses related to it that are outside of the capital spending that will put some negative pressure on margins. And so the growth in the isotopes business a little bit offset by the expenses related to the tech-99 product line. -------------------------------------------------------------------------------- Operator [38] -------------------------------------------------------------------------------- Our next question comes from Ron Epstein from Bank of America. -------------------------------------------------------------------------------- Ronald Jay Epstein, BofA Securities, Research Division - Industry Analyst [39] -------------------------------------------------------------------------------- What are you thinking about on the M&A front? I mean, has the disruption of the pandemic offered up any opportunities? -------------------------------------------------------------------------------- Rex D. Geveden, BWX Technologies, Inc. - President, CEO & Director [40] -------------------------------------------------------------------------------- So Ron, maybe I'll put it in the terms I normally do, right? The bull's eye for us is to be able to kind of expand around our core businesses, which we've done. Certainly in Canada, we certainly would like to do around the Navy business, and so we keep our eyes open for targets like that. It's actually a pretty surprisingly interesting pipeline. The other -- sort of the next layer for us would be near adjacencies, and I would put the radiochemical processing, medical isotopes into that category. And then third, we might move into some other areas that fit our competencies. I've always said, and will continue to say that we have a pretty fine filter because we're, by and large, a nuclear technology and manufacturing business. And so finding targets in that space, not that easy to do. Finding people who will part with those kind of assets, not that easy to do. So -- but we do keep a constant drumbeat of acquisitions in the pipeline. And I kind of like some of the things that I see. -------------------------------------------------------------------------------- Ronald Jay Epstein, BofA Securities, Research Division - Industry Analyst [41] -------------------------------------------------------------------------------- Got you. Got you. Got you. And then maybe just -- maybe a more specific question. When we think about cash flow in 2021, outside of the CapEx. What are you thinking about when we're trying to model out free cash for 2021? -------------------------------------------------------------------------------- Rex D. Geveden, BWX Technologies, Inc. - President, CEO & Director [42] -------------------------------------------------------------------------------- Yes, we tend not to run -- provide cash flow direction. We know that we have one large payment, which came at the beginning of the year. So that will be a positive impact on cash flow. We've forecasted the capital to be $250 million. And so those are the types of things we give in guidance there, but not clear guidance on the cash flow for the year. -------------------------------------------------------------------------------- Ronald Jay Epstein, BofA Securities, Research Division - Industry Analyst [43] -------------------------------------------------------------------------------- Why not? -------------------------------------------------------------------------------- Rex D. Geveden, BWX Technologies, Inc. - President, CEO & Director [44] -------------------------------------------------------------------------------- As we look at our long-term guidance in the future, I mean, if you look at our cash flow, the only things that detract from it, our capital. So we tend to give you the capital numbers. And we have swings on that capital, like last year, that capital was underspent by $15 million, but that $15 million now is going to be spent this year. And so that makes our capital this year a little higher than we thought last year. But the 2 years together were still at the same level. Other than that, dividends, we give you the pieces. We just have not, at this point in time, chosen cash flow as a metric. And once again, we'll look at the next call to see what those metrics are that we want to develop for the next upcoming years. -------------------------------------------------------------------------------- Ronald Jay Epstein, BofA Securities, Research Division - Industry Analyst [45] -------------------------------------------------------------------------------- Got it. Got it. Got it. And then maybe just one last one here. When we look at the ramping of the Columbia, how should we think about the cadence that, that will have on the NOG growth rates? -------------------------------------------------------------------------------- Rex D. Geveden, BWX Technologies, Inc. - President, CEO & Director [46] -------------------------------------------------------------------------------- I mean, we started with the first Columbia, and we've said the second Columbia is coming in 2022. And then we've laid out at least pictorially what that should look like. It's not going to be exactly like that. It's just a representation because it will shift between years and how it's done. But when we get to 2030, you're going to have 7th of Columbia going through the shop, so you have a full one. So between now and then, it will grow some way between now and then. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- And ladies and gentlemen, our next question comes from Tate Sullivan from Maxim Group. -------------------------------------------------------------------------------- Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [48] -------------------------------------------------------------------------------- Can you -- it sounds like you have a lot of milestone announcements developing the moly-99 and tech-99 product. But can you give updated comments on the time lines to commercialize. I think your previous language was for midyear '22. Is that still in place, please? -------------------------------------------------------------------------------- Rex D. Geveden, BWX Technologies, Inc. - President, CEO & Director [49] -------------------------------------------------------------------------------- Yes, Tate, we're -- like I said earlier in the call, our view on the time line really has not changed. We are highly focused on getting our FDA package submitted. And then when we commercialize in '22, is subject to regulatory approval. So there's a bit of uncertainty around that time line. But our view on that has not changed. -------------------------------------------------------------------------------- Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [50] -------------------------------------------------------------------------------- Great. Thank you for confirming. And then related to the 30% Medical growth in '21, is that spread, can you highlight a specific isotope? Or is that spread across pretty evenly across your current portfolio of Isotopes, please? -------------------------------------------------------------------------------- Rex D. Geveden, BWX Technologies, Inc. - President, CEO & Director [51] -------------------------------------------------------------------------------- It's pretty, pretty even spread. We have some pretty large products in that portfolio like strontium and TheraSphere. Those are the bulk of the business, but we have a handful of other isotopes that are starting to show some growth in '21. And we like that whole portfolio there. And organically, it's performing quite well. -------------------------------------------------------------------------------- Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [52] -------------------------------------------------------------------------------- Great. And last one for me. For NPG margins, you cited lower component volume in 4Q. Can you remind me, is that a higher-margin business usually? And do you usually do more component work towards the end of refurbishments in Canada? Or can you comment on that timing, please? -------------------------------------------------------------------------------- Rex D. Geveden, BWX Technologies, Inc. - President, CEO & Director [53] -------------------------------------------------------------------------------- So the refurbishment time line, maybe take a general crack at that, Tate. The refurbishment time line is kind of -- it ramps very early on long-lead components like steam generators and feeder tubes and things like that. And so we experienced a lot of growth on that curve early on. You started to see in 2017 in that business and we climbed up that ramp pretty rapidly. That business basically essentially tripled along with an acquisition over that period of time. And so we have sort of climbed that curve. And now the future opportunities are really around major component replacement, which is the field service activities related to installing steam generators and feeders, and the various other components like that heat exchangers. And so that's how we see the shape of the opportunity, if that's what you're driving at. -------------------------------------------------------------------------------- Mark A. Kratz, BWX Technologies, Inc. - Director of IR [54] -------------------------------------------------------------------------------- Operator, do we have anyone else who wants to get back in the queue? -------------------------------------------------------------------------------- Operator [55] -------------------------------------------------------------------------------- We do not, sir. I was going to turn the floor back over to management for closing remarks. -------------------------------------------------------------------------------- Mark A. Kratz, BWX Technologies, Inc. - Director of IR [56] -------------------------------------------------------------------------------- So thanks, everyone, for joining the fourth quarter earnings call. If you need to contact me, I can be reached at 980-365-4300. Thank you for joining, again. -------------------------------------------------------------------------------- Operator [57] -------------------------------------------------------------------------------- Ladies and gentlemen, with that, we'll conclude today's conference call. We do thank you for attending. You may now disconnect your lines.