BWX Technologies, Inc. Aktie

Ladies and gentlemen, welcome to BWX Technologies First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to our host Chase Jacobson, BWXT's Vice President of Investor Relations. Please go ahead.

Thank you. Good evening, and welcome to today's call. Joining me are Rex Geveden, President and CEO; and Mike Fitzgerald, Senior Vice President and CFO. On today's call, we will reference the first quarter 2026 earnings presentation that is available on the Investors section of the BWXT website. .

We will also discuss certain matters that constitute forward-looking statements. These statements involve risks and uncertainties, including those described in the safe harbor provision found in the investor materials and the company's SEC filings. We will frequently discuss non-GAAP financial measures, which are reconciled to GAAP measures in the appendix of the earnings presentation that can be found on the Investors section of the BWXT website.

I would now like to turn the call over to Rex.

Thank you, Chase, and good evening to all of you. We had a great start to 2026 with very strong first quarter results. Revenue grew 26%, 11% of which was all organic. Adjusted EBITDA grew 14% and earnings per share grew 22%, all ahead of expectations. Outperformance in the quarter was driven by improved throughput, favorable pacing of work and exceptional operational execution across our business lines.

We ended the quarter with a backlog of $8.7 billion, up 77% year-over-year and 19% sequentially. Supported by robust bookings in government and consistent backlog in commercial, providing clear visibility to future growth. Demand for commercial nuclear power components and services continues to accelerate across the U.S., Canada and Europe.

As projects launched, we believe that localized manufacturing capacity will increasingly differentiate BWXT, making the establishment of U.S. commercial manufacturing footprint to complement our Canadian operations a strategic priority. To that end, in April, we announced the acquisition of Precision Components Group, PCG, a U.S.-based manufacturer of complex heat transfer components for the U.S. naval and commercial nuclear markets with 2 facilities in more than 400 highly skilled employees, PCG represents our first step toward building domestic U.S. commercial nuclear manufacturing capacity.

While most of PCG's current revenue and backlog is related to cable programs, its facilities have immediately available capacity that we intend to utilize for the commercial market. With products such as reactor internals, pressurizers, heat exchangers and reactor head assemblies.

Beyond the PCG acquisition, we intend to expand our U.S. commercial manufacturing footprint likely with a greenfield plant at our Mount Vernon, Indiana site on the Ohio River. This facility will be capable of producing larger heavy nuclear equipment, including steam generators and reactor pressure vessels.

Ultimately, our goal is to build scalable U.S. commercial nuclear manufacturing operations that can serve U.S. and global SMR and large reactor projects. By adding domestic capacity, we are positioning BWXT to meet rising commercial demand while creating meaningful synergies with our existing U.S. operations.

Beyond commercial power, we are making disciplined growth investments across the portfolio, supporting existing businesses, adding new technologies and capabilities and pursuing opportunities in advanced nuclear and other national security applications.

Turning to segment results and market outlook. Government operations revenue was up 4% and adjusted EBITDA was up 1% in the quarter, slightly ahead of our expectations. We had strong bookings, including $1.4 billion from the second portion of the pricing agreement for Naval reactors awards last year and long lead material procurement contracts for out-year production.

This led to segment backlog of nearly $7 billion up 25% sequentially and 93% year-over-year. In naval propulsion, we are driving operational efficiencies in our plants, which contributed to our good margin performance in the quarter. We anticipate continued revenue growth with a steady pace of Virginia-class production, growth in the Columbia class and early work on the next Ford-class ship set.

The President's FY '27 budget request supports these programs and ship building generally, further reinforcing our confidence in longer-term growth rates in special materials, our legacy programs delivered solid results and our defense fuels enrichment and HPDU programs are progressing in line with early program schedules.

Specific to defense fuels enrichment, we completed construction of the Centrifuge manufacturing development facility earlier in the year and have begun prototyping the first units. In April, we engaged with the NRC regarding our plans to build an HEU enrichment facility in Irwin, Tennessee. This engagement is an important milestone as it creates alignment with regulators in the NRC approval process.

For our new large HPDU contract, we are organizing the supply chain and preparing for construction of the new facility in [ Jones Earl, ] Tennessee. That program will ramp through 2026 and continue over the next several years before transitioning to commissioning and production. The growth potential in special materials is exciting, and we continue to pursue new scopes with existing customers and evaluate entry points to new markets.

Technical Services has delivered strong equity income growth over the past few years with multiple strategic wins. We are pursuing new opportunities in the DOE market and in other new markets with the next wave of contract awards expected over the next 12 to 18 months.

Moving to microreactors and advanced nuclear fuels, the market is evolving rapidly in land-based defense, commercial and space markets. We continue to see strong demand across the board, including cortisol fuel for demonstration reactors and future commercial projects with multiple reactor developers.

Of note, Kyros with whom we have a collaboration agreement on [indiscernible] recently began construction of its Ernest II reactor for Google in Oak Ridge, Tennessee. Finally, we are continuing our close engagement with the Army on the [ Janus ] program. Turning now to commercial operations. Results in the quarter were well ahead of our expectations.

Organic revenue grew 39% and total revenue rose 121% with robust double-digit growth in commercial nuclear and medical and contribution from metric -- while the outperformance was partially due to timing of outage work and progress on large component manufacturing, we also improved operational performance with accelerated throughput and reduced lead times.

Following an 85% increase in backlog in 2025, backlog was flat sequentially in the first quarter, but still up 33% year-over-year, supporting our expectation for low teens organic growth in commercial power this year. The outlook for new build nuclear projects remains very positive. Notably, the U.S. and Japan announced plans to invest up to $40 billion to build up to 3 gigawatts of GE Hitachi, SMRs in the Southeastern United States.

Our role is the reactor vessel supplier on the first GE Hitachi BWRX-300 SMR in Canada, puts us in a good competitive position for these future projects. Given BWXT's industrial scale and engineering and design capabilities, customers are increasingly coming to BWXT to supply critical nuclear components for their current and future SMR and large-scale nuclear projects, which should lead to further backlog growth over the next 12 months.

Conectric continues to exceed the acquisition business case having delivered another very strong quarter. A key highlight in the quarter was Kinetics being selected as the design and fabrication partner for a U.K. Tritium loop facility, which will be the world's largest and most advanced Tritium fuel cycle facility.

This presents an entry point for engineering services and specialty equipment manufacturing and the exciting nuclear fusion market. With that, I will now turn the call over to Mike.

Thanks, Rex, and good evening, everyone. I'll begin with total company financial highlights on Slide 4 of the earnings presentation. First quarter revenue was $860 million, up 26% year-over-year with 11% organic growth. Strong performance in commercial operations was complemented by steady growth in government operations.

Adjusted EBITDA was $148 million, up 14% year-over-year driven by robust growth in commercial operations and modestly higher government operations, partially offset by higher corporate expense relative to an unusually low level in last year's first quarter. Adjusted earnings per share were $1.12, up 22%, reflecting strong operating performance and approximately $0.08 of higher nonoperating contributions.

Our adjusted effective tax rate for the quarter was 15.8%, benefiting from timing of stock compensation. Our updated full year tax rate guidance of less than 21.5% and is modestly higher than last year's rate, reflecting strong growth in international earnings, mainly from Canada. First quarter free cash flow was $50 million a strong result for what is typically our seasonally weakest quarter, reflecting solid earnings and effective working capital management.

Capital expenditures in the quarter were $43 million. We continue to expect our full year capital expenditures to be around 6% of sales. However, it is possible that CapEx may exceed that level in future periods as we advance targeted growth investments including expansion of U.S. commercial nuclear manufacturing capacity and advanced nuclear and fuel capabilities given the significant business we expect to capture.

We are carefully balancing these strategic investments with our financial return metrics as we evaluate the numerous growth initiatives across the business. Moving to the segment results on Slide 6. In government operations, first quarter revenue was up 4% with growth in special materials and naval propulsion offsetting lower microreactor volumes.

Adjusted EBITDA in the segment was $118 million up 1%, resulting in an adjusted EBITDA margin of 20.4%, has better revenue, solid operating performance and timing of technical services income benefited margin. Given first quarter performance, we now expect government operations margins to exceed 19% for the year.

Turning to commercial operations. Revenue was up a robust 121% and including 39% organic growth, reflecting increases in both commercial power and medical and contribution from [ Conectric ] Growth exceeded expectations due to increased throughput on large commercial nuclear component projects, mainly associated with the picker and life extension and better-than-expected performance from metrics.

Adjusted EBITDA in the segment was $36 million, up 162% from last year. Adjusted EBITDA margin in the quarter was 12.9%, and with higher sales and strong execution, offsetting the impact of growth investments as we continue to scale the business. Turning to our 2026 guidance on Slides 7 and 8 of the earnings presentation which I will note does not include contribution from the recently announced PCG acquisition.

We expect revenue of at least $3.75 billion, up high teens compared to 2025. In government operations, we expect low teens growth with over half coming from the defense fuels and H PDU contracts. In commercial operations, we increased our revenue growth expectation to approximately 30%, driven by low teens growth in commercial power, high teens medical growth and a full year of contribution from Conectric which as mentioned, has outperformed our expectations to date.

For adjusted EBITDA, we are increasing the guidance range by $5 million on each end, resulting in revised adjusted EBITDA guidance of $650 million to $665 million. Regarding the cadence of operating earnings, we continue to expect our full year results will be slightly more back half weighted than usual with about 55% of full year EBITDA anticipated in the second half, and we expect second quarter EBITDA to be roughly in line with to slightly below first quarter levels.

These assumptions lead to non-GAAP earnings per share guidance of $4.60 to $4.75, with the increase driven by higher operating earnings. We expect free cash flow of $315 million to $330 million, inclusive of mid- to high teens operating cash flow growth supporting continued reinvestment and long-term shareholder value creation.

Regarding the recently announced acquisition of PCG, the business generated approximately $125 million of revenue with low double-digit EBITDA margins in 2025, and we anticipate mid-single digits revenue growth in 2026. The acquisition, which will be included in our Commercial Operations segment, is expected to close in the second half of the year.

As such, our annual financial guidance does not include contributions from PCG at this time. Overall, we're off to a strong start in 2026. Our robust backlog provides us great visibility for the remainder of the year, allowing us to focus on margin expansion cash generation and capturing new high-value contracts across the defense and commercial nuclear markets. With that, I will turn it back to Rex for closing remarks.

Thank you, Mike. It is an exciting time at BWXT. We are delivering on our commitments to customers and shareholders in driving value through process optimization, technology adoption and disciplined growth investments.

Our 2026 guidance supports meeting or exceeding the medium-term financial targets, we introduced at our Investor Day in February 2024. We look forward to providing an update at our next Investor Day this fall. As I wrote in a recent Washington Times offer, BWXT is not betting on a horse. We are betting on the race. We participate across the nuclear value chain in defense and commercial markets and as a merchant supplier and a technology provider, enabling us to win across a broad range of competitive outcomes.

We have record backlog, unprecedented demand and the financial strength to continue investing for growth. We intend to build on our market-leading position in nuclear solutions for defense and commercial nuclear markets, thereby driving long-term shareholder value. And with that, we look forward to your questions.

[Operator Instructions] Our first question comes from Matt Akers from BNP Paribas.

I may have missed this, but did you say how much you're planning to pay for PCG. And then I guess another just a question on the sort of footprint. Build that because you mentioned this is sort of the first step towards building out the footprint. And sort of how should we think about what's left? Is it more kind of capacity driven? Is it technology? Is it head count? And just kind of what -- how to think about that?

Yes. Thanks, Matt. So from a purchase price standpoint, we didn't put it in the public release, but it was roughly around $200 million. So in line with the multiples that we've seen in some of our more recent acquisitions.

And so ultimately, depending on the time line, we'll see when that will close out this year, but fully expect that to move along pretty rapidly. I would say when you look at this from a kind of first step, there's a couple of different ways to think about this.

One, we like the capabilities. We like the workforce. We certainly need the square footage from a capacity standpoint However, this is going to be primarily focused on manufacturing of certain aspects. It's not going to be able to handle some of the large, very large scale components that we need to manufacture.

So we're looking at kind of a multiple approach step, which we announced in our last earnings call, the potential for a new facility may be adjacent to our Mount Vernon location which could handle some of the heavier large components. And so we're looking at this both from a capacity and workforce standpoint.

Great. I was wondering if you could touch a little bit on kind of the space end market and the opportunities that you're seeing there with how you just added Dan, to the Board recently, you remember from [ Maxar, ] but just curious what you kind of think of it as kind of the opportunities coming up in the pipeline there.

Yes. So I kind of -- this is Rex. I kind of divided into 2 areas. There is a civil space opportunities and NASA seems interested in really 2 things: nuclear electric propulsion and then also efficient surface power for a lunar based. And then there's a long-term commitment to nuclear thermal propulsion according to the NASA Administrator, [indiscernible] And so we have opportunities to play in all of that. .

Certainly on the fuel side and on delivering a reactor for any of that. So interesting -- it's an interesting opportunity. It's an interesting market for us. It's kind of a one-off market in that in the sense that into one of those systems typically. I think probably the more fertile ground for us is national security space. I believe we'll see more applications for power and propulsion there, and we're locked in on that opportunity.

Our next question comes from Jeffrey Campbell from Seaport Research Partners.

Congratulations on the strong quarter. My first one is, with your new commercial facility, the one that you have not yet reached FID. Would it have any limitations regarding components that it could build for customers such as a [indiscernible] Westinghouse or Rolls-Royce.

No limitations at all. I mean I think when we look at our demand signals, we're certainly seeing some capacity constraints even in our Cambridge facility as we look out multiple years. The other thing that I think we're finding is that being kind of localized in the U.S. creates a competitive advantage, and we're excited to add some of those capabilities to make sure that we have a U.S. presence and we think that, that's a differentiator when we look at it from a market standpoint.

So ultimately, the idea is to set up potentially centers of excellence, where you would have certain facilities that are focused on things like reactor internals and tanks and pressurizers and you would have other facilities that would be focused on kind of the large steam generators, reactor pressure vessels, those types of things. And so we would think of it there, but we would ultimately make that across multiple customers and multiple platforms.

Okay. Great. I appreciate that color. My other question is you've made the case for PCG's acquisition for the budding U.S. commercial activity. I just wondered if the acquisition has any positive effects for your naval business as well.

Yes, I think it could, Jeff. It's a nice business in the sense that it has an existential qualified nuclear workforce, it has plenty of capacity, as we alluded to in the script, and we'll make immediate use of that capacity. But I think the more important thing is nuclear manufacturing credentials are rare and hard to get -- so you have to go through certifications to get stamps for to get things like end stamps and NPT stamps and Sam.

These are ASME certified factories that also have nuclear quality systems. And so that's hard to get, and it's an immediate capability for us. And so certainly beneficial to our Navy customer, which has been using that has been using that capability for a long time, but more importantly, I think, is the commercial case because as we expand into the U.S., we need that kind of manufacturing capacity capability, and we'll get going with it right away.

Our next question comes from Bob Labick with CGS Securities.

Congratulations on the results and the exciting outlook as well. I just wanted to expand on the questions on kind of U.S. capacity build-out. Have you decided yet? Or do you know how much capacity do you want to add? And could you give us a sense of the capital needed for a U.S. greenfield and how long that might take to build out?

Yes, Bob. We're going -- we're presently going through a 60,000 square foot capacity expansion at our Cambridge plant. And the capacity we're looking for in Mt Vernon would be 50%, 60% more than rough it out at 100,000 square feet and then to outfit that factory. So now the expansion that we're doing in Cambridge is brownfield this would be quasi greenfield. And so it will be more expensive than our Cambridge build-out.

But that -- the reason we're attracted to the Mount Vernon side is because we've got rail spur there, we've got crane capacity 1,000 metric ton crane pass, radiography facilities. So there's some natural cost synergies that would go with our native business that's there, not to mention workforce that's nuclear qualified in a plant next door so that's kind of the thesis behind it. In terms of budget, it would be -- think of it as kind of twice what we're doing at Cambridge and rough terms.

Okay. Great. And then there's obviously so much demand out there, and it just seems to keep growing and growing. Is there any thought about, I guess, exploring customer funding for commercial capacity growth? Or how do you derisk building out incremental capacity on the commercial side versus on the government side?

Yes, I'd say we have got the balance sheet to do what we need to do in terms of capacity.

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

Guys, you talked, I think, in both segments about improved throughput. I was wondering if you could put some color to that, if there's certain initiatives you have in place to help with throughput or if it's just net hiring or something?

Yes. Yes, Pete. We did have formal initiatives in-house of called Driving Performance excellence is what we call a DP, that's our -- that's sort of our name for operational expense. And we've had that kind of process going on in the plants for a long time.

We've now expanded across the entire enterprise. So we're using things like supply chain and human capital and other areas. But yes, we do have some dedicated throughput projects, including, for example, the Pickering steam generators, [ SteriSphere, ] we had an important throughput project in our Lynchburg plant last year, having to do with an area called that we call higher tier.

So yes, we're highly focused on that because of this basic fact, we need more capacity than we have, and we can get capacity in 1 of 2 ways. We can get capacity from increasing our throughput, which is the cheapest and best way to do it or we can get it by adding square feet.

Doing acquisitions or doing brownfield and greenfield plants. We're doing all of the above because we need so much capacity. But that's how we're thinking about it, and that's the reason we focused on throughput.

Okay. Okay. Great. And last one for me. I guess Air Force DIU had this recent API awards, Radian Westinghouse and Antares. Just were you guys disappointed you didn't get an award here? Are there going to be further A&P opportunities? Or is the focus really more so on Janus and on your banner reactor. Just wonder if you could kind of -- these initiatives seem to have some relationship to each other. So I was just wondering if you could kind of start it out for us.

Yes, sure, Pete. So no disappointment because we didn't pursue those opportunities. Those were more about some smaller scale reactors for lower power output. And none of those reactors is transportable like our palate reactors. So we have our transportable pale reactor that fits certain use cases, and it's very interesting, but not for those particular -- not for those particular opportunities.

And then we have commercial derivative of [indiscernible], you might say that's called banner, which is a 20-megawatt let-out a much larger microreactor than you see out there in most and that 1 fits a completely different use case. So that was -- those competitions were really for us. We are focused on Palay follow-on work. We're focused on Janus, and we see plenty of opportunities for microreactors and for microreactor fuel for [ TRISO ] fuel.

Our next question comes from Mark Bianchi from DB Balan.

Maybe Rex, following up to the last point there on Trio. There's been some more focus on it now with some other companies that are involved in manufacturing coming public. Can you talk a bit about your our process there and how you think your competitive positioning would stack up over time? I know currently, you're doing it.

So that's a good sign. But maybe just as you think about the next few years and taping out your competitive position?

Yes, I'll use some color on that one. Yes, we are the only producer of Tricon scale at this point. We're producing hundreds of kilograms a year we made all the fuel for our payload reactor. We're making fuel for Antares and some other clients we haven't disclosed yet.

So we're in commercial business on Trio. I would say that -- that is sort of the limit of our capacity now, a few hundred kilograms a year. So there's only so much you can do with that. In order to scale that, we are considering ground field and greenfield opportunities. And we've talked publicly about doing something on a larger scale and Wyoming.

And that's what the market needs. We need a very large-scale plant so that we can drive down the cost on Trio to help make these reactors commercially viable. I will just maybe add to that point that I think this is a really interesting place to be in the market to be able to be the tool side of micro reactors and small modular reactors is a pretty nice place to be.

I said it in the script, but we're betting on the race, not on the horse and that posture enables us to win in a variety of competitive outcomes. And for TriCo, we're positioned exactly where we want to be, which is we produce it for our own purposes, but we also produce it for the market, and we intend to do that in the future.

Okay. And then the other one I had was just on the Japan announcement, the $40 billion for GE Hitachi when would it be realistic for awards to be made to the market for that equipment? Like just I know you still need to win it, but just in terms of thinking of a time line for when that could potentially be added to backlog.

I think it's -- I mean I think of this one and the AP1000 1 is fairly near term as far as nuclear projects go, I'm in touch with the top leadership of GE, and we're in touch with the top leadership of Westinghouse.

And these deals are being negotiated at a -- with urgency is the way I would put it with the Department of Commerce -- and so I think -- I said it on prior call, it wouldn't surprise me if we started to receive orders this year related to those large.

To those sort of bulk reactor buys -- but there's a lot of things that -- a lot of hurdles that need to be cleared between now and then.

Our next question comes from Jeff Grampp from Northland Capital Markets.

Rex, it seems like conviction and proceeding with the commercial expansion at Mt Vernon I'm curious how long might something like that take to get operational from when you ultimately decide to move forward there? And how important do you guys sense is having something like that operational to winning U.S.-based business?

Yes. You said a couple of key things there, Jeff. So on the time line, that's something that will take us 2 or 3 years to complete. And that should be in the right time frame for being able to take some of these large orders and get going.

But you made a key point there on the end, which is around how important it is to have U.S. industrial capacity. I do believe that localization of supply chain is kind of going to be the way it is in nuclear. It's certainly a strong emphasis in Canada where we place strongly and we have local capabilities in there. I think you'll see the same thing play out in Europe.

I think they're going to favor local supply because of the economic development impacts. And so I do believe that localization in the U.S. will matter. And I think it will particularly matter on some of these government projects like the 10 81,000 and up to 10 next 300s.

And that's one of the reasons we're doing it. We don't have orders yet, obviously, but we're trying to skate to where we think the puck is going. Because these are such long cycle projects and you have to have the capacity, the existential capacity when the order comes -- so that's how we're thinking.

We're very bullish on it. And by the way, I don't think in the long run, about 10 reactors or 4 reactors at Darlington. If you think about what the global industrial base in nuclear industrial base did in the 70s, 80s and 90s built 600 large reactors. And I think if we're going to decarbonize the grid to meet the energy needs of AI, meet the energy needs of electrification, we're talking about hundreds and hundreds of reactors globally, large reactors, translate that into thousands of small amounts of reactors.

And so that's the kind of opportunity set we think about. And so we're very bullish on that outcome, and we're building capacity in advance of the orders. .

Super helpful detail. I appreciate that. My follow-up is on the enrichment side. Can you just give us maybe a high-level flavor for kind of, I guess, general timing or progression points on the Center fuse manufacturing facility, NRC licensing engagement, things like that? Just anything we should kind of keep our eyes field for to gauge kind of moving that project forward.

Yes, I think I've said publicly that, that will progress over the next few years. We've obviously completed our Centrifuge manufacturing development facility in Oak Ridge, Tennessee. We are outfitting it and working on prototypes right now, that will progress. So the technology transfer from Oakridge National Laboratory to BWXT occurs over the next few years.

The licensing for the HEU part of it should progress normally over the next few years. I think the more interesting part of it is when we get into centrifuge production, which we need to do for the high enriched uranium cascade.

And I think in the long term, what will be interesting for us is how do you fill the gap for low enriched uranium and high-assay low-enriched uranium. The gap is very evident and fundamentally very interesting from a business development perspective.

Our next question comes from David Straus with Wells Fargo. Please go ahead.

This is Josh Korn on for David. I wanted to ask about Medical. I think you had said strong double-digit growth in the quarter. I just wanted to ask about any specific products or markets to call out kind of the outlook there. And then any update on the tech 99?

Yes, we didn't give much detail on the script on medical, but that's still a good news story for us. We've got good growth all across the board. And following 3 years of 20% compounded growth, we're forecasting high teens growth this year and we see strength in strontium. We see it in germanium, we see it in [ TheraSphere. ] Actinium 225 is growing at an outsized pace, but that's off a pretty small revenue base. and we're ramping up production of stabilized stopes with the [indiscernible] 176.

That production is going quite well. And we've got some new therapeutic products in the pipeline like LED 212 and other products that are interesting. Tech 99 is progressing. There's fundamentally no different news on that. We mentioned on the last call that we're evaluating some approaches to the market based on the particularities of our product. And we don't have -- we don't have anything in the 2026 forecast for tech, but we're continuing to push that towards the finish line.

Okay. And then wanted to ask on defense. You had been a recipient on the Shield contract for golden dome. So with all of that money in the 27 budget, kind of what -- if you could provide any color on what that -- what your work may involve and then kind of what the addressable market is for you?

Yes. We are building 1 contract or word. That's not uncommon. They certainly awarded to several hundred companies, as I recall it, ours was for some broad infrastructure scope, which I think is pretty interesting for us because of the nuclear capabilities that we have.

So to the extent that Golden dome would need micro reactors to drive missile defense sites or radars or whatever it is, distributed power even up to small module reactors we could play there as a fuel supplier I think there's a lot there for us potentially in the future, but it's pretty undefined at this point for us.

But we've got sort of a -- we've sort of got a license to go hunting and we'll turn it into some things.

Our next question comes from Scott Deuschle from Deutsche Bank.

I think Connectrix brought with it some revenue connected to the broader power and grid infrastructure space, including in areas like high-voltage testing and cable commissioning. Would you be able to give us a sense as to how big of a business that is for them and what the growth outlook is there?

Yes, David, it's about 10% of the total Connectrix business right now and growing faster than a lot of the parts of that portfolio. That yes, that's a very interesting business, super high voltage capability, testing components for the grid for component supplier to the grid kind of an underwriters' laboratory type of thing.

But I think the real shots of the real green shoots of growth are around cable testing for wind power in Europe. We have supportable test sets, and we've invested in some more portable test sets, and we've got a nice share of that market, and it's growing smartly. So pretty interesting business obviously exposing us to a different market than we had before, and we like where that's going.

Do they have any direct exposure to the data center build-out given these high-voltage data centers that are now coming up?

Yes. I don't know the details on that. I suspect that we do. .

Okay.. And then Mike, when you talk about CapEx potentially exceeding 6% of sales in the future, is there a maximum threshold you could share with us as to what that excess might be? Like would it still be less than 8% of sales? Or could it exceed that as well.

No, I think that's about right. I mean we feel pretty comfortable with the 6% for what we're seeing for 2 the comment is really just if we make the decision to have a greenfield facility for another kind of large-scale manufacturing component facility in the U.S. we may exceed that 6%.

But I would see it somewhere around the 7%-ish range. What we don't want to do is go back to closer to the kind of 9%, 10% that we saw over the last decade and we were going on a large kind of CapEx spend. So we're going to keep it pretty reasonable, but I could just see it going up in the maybe 7% range.

Our next question comes from Jed Dorsheimer with William Blair.

Good job for announcing that name. So Rex, I guess, if I read between the lines here, it sounds like Mount Vernon is a bit more of a signal on -- I mean I know the administration's meeting with supply chain companies, including yourself, and it sounds like you're a bit more balanced, not that you're ever imbalance, but a bit more balanced in terms of AP1000 versus SMR. So I guess my question is, how are you thinking about the E&C part of the equation, where you build out or spend the CapEx to build out the capacity.

And in terms of the labor to get these things stood up, which I know Scott over GE has talked about one of his concerns. So a broad question, how are you thinking about this whole supply chain and kind of the pieces of the puzzle and am I thinking about this correctly in terms of the body language on around Mount Burnet and AP1000.

Yes. So if you're talking, Jed, broadly about delivery risk for nuclear projects, I do think that is an existential an important risk. And I think it's probably the biggest risk in the market just to be able to deliver those projects and we've got some poor examples of project delivery, [indiscernible] and others. That said, the counterpoint to that is the refurbishment projects in Canada, both at the Bruce side and at the Darlington side so far have delivered ahead of schedule and under budget. .

So there are some examples we can point to where the industry stood up and delivered the project according to the plan, and I'm hoping that the industry can get to that point.

If you're talking about the sort of the construction delivery risk of a project like Mt Vernon, we've demonstrated the ability we can do that. We are doing very well with our Cambridge project that will come in under budget. It will come in on time. We delivered the centrifuge manufacturing development facility, which, by the way, a Kelvin impressive facility from the first shovel in the ground until the completion of it, and that was in 7 months.

And so I think we've got a -- we really got sort of a high skill set for being able to deliver projects that are internal to the need of BWXT. Now that's apart from the complexity of the nuclear power plant, but we can build our facilities with a good risk posture.

Yes. That's fair on my question was for the former, not the latter in terms of more industry not worried about you standing up Mount burning getting that burning and getting that on time. And so I guess just to the broader -- so far, we've seen the LPO.

We've seen the administration kind of through EOs. What would you think would help solve the one of the key components in terms of -- it sounds like you're going to get the supply chain getting stored up. Is it just a sequencing or -- or do you see something else in terms of how the government could step into trying to stage risk here?

You talked -- again, you're talking about delivery risk for the balance of plan and the nuclear jet. To the other question, specific to BWX have already been asked. So I'm just curious, using my second just to think from a more macro broader perspective, given that you are in late-stage discussions with or I'm assuming that.

Yes. So maybe I'll break it into 2 pieces. I think the supply chain risk is manageable. I think we're demonstrating BWXT as a company that we can deliver the components on schedules that our customers need reactor pressure vessels, steam generators, whatever it is.

We're organizing around that. And I think the industry can stand up and do that. And of course, I'll remind you that we've delivered 420 roughly small module reactors to the nuclear Navy. So we know how that's done. I do think -- I agree with you that the bigger risk is on the engineering procurement and construction side, and that's a problem that the backhand the first of the world we're going to have to solve.

They're just going to have to do it. And I think it's going to require the injection of high loss of talent maybe AI can help on the planning side of it, maybe even on robotic construction in the long run, but it's something the industry has to address -- it's not a thing I don't think BWXT can address, but I do recognize it as a gating item for the success of the nuclear resurgence.

Our next question comes from Peter Arment with Baird.

Rex Mike, Chase. Nice results. Rex, could you give us maybe the latest update or your thoughts on overall schedules? I know OPG just recently had an update on Darlington at the end of March. And there was also an update regarding the foundation or the basement module getting installed. So how does that line up with your first reactor press oral delivery schedule and everything tracking according to plan there.

You're talking, Peter, about the small modular reactor at Darlington.

Correct. Correct. Correct.

Yes. I don't have detailed insight to how that project delivery is going, but I hear that it's reasonably on track, and I have the expectation that the following units will we'll order for those will be coming relatively shortly.

Okay. And when -- and just as a reminder, when the delivery is for your first pressure valve's there.

Let's see next year, as I recall it,

Okay. And then just, Rex, at a high level, kind of apartment of War and Department of Energy budgets out in detail. Anything that stood out to you, whether it's on microreactors or enrichment or anything to call out that you're encouraged by?

Yes. I'm encouraged by all of it, Peter. Good support for Palay, good support for defense fuels, -- there's some long lead procurement in there for a couple of extra Columbia class submarines. So I think we're starting to hear about dot adding Columbia units to the submarine force.

And I think that's pretty encouraging. So when you add [indiscernible] in additional Columbias, I think our naval nuclear propulsion program looks more robust and more interesting than it did even a couple of years ago. So yes, I'm very excited about what I'm seeing.

Our next question comes from Ron Epstein with Bank of America.

Yes, maybe speak to maybe have a couple of times. Have you seen any changes on the front with doing work for the Koreans some sort of Korean nuclear summary?

No, we haven't seen anything on that. No. you're talking about --

Yes. Right. At some point there was some talk about the Korean terms and something nuclear and gas would be you guys have helped them, maybe not. I don't survey.

Yes. Again, yes, yes, certainly, there's a discussion between the White House and the Koreans about having nuclear-powered submarines, the Korean ambitions are real. I think they will have nuclear-powered submarines, There's, let me call it, sovereign intent there. I think the question is, where do they source their fuel I think that probably comes from the U.S.

And if it does, I think maybe there's something interesting there for us but super early days, and we'll have to get that demand signal from our customer and enable reactors should that ever come -- so I like the possibility of that, but I would say it's very immature at this point.

Got you. Got you. And then on the M&A front, it seems like you still -- you guys still have a dry powder? Is there any areas that you're particularly interested in today? Or if you could give us a sense of what you might be thinking about?

I'm sorry, Ron, the was a little weak. What was the front end of the question?

Yes, M&A .

Yes, lots of pipeline there. Mike, do you want to take that one?

Yes. I would say -- I mean we -- we started the year off really focused on the expansion of capacity and that continues to be a priority. But we also are looking at a number of other adjacent opportunities really to expand our capabilities.

I think when we look at this, we want to focus on driving opportunity set within the full life cycle of nuclear and how we support our customers from end to end. And so anything that would continue to enhance our capabilities there. We're very interested in.

Our next question comes from Andre Madrid with BTIG.

Yes, Rex, Mike, Chase, I wanted to refocus on PCG for a second. I know initially, it seems like the customer sets, mainly government and AV focused, but the capacity is highly fungible. I mean just can you provided some context to how quickly you can pivot that mix to more commercial?

And maybe what the margin utilization uplift like could look like as a result?

Yes, Andrew, I'll start with that and maybe Mike will add to it. First off, it's about 70-30 maybe in commercial nuclear at this point. and scattered across 2 sites, New York, Pennsylvania and Florence, New Jersey. Both of them are good sites. There's a lot of manufacturing capacity and women in the script that there are 400 employees there. there's more capacity, there's plenty of available capacity.

So one of the things that we can do right away is we can move some work that we've been outsourcing from our commercial business right into those plants. And so doing, we can capture the profits that are otherwise going to the supply chain. And so that's an immediate opportunity for us. And let me also say, we're absolutely going to satisfy the needs of our existing customers with the Navy and other government -- the government customers were under contract to deliver we will absolutely deliver another question about that.

But over the course of time, we'll probably change the complexion of the portfolio in that business more toward commercial because that's where we need the capacity. Mike, do you have?

Yes. Andrew, just the way I would think about it, we have roughly -- we believe about 50% capacity that can be utilized. Now the reality is it's going to take some time to ramp up and hire the workforce. You've got 400 people. Let's assume that we can hire a few folks per week. I mean it's still going to take a few years to get to kind of a full ramp.

So I think there's some -- as Rex mentioned, there's some immediate opportunities for us to move some things in-house, and I think that will be accretive from a margin standpoint. But when we looked at the business case, we looked at kind of a longer ramp and just making sure that, that still made sense financially and it certainly did.

I think on margin side, we disclosed it's low double-digit EBITDA margins today. We certainly think as we have opportunities to increase that slightly as we increase scale and we focus on kind of in-sourcing certain aspects of -- from a supply chain perspective where we can capture that margin as well. So there's certain opportunity to expand over time.

Got it. Got it. That's really helpful. I think you also mentioned August. It's been a while since we've heard a more flush out update there. Any color you can provide us on the conversation that you're maybe having and how you're gearing up to support the effort. I know you kind of have a lot of shots on goal there.

I don't think there's anything really new to disclose. I would say we continue to our build from an infrastructure standpoint to support from Manaus. We've seen good funding support for that. And so we continue those capacity build-outs and we're anxious for future awards. But A lot of good support for it's continuing, but I don't think anything else to really disclose at this point.

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

Yes. Thank you, and thank you, everyone, for joining us today. We look forward to speaking with many of you and seeing you at upcoming investor events will be on the road and at a few conferences over the next month or so. If you have any questions, feel free to reach out at [email protected].

This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, welcome to BWX Technologies Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to our host, Chase Jacobson, BWXT's Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good evening, and welcome to today's call. Joining me are Rex Geveden, President and CEO; and Mike Fitzgerald, Senior Vice President and CFO. On today's call, we will reference the fourth quarter and full year 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 and the company's SEC filings. We will frequently discuss non-GAAP financial measures, which are reconciled to GAAP measures in the appendix of the earnings presentation that can be found on the Investors section of the BWXT website.

I would now like to turn the call over to Rex.

Thank you, Chase, and good evening to all of you. We closed out a record 2025 with another strong quarter of results that were ahead of our expectations. For the full year, revenue grew 18%, adjusted EBITDA grew 15%. Earnings per share grew 20% and free cash flow grew 16%, all exceeding the initial guidance we provided at the start of the year. These results reflect our ability to scale successfully in a context of robust demand in all of our nuclear end markets.

We ended the year with backlog of $7.3 billion, up 50% year-over-year with meaningful growth in both segments and Government, we secured new pricing agreements for naval propulsion equipment and fuel and booked initial scopes on major awards to build out a U.S. defense uranium enrichment capability and to expand production of high-purity depleted uranium and commercial backlog was boosted by CANDU life extensions, multiple SMR projects and our first engineering contract on an AP1000.

Beyond financial performance, 2025 was a year of exceptional strategic success. We completed the acquisitions of A.O.T. and Kinectrics enabling key wins such as the $1.6 billion high-purity depleted uranium contract and the owner's engineer role for Bulgaria's Kozloduy AP1000 project.

Building on the significant capital we invested in our business earlier in the decade, we continue to invest in our facilities to support our customers and build capacity for future demand in 2025. We held the grand opening for the BWXT Innovation Campus, the home of our advanced nuclear and microreactor businesses and continue the expansion project at our large nuclear component plant in Cambridge.

We recently completed construction of the Centrifuge manufacturing development facility and are designing a new high-purity depleted uranium manufacturing facility, both to support the NNSA. And earlier this month, we opened the BWXT Digital Center in Melbourne, Florida, which is our hub for digital transformation and AI initiatives across the organization.

Turning to segment results and market outlook. Government operations revenue was down 1% and adjusted EBITDA was down 5% in the quarter, slightly ahead of our expectations. In naval propulsion with 2 new pricing agreements in place. Our teams are focused on long lead materials, operational excellence and delivery. During the quarter, we shipped 2 large team generators for CVN-81, a Ford-class aircraft carrier, from our Mount Vernon, Indiana facility, highlighting our rhythm delivery for naval reactors.

The Mount Vernon facility sits on the Ohio River and has a 1,000 metric ton crane capacity suitable for lifting the largest nuclear reactor components onto barges directly from the site. Accordingly, we are considering expansion there to supply the U.S. commercial nuclear market and technical services, a team led by BWXT, including Connectrix assumed the management and operations contract for the Canadian vacula laboratories, our first international TSG project.

We are tracking several other contract opportunities within the DOE complex as well as an [indiscernible] domain. In fact, BWXT was an award on the Missile Defense Agency's $151 billion Chile contract or Golden Dome, which positions us to compete for infrastructure support and engineering and manufacturing technology development on this strategically important national security program.

In microreactor and advanced nuclear fuels, we delivered the first core of TRISO fuel for Project PELE to Idaho National Lab in November. We are also manufacturing TRISO for Antares which aims to achieve reactor criticality by July 4 of this year, in line with the administration's nuclear executive orders, while others are planning for deduced manufacture advancement for our fuel, we are delivering today. Further, in space domain, we continue to develop the technology required for nuclear thermal propulsion with NASA and are seeing specific opportunities around [indiscernible].

Lastly, as special materials, our team stood up the Centrifuge manufacturing development facility in just 7 months for the defense fuels program with NNSA, reestablishing a domestic uranium enrichment capability for national security purposes. We are also preparing for the construction of a new facility in Jonesborough, Tennessee for high-purity depleted uranium production. These programs support a robust revenue growth outlook in 2026 and are highly strategic for the future of our special materials portfolio.

Turning now to commercial operations. We reported impressive organic revenue growth of 31% in the quarter and total revenue growth of 95%, strong growth in commercial nuclear power and medical and sales from Conectrix. Backlog ended 2025 at $1.7 billion, up 85% compared to last year and up 15% sequentially, driven by equipment per candy refurbishments in Canada and other international markets and design awards for SMR components to various reactor OEMs. This backlog growth, coupled with robust market demand reports our expectations for low double-digit organic revenue growth in the segment in 2026.

BWXT Medical reached a milestone slightly more than $100 million of annual revenue up about 20% from last year with double-digit growth in diagnostic isotopes a meaningful increase in Actinium sales and steady growth in Terrier. We expect similar growth in 2026 as these factors continue to drive the business. We continue to make measured investments in our medical portfolio as we work through the industrialization of our tech 99 product, explore new modalities for producing actinium-225 and around other therapeutic isotopes such as LAN 212.

Turning now to commercial nuclear power. Demand is strong, and our opportunity [indiscernible] is expanding. Commercial nuclear power book-to-bill was over 2% in the quarter, [indiscernible] CANDU aftermarket services and components in Canada, Europe and Asia, a new long-term CANDU fuel contract and design and proponent manufacturer contracts with several SMR technology providers, underscoring our role as a super merchant supplier for critical nuclear technologies.

Additionally, in December, a consortium of BWXT, Leventis Energy Partners and its subsidiary, Canadian Nuclear Partners, was selected to provide owner's engineer services or 2 proposed AP1000 nuclear reactors at the Caslavuisite in Bulgaria. This is BWXT's first meaningful AP1000 award, leveraging our large nuclear project experience and Kinectrics death and licensing, regulatory support and engineering. We are actively bidding component practices for multiple [ 8000 ]projects and expect additional awards this year.

With that, I will now turn the call over to Mike.

Thanks, Rex, and good evening, everyone. I'll begin with total company financial highlights on Slide 4 of the earnings presentation. Fourth quarter revenue was $886 million up 19% year-over-year as strong growth in commercial operations was partially offset by a modest and expected decline in government operations. Organic revenue was up 4%.

pAdjusted EBITDA was $148 million, up 13% year-over-year, attributable to robust double-digit growth in commercial operations and lower corporate expense which were partially offset by lower government operations. Adjusted earnings per share were $1.08, up 17% due to strong operating performance and a higher contribution from nonoperating items of approximately $0.05.

Our adjusted effective tax rate in the quarter was 19.5%, and which was below our full year tax rate of 20.4% due to timing of R&D tax credits. In 2026, we expect our tax rate to be slightly higher at approximately 22% and as growth in our commercial power and Kinectrics businesses will result in a greater percentage of international earnings.

Fourth quarter free cash flow was $57 million and full year free cash flow was $295 million, up 16% compared to last year, inclusive of 17% operating cash flow growth. Capital expenditures in 2025 were $185 million, 5.8% of sales. In 2026, we expect CapEx to be about 6% of sales as we continue to invest in the business to meet our commitments with our government customers and to support the growing demand in our commercial markets.

During the quarter, we also completed a $1.25 billion convertible debt offering with a 0% coupon. In connection with the offering, we entered into a cap call transaction, which essentially increased the conversion price to over $396. Funds from the transaction were used to repay balances on our credit facility and term loan which we, in turn, renegotiated with more favorable terms and increased capacity. This was a highly opportunistic transaction for BWXT. We reduced our cost of debt, lowered our interest expense enhance our financial flexibility and increase our liquidity, which stood at $1.7 billion at the end of the year.

Moving to the segment results on Slide 6. In government operations, fourth quarter revenue was down 1% as expected with growth in special materials and contribution from A.O.T. being offset by lower microreactor volumes and long lead material procurement for enable propulsion equipment, the latter of which was the benefit to our results in the first 3 quarters of the year. Adjusted EBITDA in the segment was $111 million, resulting in an adjusted EBITDA margin of 18.8%. Our quarterly adjusted EBITDA margin was slightly lower than the full year result of 20.4% due to mix as newer projects in this segment began to ramp.

Turning to commercial operations. Revenue was up a robust 95%, driven by 31% organic growth, with strong growth in both commercial power and medical and contribution from Kinectrics. This reflects both accelerating organic momentum and the strategic expansion of our commercial capabilities. Adjusted EBITDA in the segment was $44 million, up 87% from last year. Adjusted EBITDA margin was 14.9%, a notable improvement from last quarter.

In 2026, we expect the Commercial Operations segment adjusted EBITDA margin to increase by roughly 100 basis points as higher revenue and more normalized mix is partially offset by continued growth investment as we scale the business for the future. Beyond 2026, we expect growth investment to be less of a margin headwind of continued investments are offset by additional revenue growth. Turning to our 2026 guidance on Slide 10 and 11 of the earnings presentation. From an operational standpoint, our guidance is largely in line with the preliminary outlook we provided in November. We expect revenue of approximately $3.75 billion, up high teens compared to 2025.

In Government operations, we expect approximately low to mid-teens growth with over half coming from the defense fuels and H PDU contracts. In commercial operations, we expect approximately 25% growth, driven by low double-digit growth in commercial power high-teens medical growth and a full year of contribution from Kinectrics. For adjusted EBITDA, we are guiding $645 million to $660 million up low to mid-teens compared to 2025.

In Government operations, we expect margin to be slightly lower given the significant revenue contribution from new programs which begins at a lower initial profit recognition and expands over time as execution milestones are met and contract risk is reduced. In commercial operations, we expect margin to trend back towards historical levels as I previously discussed.

Regarding the cadence of operating earnings, we anticipate our results will be slightly more back half weighted than usual, with about 55% of full year EBITDA anticipated in the second half. This will largely be reflected in the first quarter results with a return to more normal seasonality in second quarter. In the first quarter, while we expect solid year-over-year organic revenue growth, EBITDA is likely to be flat to slightly higher in both segments due to seasonality and short-term impacts of mix and ramping of new programs.

In government operations, this will likely translate the first quarter EBITDA being roughly flat year-over-year, yielding a margin that is slightly below the full year guidance rate. And in commercial operations, margins are expected to start the year well below our full year guidance before improving sequentially each quarter throughout the remainder of the year, reflecting program timing and mix. These assumptions lead to non-GAAP earnings per share guidance of $4.55 to $4.70, up mid- to high teens, driven largely by growth in both segments with a modest contribution from nonoperational items as lower interest expense is partially offset by a slightly higher tax rate and share count and lower pension and other income.

From a quarterly perspective, while we anticipate earnings per share to follow with similar pattern to our operating earnings with first quarter EPS relatively flat compared to last year, we are highly confident in delivering our full year earnings growth outlook. Finally, we expect free cash flow of $305 million to $320 million inclusive of low to mid-teens operating cash flow growth, in line with our adjusted EBITDA growth outlook. Importantly, this level of cash generation supports both continued reinvestment and long-term shareholder value creation.

Overall, we see 2026 as another year of meaningful operational growth for BWXT. We've strengthened our balance sheet, expanded our commercial platform and positioned the company for continued margin improvement and cash generation. Our focus remains on disciplined execution prudent investment and long-term shareholder value creation.

With that, I will turn it back to Rex for closing remarks.

Thanks, Mike. 2025 was a monumental year for BWXT. We said at the intersection of the national security and commercial liquidity power markets in a market-leading position with unmatched scale, experiential qualifications and regulatory credentials. It's an exciting place to be, and the outlook is bright. This position demands that we execute to drive quality earnings growth and shareholder value. Our priorities are executing against our robust sample process optimization, new technology adoption throughout the organization and on disciplined growth investments, both organic and inorganic.

And with that, we look forward to taking your questions.

[Operator Instructions] Our first question comes from the line of Scott Deuschle with Deutsche Bank.

Mike, should we expect government operations margins to trough in 2026 on these mix headwinds? Or could there be incremental mix pressure in 2027 that we should be mindful of?

Thanks, Scott. No, I don't see any real incremental pressure as we look at 2027. I think as I've mentioned in the last call and maybe over the last couple of earnings calls, we feel really good about the current pricing agreement. If you look at our 4 naval propulsion business, we're actually performing really well.

Efficiency and utilization are up at our best sites and our largest sites. And so we see a lot of opportunity as we move through the future. I think what you're seeing in 2026 is a little bit of this mix pressure as we discussed half of the growth is coming from these new programs where we're making infrastructure investments. And so you're seeing a little bit of a decline there, but we would expect a rebound in '27.

Okay. And then, Rex, can you talk about how BWXT is using AI internally today? And then are there any business functions where you're particularly excited about the potential impact of AI over the medium term, whether that be from cost synergy opportunity or something else?

Yes. Sure, Scott. Thanks for the question. I think there's an outside story for AI with BWXT and there's an inside story. I think you obviously know the outside story, which is there's an expectation that nuclear power will power the data centers of the future, and I think that's a reasonable expectation. But that's all in the windshield for us. Certainly, that's not part of the current business mix. The inside story shapes up like this.

I think there -- I think over a kind of 3 phases. The first phase was BWXT using machine learning to improve certain internal functions, particularly manufacturing processes we, for example, put hyperspectral sensors on complex well processes and use the machine learning algorithm to figure out when those things were going out of spec, which saved us a ton of expensive rework. And we did it and there are other examples I can side. So I'd call that Phase 1.

Phase 2 is with the release of large language models, we're figuring out ways to use those in our business to improve functional efficiencies and like. And so in this phase now that we're basically democratizing access to the tools. And I mean tools like Databricks and ChatGPT and the like.

And then the third phase is going to be a factory automation. That's kind of our learning platform in the sense that we've got a lot of traditional plants that need to be automated and digitized. And so in the future, it's our expectation to have fully digitized quality records, automated inspection, digital twin representations of every component that we manufacture. So that's the phase that we're going into right now, and we're quite excited about that.

That's really interesting. For Phase III, do you see any limitations from the security clearances required, things like that, that would prohibit your ability to deploy those types of systems, particularly for government operations? Or do you think you'd have the ability to use things like digital twins and some of those classified areas as well?

I'd say not much, Scott. I mean, certainly, we have to be concerned about using WiFi and Bluetooth kind of systems in a classified manufacturing environment. So there are things that we will have to work around, but I think we will work around them with support from our customers.

Our next question comes from the line of Matt Akers with BNP Paribas.

I wanted to ask, I think some of the commentary from the shipbuilders this quarter was relatively positive in terms of to some of the supply chain bottlenecks that had seen maybe starting to get a little better. Just curious if you're seeing any of that flow through to you in terms of maybe more pulling demand forward or anything like that? Or if you're seeing anything along those lines.

Yes, we've seen that encouraging news, too. I'd say our reaction to it is that from the very beginning, I think we've held the view and I believe that's a Navy and the government help a view that instead of slowing down the supply chain, what you got to do is fix the bottleneck. And so I think we're seeing that now. I think we're seeing pretty encouraging progress at the shipyards.

I think you'll know, and we announced this a couple of quarters ago at least that Admiral McCoy, who's been running our government operations business was seconded into the Department of Defense to support the Navy for that specific purpose, the express purpose of improving throughput at the shipyards. And that that's what -- certainly what the nation needs to do. That's what the Navy needs to have. So I'd say we're continuing at the pace we were delivering on our delivery schedules and very, very pleased to see the shipyards turning the corner and bouncing off the bottom in terms of delivery rate.

Yes. And I guess as a follow-up, just I wanted to ask on capital deployment and sort of what your priorities now? And how big -- how big could M&A be as a part of that after A.O.T. and Kinectrics?

Yes. So we're -- look, we're really excited about some of the things that we've done to strengthen our balance sheet. We did the convertible in the fourth quarter, I think, which really give us a lot of flexibility. And so we feel well positioned for potential M&A as we come into 2026. I will say, as we look at a number of different targets that are out there, we're highly focused on continuing to drive something within our core and also highly focused on driving an increase in our overall capacity as we prepare to support our customer needs in the future.

So those are the things that we're going to be looking for. We have a number of assets that we always look at that on a consistent basis. But I do think that we will continue to see M&A as a big part of our capital deployment strategy.

Next question comes from the line of Jeffrey Campbell with Seaport Research Partners.

Congratulations on the quarter. I'll just stick with one. Rex, you mentioned your U.S. commercial facility might be built at McDermott. I just wonder, are there any particular challenges in citing a commercial facility of to one that's dedicated to defense purposes.

Yes. Thanks, Jeff, for the question. Good to hear you. No, I think it's the opposite, right? There's some synergies between our government business there and there would be a commercial facility there. For example, you can share radiography facilities. I did mention that we have a 1,000 metric ton crane capacity to Stevedore components right on to the Ohio River there. So we would certainly jointly share those assets and be able to amortize the costs over those assets together.

So I think there are certain advantages. We would segregate those businesses for certain reasons financially. But yes, no, very good reasons and very good synergies for putting those 2 things on the same side.

Next question comes from the line of Robert Labick with CJS Securities.

This is [indiscernible] on for Bob. As a U.S. company with obviously strong operations in Canada, what is the latest impact, if any, on the tariff situation? And in general, does the seemingly souring of U.S. Canada relations have an impact on BWX?

Knock on wood, it hasn't so far because we're still operating under the framework at the U.S. MCA trade agreement, the U.S., Mexico, Canada trade agreement that was struck in the last Trump administration. And so it hasn't -- there are no tariffs in that framework on medical products or on nuclear components happily.

And this last announcement around 10% and 15% tariffs across the board does not apply to the U.S. MCA agreement. So we're still operating in that framework. And that's being renegotiated right now. So we'll see how that comes out. But I'm certainly hopeful that trade relations between the U.S. and Canada and Mexico remain normal and continue to not have a negative influence on our business.

And one more. As we look over the next several years, we have DUECE and HVDU incremental growth this year in naval growth coming in 2027. Beyond that, can you discuss the timing of Canadian newbuilds, micro reactors and other long-term layers to your growth map?

Yes, I'd say a variety of different time frames for all of that stuff. But now we mentioned on the script that we now have business with AP1000 in Europe with that Kozloduy owners engineer contracts, we certainly have an SMR. We have SMR contracts at hand right now, we're certainly making the reactive pressure vessel for GE, and we're doing a number of other components for different small module reactors suppliers. So I think you just see that building over the years.

It's my expectation that we'll have additional orders for the X 300 this year. It's also my expectation that we'll have orders for the AP1000 this year. We'll see those aren't in hand yet, but I think we're starting to see the commercial side of our business build very nicely, and we have forecasted pretty aggressive organic growth there, but most of that is in hand.

And so I think you can see small modular reactors ramping up, starting now essentially micro reactors, of course, we've had a good program going for 7 years now, but we now have the Janus program as sort of a follow-on program to PELE, and we're in a good competitive position for that, and we're hoping for a good outcome. And so you can see that building over the next few years. And then medical has been growing at this sort of 20% compound in clip. So we're seeing generally very good demand in all of our markets, and we expect it to build at various timings over the years.

Next question comes from the line of Jeff Grampp with Northland Securities.

Rex, to go back on the AP1000 comments that you had in your prepared remarks, can you give us a sense for BWXT's revenue content per project you're competing on or any generalities there just to kind of get a sense of materiality for some of these projects for the company.

Yes. I think we've characterized it historically for the large reactors, I think, on a CANDU new build, which was not your question, but on that one, it's $500 million to $1 billion perhaps particularly in Canadian with our -- with the Kinectrics contribution, maybe pushing to the high end of that. I'd say on an AP1000 depending on the components that we win, steam generators and whatnot, you could think of in the hundreds of millions, maybe in the low 100s, but that's a bit of guesswork, right. We don't know what content we're going to win yet, bidding on a lot of different things, and we'll just have to wait and see how that comes out.

Understood. That's helpful. And for my follow-up on some of the recent government contracts you guys alluded to having some lower margins at the front end. I'm just wondering, structurally, as these ramp over time, did we expect just a kind of linear progression in margin over time as these mature? Or is it kind of more of a stair-step function as milestones are reached. Just kind of wondering to level set expectations as those contracts kind of roll through the results here.

Yes. So I would say that the contracts are structured slightly differently. We are in the first phase of negotiating under the Defense fuels program. And then for HVDU that's a longer kind of upfront negotiated program. I think in both cases, what we would typically do along with our processes, it's kind of evaluate the overall margin performance. And usually, as we meet various milestones and reduce risk into those programs is when we would incrementally adjust margin.

So those programs, we feel like we have a great opportunity to perform well, but it's a little early days. And we talked a little bit about how we're doing some infrastructure build out, and so we have some lower margin components associated with those initial costs. But we do expect that as we start to get into full ramp of processing of the materials and production that ultimately will have an opportunity to outperform.

Next question comes from the line of Jed Dorsheimer with William Blair.

Congrats on the quarter. Rex, I guess, first question, Pentagon just released $29.2 billion spending added a new sub. I'm just wondering how that compares to your expectations? Was that ahead in line behind your expectations? Any surprises as you look through the budget allocation, then I have a follow-up.

Yes, sure, Jeff. So that appropriation of funding really doesn't influence our business, right? our programs are funded through different lines. And so it was neutral for us. We are still on the shipbuilding schedule at 2 Virginias a year, 1 Columbia year and 4 is more or less on 5-year intervals. So it was -- we were indifferent to that news.

Got it. And then maybe for both you and Mike, as you think about capital allocation on the commercial side of things. You're in the CANDUs in Canada and abroad. Your -- you've just gotten into AP1000 and you're in a variety of SMRs between GE, Rolls-Royce and also some of the new players. And so I'm just curious how -- with that level of visibility, are you -- how are you thinking about the business? Are you seeing -- is it sort of growth at a steady pace, but in different regions that you're able to support? Or do you see any particular technology that's advancing at a faster pace? How are you thinking about adding resources to supply those markets.

Yes, I'd say when you look at our capacity in Cambridge, Jed, it's not -- you could see a couple of years into the future where we start to look capacity constrained. And so we're looking for assets, in particular, in the U.S. We've got things in the interesting targets in the acquisition pipeline, and I mentioned explicitly on the call the thought of building a plant at Mt Vernon.

So we think we need U.S. capacity first and soonest and we put a high emphasis on that. I think the second interesting opportunities around Europe that there's an appetite for small modular reactors there. And I think whether we would invest there, I think it depends somewhat on localization demands. But yes, we need capacity, we need it pretty soon because we see a lot of demand coming in the future, and we'll start in the U.S. with it.

Jeff, the only thing to add is -- I would say that in addition to expanding footprint, we are also investing in technologies to drive throughput within the factory. So it's not just a -- let's go get as much footprint as we can because we're trying to drive throughput through our operational excellence initiatives which really supports the overall workforce as well. So that's an important aspect as we look to capital deployment and where we want to spend money on additional machinery and technology.

Next question comes from the line of Sam Straker with Truist Securities.

On for Mike [indiscernible]. I think just to start kind of a 2-part building off of the conversation around SMRs and micro reactors. I was curious if you guys could just put a little more detail on kind of where you are with the NASA and military microreactor programs? And then also with the growth that you're seeing in small modular reactors, how are you guys looking at the trisofuel market overall in terms of where it's at now and potential opportunities moving forward?

Yes, sure. A few questions embedded there. On micro reactors, we're in the [indiscernible], we deliver that to Idaho National Laboratory next year. We announced the delivery of the fuel for that reactor at the end of last year. So we're proceeding a pace, and that reactor will start undergoing testing in '27, '28 time frame. Think of that as a precursor to the Genus program, which is in procurement right now. their soliciting offers from various technology providers, including us. We see that one as a super interesting opportunity.

On the NASA side, we're still doing some work on nuclear thermal propulsion although it's not within the context of the Draka program, we still have some level of effort with NASA. I think the bigger opportunity in the space market is around fish and surface power. It looks like Nassentends to procure an efficient reactor for a lunar base. And certainly, we have got the right credentials to compete for that. In terms of Trico fuel, I think there are 2 interesting things going on here. One is demand on the government side that's related to programs like Janus, where the microreactor technologies generally are calling for trial fuel or designed around trio fuel.

But I think there's also an interesting commercial play there, and we're certainly evaluating that either sub-grid or below-grid capacity power output and certainly remote applications for high-density powder. So a very interesting opportunity around Tri-Soand we're looking pretty hard at whether we make an investment there, a large-scale investment.

[Operator Instructions] Our next question comes from the line of Jan Engelbrecht with Baird.

Congrats on a strong quarter. I think just wanted to return to the AP1000 and the CANDU market. As we think about the AP1000 that owner's engineer contract you won and just in terms of components, is it -- do you consider your bid on sort of the component were to be more competitive if it's a North American project that gets announced versus something in Europe? Because on AP1000 in Poland, they've announced sort of the steam generator supplier on that one. And I know you guys didn't bid on that. But how should we think about as the new AP1000 contract or a project gets announced do you see that you have a sort of a better probability on which continent it's on? Or just as we think about that.

I don't think we're thinking of it that way, Jay. The owner's engineer contract with Bulgaria was a unique opportunity for us to team up with a component of Ontario power generation. So we have there in promoter, and we have our deep engineering capability, which is augmented by Konetrics. So that was a very particular opportunity there.

I think we're sort of geographic agnostic when it comes to component supply. We hope to be able to compete reasonably well in all these markets. But I would also say that as the market really starts to warm up and we start to see real capacity constraint, I think we'll be more competitive, and we'll have more pricing power. So I'm optimistic about all of it.

Perfect. And then just a quick follow-up on the Naval Nuclear business. A lot of shipbuilding reconciliation funding for shipbuilding. And then you just got the news from Australia, they're going to invest, I think, close to $3 billion in their own shipyard. And in terms of second source opportunities, can you just sort of how are you thinking about long-term all this new funding that's going on? It seems that there's really a lot of attention being placed into sort of reducing the bottlenecks. But how does that set you up beyond 2030 for long-term growth in that segment?

Yes, maybe a little hard to say. I mean right now, we're sort of building on our guidance and our internal forecast around the shipbuilding plan. We do have some business on the August side related to production capacity that's giving us a bit of growth here at 2026. And of course, there's the sort of the wildcard of South Korea out there, and we would hope to be involved in, say, fuel manufacturing at least, if not reactor cores.

So there are interesting possibilities out there. I would say that if you think about reconciliation and just a broader defense budget, I think you can see more opportunities around micro reactors, fuel and other such things that were sort of not prescriptively mapped into the shipbuilding schedule. So a bit of a TBD for us, but certainly exciting on the national security side of our business.

Next question comes from the line of Andre Madrid with BTIG.

This is Ned Morgan on for Andre. I just want to ask and get the latest on the Canadian Competition Bureau's investigation into the Kinectrics acquisition.

It's been pretty quiet on our front. No news on that one.

All right. And then a follow-up. Is there any update on when we could see approval of Tech-99.

Yes. Not much new there. I've said the last couple of quarters that we are in the sort of the growing last mile of that around some issues with product quality, filtration concentration, things that we've been working on. We do have new leadership in that medical business in the person of Jason Bad Ward is showing a lot of strong leadership in that business and has Jason has some compelling new ideas around our commercial product strategy, including tech 99, early days on that, but we'll see how that forms up.

So I find myself encouraged about that business broadly. We have not submitted to the FDA yet, and I have, frankly, imperfect clarity around that because of these product quality issues that we're having to sort through. I will say that we did not contemplate Tech-99 revenue in 2026 in our guidance that we just published. And so it's not in our numbers. It would be an upside for us if it did occur.

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

Yes. Thanks, Bedore. Thanks, everybody, for joining us today. We look forward to speaking with many of you and seeing you at upcoming investor events are on calls. If you have any questions, please feel free to reach out to me at investors at bwxt.com. Have a great night. Thank you.

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

Ladies and gentlemen, welcome to BWX Technologies Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to our host, Chase Jacobson, BWXT's Vice President of Investor Relations. Please go ahead.

Thank you. Good evening, and welcome to today's call. Joining me are Rex Geveden, President and CEO; and Mike Fitzgerald, Senior Vice President and CFO.

On today's call, we will reference the third 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'll frequently discuss non-GAAP financial measures, which are reconciled to GAAP measures in the appendix of the earnings presentation that can be found on the Investors section of the BWXT website. I would now like to turn the call over to Rex.

Thank you, Chase, and good evening to all of you. I'm excited to report another strong quarter for BWXT showcasing the effectiveness of our battle plan strategy and our leading position in nuclear solutions for the global security, clean energy and medical end markets, all of which are enjoying unprecedented demand.

Third quarter financial results exceeded our expectations driven by focused execution and revenue growth in both Government and Commercial Operations. We delivered 12% organic revenue growth and roughly 20% adjusted EBITDA and earnings per share growth alongside a robust free cash flow generation.

Book-to-bill was a stout 2.6% this quarter driven by large multiyear national security contracts for the production of defense fuels and high-purity depleted uranium in our Special Materials line of business. This led to a total backlog of $7.4 billion, up 23% from last quarter and up 119% year-over-year.

Our year-to-date financial results, deep backlog and unprecedented end market demand position us to enter 2026 from a position of financial strength. Our preliminary 2026 outlook calls for another year of record financial results with a posture to exceed our medium-term financial targets.

Turning to segment results and market outlook. Government Operations revenue was up 10% and adjusted EBITDA was up 1%, both ahead of expectations. In the Naval Propulsion business, our teams are intensely focused on meeting delivery commitments for submarine and aircraft carrier programs and driving operational excellence. In addition to traditional process optimization strategies, we are finding new ways to leverage artificial intelligence and advanced manufacturing to drive efficiencies around quality control and workflow in our facilities that will lead to improved productivity, throughput and margin performance.

Technical Services is on a growth trajectory, powered by a win streak that unfolded over the last several years. Our team began transition for the strategic petroleum reserve M&O contract in early October and the BWXT-led joint venture, which includes Kinectrics, is in the preferred bidder period, which is the transition period for management and operations of the Canadian Nuclear Laboratories. We expect to assume full operational control before the end of the year.

In microreactors and advanced nuclear technologies, the market is evolving positively. We are currently manufacturing the reactor core for Pele, which is on track for delivery in 2027. Related to Pele, last month, the Army announced the Janus program, which aims to deploy a nuclear reactor on a military installation no later than September 2028, building on lessons learned from Project Pele. BWXT's qualification should be a differentiator for Janus and other important national security projects that are within our cost and capital risk tolerances.

During the quarter, we announced a collaboration with Kairos Power to commercially optimize TRISO nuclear fuel production. We are excited to have a partner that is aligned with Google. BWXT is currently producing TRISO fuel for Project Pele and a variety of other customers and we'll continue to evaluate options to enter the commercial market on a larger scale as the demand for advanced reactors grows.

Lastly, over the last several quarters, we pointed to our Special Materials business line, having some of the most exciting growth opportunities within the company. I'm pleased to say 2 of these opportunities, both within the NNSA materialized during the quarter. First, we were selected for the defense fuels contract valued at $1.5 billion to establish a domestic uranium enrichment capability for defense purposes. We booked the first task order under the contract and are building a centrifuge manufacturing development facility in Oak Ridge, Tennessee. Over the next several years, our focus will be on centrifuge manufacturing and designing and licensing a plant for defense uranium enrichment.

Second, we were awarded a $1.6 billion 10-year contract to supply high-purity depleted uranium to the NNSA. This is a direct result of our foray into special materials and our deliberate strategy of expanding into the depleted uranium assay through the AOT acquisition. Under this contract, we will build a manufacturing plant adjacent to our existing facility in Jonesborough, Tennessee, capable of producing up to 300 metric tons of high-purity depleted uranium per year that will be used for multiple defense purposes. These are both exciting long-term projects for BWXT, not only for the revenue growth, but also the demonstration of trust our customers put in BWXT to execute on mission-critical national security programs.

Turning now to Commercial Operations. Reported revenue grew 122% and organic revenue grew 38% year-over-year, driven by the Kinectrics acquisition, strong growth in commercial nuclear power and medical isotopes. BWXT Medical revenue grew double digits, driven by PET and other diagnostic product lines for which the outlook remains favorable. We expect this trend, along with the increasing therapeutic isotope sales for clinical trials to support continued revenue growth in 2026.

Consistent with our commentary last quarter, the tech-99 development is progressing nicely and is on track for an FDA submittal in the near future. In the therapeutics market, Kinectrics commissioned 4 new electromagnetic isotope separator units that increased production capacity of ytterbium-176, the precursor material for lutetium-177 to over 500 grams annually. This expansion reinforces our role as a global supplier of highly enriched stable isotopes needed for cancer radiotherapy.

Turning now to Commercial Power, where demand is very strong and our opportunity set is expanding across various geographies and with many of the leading reactor technology OEM providers. In the CANDU market, we have a deep backlog of heavy nuclear components supporting life extensions in Canada, including the 48 steam generators for the Pickering life extension, which are driving significant revenue growth this year. Beyond that, BWXT and Kinectrics are tracking opportunities for international CANDU life extensions, the Canadian new builds we have discussed in the past, other large-scale opportunities, including the Westinghouse AP1000 and multiple SMR projects.

In the SMR sector, we are a key partner with the majority of leading technology providers in this rapidly expanding market. To this point, we recently signed a contract with Rolls-Royce to design steam generators for its SMR along with an MOU for the manufacturing phase, highlighting the power of our merchant supplier position in the market.

With that, I will now turn the call over to Mike.

Thanks, Rex, and good evening, everyone. I'll begin with total company financial highlights on Slide 4 of the earnings presentation. Third quarter revenue was $866 million, up 29%, driven by both segments. Excluding contributions from acquisitions, organic revenue was up 12%. Adjusted EBITDA was $151 million, up 19% year-over-year, driven by robust double-digit growth in Commercial Operations, a modest increase in government operations and lower corporate expense.

Adjusted earnings per share were $1, up 20%, driven by strong operating performance. Nonoperating items were neutral on a net basis. Our adjusted effective tax rate in the quarter was 23.6%, and we continue to expect a tax rate of approximately 21% for the year. In 2026, given a greater percentage of international earnings following the Kinectrics acquisition, we expect our tax rate to be slightly higher year-over-year.

Third quarter free cash flow was $95 million, driven by solid earnings performance and timing of cash receipts from major awards. We anticipate free cash flow in 2025 to be approximately $285 million, the high end of our previous outlook range. Capital expenditures were $48 million in the quarter and $114 million year-to-date. We anticipate full year CapEx to be approximately 6% of sales, indicating an increase in the fourth quarter due to timing of spend on growth initiatives, including capacity expansion for commercial nuclear and a number of smaller projects in our government business. In 2026, we expect CapEx to remain at 5.5% to 6% of sales, supportive of our longer-term growth outlook.

Moving now to the segment results on Slide 6. In Government Operations, third quarter revenue was up 10%, driven by Naval Propulsion, Long Lead Material Procurement, Special Materials and a roughly 3% contribution from the AOT acquisition, partially offset by a decline in microreactor volume. Adjusted EBITDA of $118 million was up modestly compared to last year, resulting in adjusted EBITDA margin of 19.2%. We expect Government Operations revenue to be up mid-single digits organically in 2025, plus just over 2% contribution from the AOT acquisition, slightly ahead of our previous outlook, and we continue to expect adjusted EBITDA margin of approximately 20.5%.

Turning to Commercial Operations. Revenue was up a robust 122%, driven by contribution from the Kinectrics acquisition. Organic revenue growth was 38%, driven by strong year-over-year growth in our Commercial Power business and double-digit growth in Medical. Adjusted EBITDA in the segment was $36 million, up 163%. This results in adjusted EBITDA margin of 14.2%, a nice improvement compared to our first half results and up from the 11.9% in the same quarter last year.

Margin expansion was driven by solid operational performance and more favorable mix compared to recent periods. We now anticipate 2025 commercial revenue to be up approximately 60% compared to last year, driven by high teens organic growth and contribution from Kinectrics, which is performing slightly ahead of our expectations since the closing of the acquisition in May. We expect segment adjusted EBITDA margin to be approximately 13.5%, the low end of our previous range due to the timing of the recovery of higher material procurement costs, which acutely impacted our results in the first half of the year.

Turning to our consolidated guidance for the remainder of 2025 and our preliminary outlook for 2026. In 2025, we anticipate adjusted EBITDA to be approximately $570 million, the midpoint of our previous range. However, we now expect adjusted earnings per share to be $3.75 to $3.80, up $0.075 at the midpoint given the benefit from nonoperating items, including foreign currency gains and slightly lower interest expense.

Looking to 2026, we anticipate another year of strong financial performance with low double-digit to low teens adjusted EBITDA growth, yielding high single-digit to low double-digit adjusted earnings per share growth given modest nonoperating headwinds. This should lead to another year of solid cash generation, although near-term working capital investments related to the significant growth in our business will likely lead to flat to slightly higher free cash flow.

In our segments, Government Operations revenue is expected to grow in the mid-teens, led by growth in Special Materials and supported by higher revenue in Naval Propulsion and microreactors. Of note, the defense fuels program in HPDU will account for over half of the segment's growth in 2026. This growth includes a significant amount of what is essentially customer-funded CapEx to build the unique infrastructure required for these programs, meaning they are expected to have below average margin in the first phases compared to the rest of our Special Materials portfolio. As such, we anticipate Government Operations adjusted EBITDA to grow in the high single-digit percentage range compared to 2025, ahead of our medium-term outlook for mid-single-digit growth in this segment.

In Commercial Operations, we anticipate another year of robust revenue performance with low double-digit organic revenue growth plus contribution from Kinectrics. We anticipate adjusted EBITDA growth to outperform revenue growth driven by better margins due to the favorable mix and solid execution.

Overall, we had a strong quarter, and we are well positioned for another year of record financial results. Our backlog is robust. We have good visibility into the future, and we remain focused on driving improved margin performance and cash generation in our business.

With that, I will turn it back to Rex for closing remarks.

Thanks, Mike. It is an exciting time for BWXT. The secular trends of decarbonization, electrification and data center power demand, combined with an increasing appetite for nuclear solutions in the national security space are meaningful tailwinds to BWXT. We are proud of our strong market position and the customer trust we have earned, built upon the expertise of our workforce, our differentiated infrastructure and credentials and our strategic organic and inorganic investments. We are winning in our core businesses and expanding into new and exciting areas.

During this period of exceptional growth, we are doubling down on operational excellence focus and expanding its application across the entire BWXT enterprise. We are driving further process improvements and increasing the use of industrial automation and artificial intelligence to optimize cost structure, product quality and cash generation to maintain our winning position and drive shareholder value.

And with that, we look forward to taking your questions.

[Operator Instructions]

First question comes from the line of Pete Skibitski with Alembic Global.

Nice quarter. I guess for anyone, I guess, certainly on an absolute basis, this is one of the bigger revenue beats of consensus that you guys have ever had, I think. So I just wonder if you could clarify, did you book any revenue on the 2 new contracts in the quarter? I know it went into backlog, but did you book any actual revenue on those 2 new ones? And then just kind of the modest full year sales guidance increase implies a fourth quarter that will be down pretty sharply sequentially? So I wonder if you could explain that also. I don't know if there's some conservatism or something else. I'll stop there.

Yes. Thanks, Pete. So as it relates to the new contracts, very, very modest contribution, so not a big driver here. One of the things I think that you're seeing a little bit, and we've seen this trend this year in the second and third quarter is the seasonality around some of our large material procurements.

If you remember, what we've discussed in the past is as we enter into our pricing arrangements, we ultimately will work to get some of those long lead material procurements done as quickly as possible to lock in pricing. And so we've been working to try to do that in the second and third quarter. We had -- we were able to accomplish that a little bit earlier this quarter in comparison to when we had originally forecasted it in the fourth quarter. So that is why you're seeing a large beat this quarter, but ultimately a little bit of seasonality in the fourth quarter just as some of those material procurements have shifted to the right.

I would say, outside of that, we're seeing really strong performance in the shops, and we're continuing to see them outperform both on our Government Ops and our Commercial Ops segment. And so we're very encouraged by that and highly focused on driving continued operational excellence initiatives within the factories.

Okay. Just one last one for me, maybe for Rex. Rex, on the new Janus program, it seems like this is supposed to be kind of a co-co arrangement, which I know you guys typically don't like to actually operate reactors in the field. So I'm wondering kind of what the approach is going to be for BWXT here. Maybe it's just a simple teaming agreement is all that's needed, but I was curious as to your thoughts on that?

Yes. Pete, we certainly do intend to compete for that Janus program, very interesting. The government is obviously looking at putting a number of reactors at a number of different sites. And I think they'll pick at least 2 contract teams for that. Yes, we typically don't own and operate reactors. That's normally the job of the nuclear utility. So it will be a matter of finding the right teammates to go after that opportunity, but we'll do that, and we'll go in and compete hard for it.

Our next question comes from the line of Robert Labick with CJS Securities.

This is Will, on for Bob. With 6 months or so under your belt now, what are the key takeaways from the Kinectrics acquisition? And what are some of the new market and revenue synergy opportunities?

Well, as I said on the call, Kinectrics is outperforming so far. In fact, I might speak more broadly and just say the 2 acquisitions that we did this year, the Jonesborough acquisition, AOT and the Kinectrics acquisition are both outperforming. And I think, frankly, we created a lot of value there. We bought both of those businesses well within our multiples, and both of them are doing quite well for us.

For Kinectrics itself, the outperformance relates to the transmission and distribution business, which is growing very smartly right now because of -- there's 2 things going on there. One is the aging infrastructure requires a lot of testing. So we're doing that. And then we've got a nice business in offshore wind cable testing, particularly focused in Europe. So we're seeing outsized growth there. The life extension programs at the Pickering plant are creating a lot of opportunities that Kinectrics is well suited for. So we're attacking that one.

And then finally, we're seeing some business -- sizable business around licensing support to the Canadian nuclear utilities for the new build large projects -- large reactor projects in that market. And I find that encouraging from multiple perspectives, obviously, for Kinectrics itself. But I think that demonstrates the seriousness of the nuclear utilities to proceed with their plans for large nuclear reactors. So a lot of goodness in the Kinectrics business, and it's a really great match for BWXT.

I might add that, by the way, that medical business of theirs is doing very nice, and there's a lot of talent in that part of the business, which has been helpful and synergistic to BWXT Medical.

And just one more. With the exponential increase in the focus on energy production and security, where are the biggest and nearest-term opportunities for BWX to participate in the growth in nuclear energy? And how are you prioritizing investment into so many opportunities?

Yes. I'd say we have -- we see demand everywhere. We see it on the commercial side of the business. We see it on the government side of the business. If you're speaking to Commercial Power in particular, I'd say the opportunities in order are kind of small modular reactors everywhere. And you know that we face the market as a merchant supplier, and we participate on the X300. We participate on the TerraPower Natrium reactor. We did a deal with Rolls-Royce. So we're supporting that reactor and steam generator design and ultimately manufacturing.

And that's -- and the geography is Canada, U.S., Europe and Poland and the U.K. and other places. So that one is super interesting to us. I do expect to see SMR announcements in the U.S. in the fairly near future. I'd say the large reactor opportunity is expressing pretty strongly based on what I just said about the plans in Canada. I think they'll build at least 8 CANDU derivative large reactors at Wesleyville and at the Bruce site.

And then obviously, the Westinghouse announcement for $80 billion worth of reactors in the U.S. is, I think, quite a positive sign for the industry as it relates to capacity and the need for that. We're actively bidding on AP1000 components kind of every day. So that's in the commercial side of it.

Now Pete mentioned the Janus program, which is a kind of a quasi-commercial program because it's contractor-owned, contractor-operated facilities for U.S. military sites. So that one is interesting in itself. And of course, we see commercial outlets for TRISO and growth in nuclear medicine. So it's everywhere.

Next question comes from the line of Peter Arment with Baird.

Nice results. Could you -- Rex, on the 2 large contracts that you booked in the quarter, the uranium enrichment and then the depleted uranium awards, I think Mike mentioned that there's just going to be some government-funded CapEx to help stand some of that up. But how does the revenue kind of cadence roll out when that -- when both of those programs kick off? And I guess related to that, Mike, you said it would probably initially come in at some lower margins. Just how long of a period does that last?

Yes. So for both of those contracts, they're kind of over an extended period of time. So I think for HBDU, we announced 10 years. And in DUECE, we've talked about that being a roughly 10- to 15-year program. We will see a little bit of front-loading as we build up kind of the infrastructure investments on those in the early parts of the year. But generally speaking, they're pretty distributed over the life of the period of performance.

So maybe a little bit waiting early, but certainly not significant. So it will be relatively distributed over those 10 or 10 to 15 years depending on the contract that you're talking about. Those contracts are structured as fixed price programs. As you know, we typically will enter into kind of a base level margin percentage and then ultimately work to outperform those over a period of time. Our Special Materials business has had a long history of being able to outperform. And so typically, we do not make any of those kind of large-scale adjustments from an EAC perspective until we're probably around 25% or more on the contract. So I would expect the kind of lower margin to last for the first couple of years. And then ultimately, we would be highly focused on driving improvement in that EAC and being able to recognize a higher profit.

Appreciate that color, Mike. And then just Rex, just on Project Pele. Could you just give us the latest update on how that's going? Because it sounds like you said delivery in '27. I thought that was -- is that later than previously planned? Just could you give us any more updates there?

Yes, Peter, that is later than the contract originally called for. That said, the requirements for that program have been evolving, particularly the role of the National Labs in that, and so it's not unexpected. And the program is doing very nicely. We are assembling the reactor core down in Lynchburg, Virginia right now and do expect to deliver that reactor and that fuel to Idaho National Laboratory in 2027, and they'll fire it up and test it out there. So program is going great.

Next question comes from the line of Jeffrey Campbell with Seaport.

First of all, congratulations on the strong quarter. Regarding DUECE, the press release announcing the $1.5 billion award said that the pilot plant will demonstrate LEU production for defense missions before being repurposed to produce HEU for Naval Propulsion applications. To be clear, will the capabilities to produce HEU be accomplished in the current appropriation or will it require additional funding?

So that initial tranche of funding is about licensing, Jeff. Licensing in preparation for the high enriched uranium cascade, which ultimately will be based at our fuel services business in Erwin, Tennessee. That combined with a centrifuge manufacturing development capability that we're doing up in Oak Ridge, Tennessee. So that actually -- the first tranche of funding does not relate to the production of the material itself.

Okay. And regarding the 4 new second-generation electromagnetic isotope separator units that you announced being commissioned by Kinectrics, does the entirety of that 500 kilogram of ytterbium output now belong or will it belong to BWXT Medical? And were there any noteworthy differences between the first and the second-generation EMIS units?

Yes, that's 500 grams of output, the ytterbium-176, which, of course, is the base material for lutetium-177. So it's an important precursor for that nuclear medicine product. It is -- there's no essential difference between this generation and the prior generation. It's really just an increase in capacity of about 500%, by the way. So it's an impressive capability. We haven't integrated Kinectrics Medical business into BWXT's Medical business for some good reasons. But those businesses are supporting one another, and we're finding strategic and -- we're finding strategic synergies there that are pretty powerful.

Next question comes from the line of Scott Deuschle with Deutsche Bank.

Mike, could you slice up the shipset value of the steam generator content you won with Rolls-Royce?

So we haven't given specifics around that, I think, Scott. When we talk about the SMR opportunity with Rolls, we've discussed kind of similar to the rest of our SMR in the $50 million to $100 million range. I think we're squarely in the middle of that as it relates to the Rolls content. So we feel comfortable kind of being in that range from a rolls perspective, but we haven't disclosed the specifics.

Okay. And then the press release announcing that win discussed the localization plan for future manufacturing work. I think most of what Rolls-Royce is currently bidding on is for reactors in Europe. So is the implication here that you may elect to build out a manufacturing footprint in Europe if the demand is there?

Yes. I think, Scott, we are evaluating that and other opportunities for localization. That seems to be the trend in commercial nuclear power. So we certainly are considering it.

Okay. And then last question, sorry to be a pig. But Mike, can you walk us through the puts and takes on 2026 free cash flow that resulted in that guide of flat to slightly up? I heard some of the pieces in the script. I was just curious if you could put a bow on it for us?

Yes. So I think we've seen a pretty significant step change over the last couple of years. As we mentioned in our Investor Day, our kind of medium-term outlook was to see continued kind of one day in, call it, cash conversion cycle days, which is the internal metric that we use. That's roughly about a $10 million improvement each year.

We've seen a sizable improvement going from '23 to '24 and then from '24 to '25. If you remember, we started the year at low end of the range of $265 million. Now we're guiding to $285 million, approximately $425 million. So part of this is driven by some of these investments in the newer contracts. We are able to negotiate some milestones on DUECE and HBDU that are hitting in the fourth quarter of '25, which is good, but it creates a step function as you look into next year in just the timing of when you get to that next milestone. And so that's a little bit of what we're seeing.

In addition to that, we do have -- we're going to be on a little bit higher end of the range on CapEx. We went up to 6% for this year. We'll be 5.5% to 6% of revenue for next year. So you're seeing a little bit of CapEx as we continue to invest in our growth initiatives across the board. And so when you kind of take a look at that, you're seeing that basically, we're going to end up flat based on -- even though we'll have a probably 1 day working capital improvement that's going to be offset by, call it, $10 million to $15 million of timing related to kind of milestones payments for some of these larger new contracts.

Next question comes from the line of Jeff Grampp with Northland Securities.

I'm curious, when we look at this '26 outlook, what do you guys view as kind of the main risk to achieving that outlook? And then maybe this is more of a '25 discussion point, but does an extended government shutdown represent a risk at all to this year's or next year's outlook?

Yes. So I think I'll start with the second question just on the government shutdown. And just to clarify that the majority of the impact of our government shutdown is specific to our technical services part of the business within government operations, where we run different joint ventures with external partners to do MNO and other environmental cleanup on DOE sites.

I think the teams have done a great job of managing funding. Those majority of our sites are fully operational still at this point. And we're kind of making sure that we're continuing with the mission. I would say we have not contemplated a long-term shutdown in our guidance. And so to the extent that we're seeing an extended shutdown, I don't see that as a major driver for 2025, but I would say that, that would create some risk if it extended into '26 for an extended period of time.

As far as kind of the puts and takes from next year, I would say the -- from an opportunity perspective, we continue to focus on operational performance and OpEx initiatives, which we've discussed a lot. When you look at our kind of guidance for next year, we are still working through some of the old pricing agreements. I mentioned last quarter that I anticipated some of that to continue through 2026. So to the extent that we can drive continued performance in the business and we're able to see that productivity, we could have some upside as it relates to opportunities in EAC potential write-ups. We have not assumed a substantial amount of EAC write-ups in our prudent guidance.

In addition to that, based on the timing of some of the new special materials contracts, we've seen earlier this year, we had strong performance in those contracts. We'll continue to focus on performing well in that part of the business. And so that could result in ultimately some opportunities to the guidance that we've laid out.

From a risk standpoint, I would say a lot of this relates to just kind of the overall timing of our commercial nuclear opportunities. We're seeing a flurry of activity in RFP and RFIs, and we certainly have a decent visibility into when the timing of those orders are. But if you had some delays in the timing of those orders, it could have an impact or create some risk for next year. And then we always will highlight just defense spending. We haven't seen a major impact on that, but that's always a potential risk. And I mentioned the extended government shutdown that could be also a potential risk. So those are the big puts and takes.

Awesome. I appreciate that thorough answer. That's really helpful. And it kind of ties into my follow-up. So Rex, you mentioned this demand market as being unprecedented. It seems like the last couple of quarters have been more headlined more on the government segment of the business. I'm curious how you see the commercial side playing out, the potential acceleration there. I mean it sounds like that the pipeline is robust. And so maybe is this something that you guys think kind of materializes or accelerates from a kind of order backlog standpoint over the coming quarters? Or do you have that level of conviction or insight at this point in the cycle?

No, I do think, Jeff, that we'll see that order start to accelerate. I think, obviously, the Westinghouse announcement was maybe the first domino to fall. If you look at small modular reactors, OPG seems committed to building out those 4. We'll see who the next -- we'll see what the next announcement for SMRs is in the U.S. I think that should be Tennessee Valley Authority or another nuclear utility. There's a lot of chatter about that.

I do fully expect the nuclear utilities in Canada to go forth with the large builds pretty soon. Like I said, we have task orders, contracts already to study the licensing for those CANDU derivatives. And so yes, a lot of things are falling into place, a lot of announcements, a lot of demand. And so I think next year for this business will be more about commercial orders and commercial announcements than about government orders and announcements, which characterize '25.

Next question comes from the line of Michael Ciarmoli with Truist Securities.

Maybe Rex, not to derail things, but maybe talk more about the, I guess, the boring portion of your business. No one's asked about Navy subs, shipbuilding and just kind of general thoughts. Mike, I heard you talk about the CapEx. I think we still have a commitment to AUKUS out there. But any kind of general update on kind of what you're seeing in terms of VA, Columbia cadence? How you're thinking about whether or not AUKUS flows in at some point, you need more CapEx or more capacity?

Yes. Thanks for the question, Mike. I think it's taken quite a positive turn here in the last quarter, our boring business in Naval Nuclear Propulsion. AUKUS had been in question because it's being examined by the Department of Defense, but you saw the sort of lovefest between the Australian Prime Minister and the President. It looks like AUKUS is absolutely going forward now.

We're also seeing -- at the same time, we're seeing positive things at the shipyards at both GD and HII seem to be turning the corner on production, and I think that's quite a positive for all of us. And then, of course, there's an announcement -- a surprise announcement about South Korea and the idea that the South Koreans have built a shipyard for nuclear-powered submarines in the U.S. Now that thing was -- is not well formed from my perspective, but we don't know what that looks like yet. But to the extent that the U.S. is involved in the nuclear propulsion system, that could be an interesting opportunity for us.

And so I see a lot of upside in the business relative to a couple of quarters ago. We do need more capacity to meet the demand for the AUKUS program. And we do have CapEx projects that are underway with our customer and naval reactors for that purpose. So there's a bit of that going on already. So full steam ahead.

Got it. Got it. And then just one more, Mike, I think I've got this. I mean the implied government EBITDA margins look to be down next year. It sounds like it's just the front-end loading of some of that lower-margin work and maybe even some of the other pilot progression projects. But is anything changing with that core Navy business? Or is it really just kind of some lower-margin start-up contracts that's weighing on the margins?

No, that's exactly right. If you look at 2026, most of it is mix pressure, half of the revenue growth is driven by DUECE and HPDU. And as we mentioned, we start off a pretty low margin and then would anticipate higher positive EACs in the future. I would say, in addition to that, we are still dealing with a little bit of just the burn off of the pricing arrangements that we had entered into shortly before COVID before we saw significant labor costs and those types of things.

And so -- as I mentioned before, that mix will start to change next year. And as we work through that and into the new pricing arrangements that we just recently entered into. So we're hopeful that we're going to focus on that. The other thing I would just say is we're highly focused on operational excellence initiatives, and we have a large focus on margin improvement that we're going to be driving into the business, and we continue to focus on that every day. So we'll continue to make investments to drive performance in the business. And hopefully, we'll be able to outperform and see some positive EACs next year.

Next question comes from the line of Jed Dorsheimer with William Blair.

I'll echo the other sentiments. Congratulations on a great quarter here, guys. I guess just first one, if I just kind of unpack the commercial growth, I noticed that you had separated out growth from Kinectrics. And specifically in your radiopharma business, that supply with Novartis, it looks -- Pluvicto got off-label from -- to pre chemo, which expands. And so my question is, were you supply constrained in the quarter in terms of at the precursor or for the lutetium-177. And previously, you had talked about, I think, 30-plus Phase III. So I'm just wondering how we should expect radiopharma growth and whether or not that was limited by the capacity?

Yes. I don't -- Jed, I don't think we were supply constrained for that product. We're pretty far downstream. We do the base material, the ytterbium-176 and lutetium-177. We don't produce the active pharmaceutical ingredient that goes to a customer upstream of us. But we -- no, we don't feel -- we're not in a position of supply constraint for that product. As to how that's going to grow, I do expect lutetium growth to continue to accelerate. I can't predict that one for our business right now. But certainly, there will be higher demand in the future.

Got it. And then just sticking with commercial, but switching to the reactor side. It sounds -- if you received an RFP for a Rolls SMR, for example, just as an example here or even for an AP1000, that would obviously drive the backlog, but wouldn't contribute anything to growth next year. Is that correct? I just want to make sure that it seems like that would be the case, but just wanted to confirm it? In other words, '26 is a year of RFPs, wins and while most of the reactor side would be Bruce and OPG up in Canada, correct?

Yes, that's correct.

Yes, that's correct.

Yes. We don't have a lot of that kind of scope in the forecast, if that's what you're asking.

That was what I was asking.

Right. From my perspective, the growth numbers that we put out there for '26, those kind of early targets for growth, I don't see much -- I mean, I frankly don't see much risk on the revenue side because we booked so much business in naval reactors, special materials and even on the commercial side and on the medical side. So it's a low-risk outlook from the standpoint of revenue. We just need to drive margins. But yes, anything that we would get on the commercial side, say, from the AP1000 be additive to that.

Next question comes from the line of Andre Madrid with BTIG.

Could you maybe give us a status update on DRACO? I know you said last quarter, it kind of lives on through NASA, but we did see you guys call out some weaker micro reactor volumes in the quarter, and I wanted to know if it was attributable to this?

Yes, that's exactly right. So the DRACO program evolved into single agency support. It was a DARPA and NASA joint program. Now it's a NASA nuclear thermal propulsion program called Sentry. And the funding hasn't really shaped up for that in a meaningful way yet. We do have some task orders under that contract, and we're able to keep our team together, but it's a lower level of revenue. And it's hard to predict what the outcome of that will be.

Certainly, NASA seems to be focused on lunar efficient surface power right now, and we've assembled the team to go attack that opportunity. But nuclear thermal propulsion is still a need on the civil space and national security side. So I do think that program goes forward in some form in the future. It's just hard to predict right now.

Got it. Got it. No, that makes sense. And Mike, on -- I think you called it out earlier, but on the $80 billion nuclear partnership that was recently announced, I mean, what gains could be captured there, if any? I mean, how do we assess that opportunity for you guys if it is an opportunity?

Yes. I don't think -- I mean, we haven't given specific guidance on what the size of that opportunity is at this point?

I would just add to that, the opportunity there is for component manufacturing, which is obviously right in our sweet spot. So it could be steam generators, reactor pressure vessels, those kinds of things. And so I think the opportunity set is pretty interesting, but it's not specific yet.

Next question comes from the line of Ron Epstein with Bank of America.

This is Alex Preston, on for Ron today. I was just curious on M&A, right? Obviously, talked through a couple of times AOT and Kinectrics performing really well. Curious if you could just walk us through a little bit about the environment you're seeing, any appetite going forward for more investments. It seems like you'll be well within your sort of 2 to 3x leverage range going even to the end of the year?

Yes, maybe I'll make a broad comment about that and then flip it over to Mike. We've been historically pretty picky about doing acquisitions because our philosophy there is to go and get things that amplify our strategic intentions in the nuclear space. And so I think that means you're necessarily limited on the number of targets.

That said, we did a couple of really good ones this year with Kinectrics and AOT, and we've done some very good ones in the past. Nordion was a good acquisition for us. The GE Hitachi assets in Canada, a very good acquisition for us. I would say that we are interested in acquiring right now because, as I said on the call, or as I said in one of the answers, we certainly can get assets within our multiple. So you've got an opportunity to create value there. So we're continuing to look. I think it's super interesting, and we'll acquire if it matches what we're trying to do strategically. Otherwise, we'll stay away from it.

Yes. And I think we feel comfortable where we are from a leverage standpoint. One of my priorities is to continue to clean up some of the balance sheet and create some capacity and dry powder to be opportunistic about acquisitions going forward.

Next question comes from the line of Pete Skibitski with Alembic Global.

Just a quick housekeeping question, I guess, for Mike. Mike, the $15 million step-up in D&A in 2026, this is a small EBIT impact. But I was just wondering, does that relate to the 2 new contracts in government or from tech-99 or something completely different?

It's -- not related to either. I mean part of this is the timing difference between when we get recovery under cost accounting standards and financial accounting standards. But no major step change as it relates to tech-99. That won't happen until that, that program has gone through full approval. And then from the initial investments that we've been doing related to the new contracts, we're starting to spend that, but those aren't placed in service. So you're not going to see a significant step-up of that in '26 that will kind of bleed in over a period of time.

And our last question comes from the line of Scott Deuschle with Deutsche Bank.

All right. I saved this question from the end of the call because it's probably where it belongs. But Rex, is rare earth handling or processing at all an area of strategic interest to the company given your existing experience in the handling and processing of hazardous materials?

So I don't think so, Scott. Our capabilities are around special nuclear materials and the materials handling and accountability systems that go with that. We just aren't involved with rare earths typically, I mean, apart from ytterbium-176, but just not in our playbook. And so I would say the answer to that is broadly no.

That concludes the question-and-answer session. I would like to turn the call back over to Chase Jacobson for closing remarks.

Thank you, Desiree. Thank you, everybody, for joining us today. We appreciate your questions. We appreciate your interest in BWXT. We look forward to seeing many of you and speaking with you in the coming days and weeks and seeing you at investor events. If you have any questions, please reach out to me at [email protected]. Thank you.

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

Ladies and gentlemen, welcome to BWX Technologies Second Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to turn the call over to our host, Chase Jacobson, BWXT's Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good evening, and welcome to today's call. Joining me are Rex Geveden, President and CEO; and Mike Fitzgerald, Senior Vice President and CFO. On today's call, we will reference the second 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 and the company's SEC filings. We will frequently discuss non-GAAP financial measures, which are reconciled to GAAP measures in the appendix of the earnings presentation that can be found on the Investors section of the BWXT website. I would now like to turn the call over to Rex.

Thank you, Chase, and good evening to all of you. First, I would like to welcome Mike Fitzgerald, our CFO, to the call. Mike has been with BWXT since 2022 and previously held the role of Chief Accounting Officer, Head of Finance and CFO of government operations. He is deeply ingrained in our business, is a trusted resource for the entire executive team, and I'm happy to have him on the call with us today.

Now turning to our results and a discussion of our markets and outlook. Second quarter financial results exceeded our expectations, driven by strong execution and pacing of work in government operations. Our second quarter financial results featured double-digit adjusted EBITDA and earnings per share growth and robust free cash flow. We closed the acquisition of Conectric in May. Generics brings a workforce of over 1,300 employees and significantly broadens our life of plant services capabilities in the nuclear power and energy infrastructure markets. Enabling us to offer an even broader range of services to the market. Demand across the global security, clean energy and medical end markets is accelerating.

Backlog grew to $6 billion, up 23% quarter-over-quarter and 70% year-over-year with growth in both segments. Organic book-to-bill was 2.2% in the quarter and the pipeline of new opportunities and government and commercial operations is expanding.

Turning to segment results and market outlook. Government Operations revenue was up 9% and adjusted EBITDA up 23%, exceeding our expectations. Results were driven by strong execution. Particularly within the special materials portfolio, the AOT acquisition and timing of material procurement. The Naval Propulsion business is focused on driving operational excellence and maintaining production pace on our franchise submarine and aircraft carrier programs.

As we announced last month, we signed the next pricing agreement for naval nuclear reactor components. The agreement is valued at $2.6 billion over the next 8 years, primarily related to Virginia and Columbia class submarines and certain components for Ford-class aircraft carriers. We booked over $1 billion in orders on this contract in the second quarter, driving government operations backlog to $4.4 billion, up 24% sequentially and up 55% compared to the second quarter of last year. This contract follows a $2.1 billion pricing agreement we signed in late 2024, which, combined with the administration's focus on naval shipbuilding and the submarine industrial base supports our longer-term forecast of a 3% to 5% revenue CAGR in this line of business.

Special Materials remains 1 of the most exciting growth stories at our company. We had strong performance on legacy contracts during the quarter, and our growth prospects are brightening. The experience of qualifications and unique licenses we possess are well matched with national security missions and position us to satisfy strategic priorities for our customers. We have nearly completed the 1-year engineering study for defense uranium enrichment using the technology to satisfy naval fuel and national security needs under contract to the NNSA. Our current focus is responding to the sole source RFP issued in April for the next phase of this program, which includes design, licensing and construction of the pilot plant.

Additionally, we are working with the NNSA on long-term production of high-purity depleted uranium and quantities that exceed our business case expectations for the AOT acquisition. We are also tracking several advanced nuclear fuel opportunities intended for defense and commercial applications. We will keep you posted as these prospects take shape.

In micro reactors, we began manufacturing the reactor core for Pay lay, a land-based transportable microreactor Palay has received strong support in recent government funding bills and is highly aligned with the President's National Security Executive Order titled Deploying Advanced Nuclear Reactor Technologies that directs the DoD to commence operations of a nuclear reactor by September 2028. As Palay progresses and the advanced fuel supply chain grows, there are multiple emerging opportunities that BWXT is well positioned to capture.

And Technical Services results are strong inside operational performance and in contract wins. Operating income from this business line was up over 20% compared to the average quarterly rate over the last year, and we are on track to outpace that growth for the full year. This is driven by the ramp of Pantex in Hanford, both of which began in 2024 and newer projects such as West Valley and the Strategic Petroleum Reserve, the latter of which is expected to commence in the second half of the year.

From a new business perspective, Atomic Energy Canada Limited. Selected Nuclear Laboratory Partners of Canada, a BWXT-led joint venture, which also includes, to manage and operate Canadian Nuclear Laboratories, our first international project in this line of business. The annual contract value is about CAD 1.2 billion with an initial term of 6 years and extensions for up to 20 years. We are in the preferred bidder period and expect to transition to a contract start date late in the third quarter.

Turning to Commercial Operations. Reported revenue growth was 24%. On an organic basis, revenue was down 3% and largely in line with our expectation as double-digit growth in medical was offset by a modest decline in commercial power due to the timing of outage and maintenance projects, as we discussed last quarter. Backlog in the segment grew to $1.6 billion including about $240 million from the Conectric acquisition. On an organic basis, book-to-bill in the quarter was 1.3. Importantly, this was driven by a multitude of contracts for existing nuclear power infrastructure, highlighting the strong underlying base of revenue in our portfolio and supporting our full year outlook for mid-teens organic growth and over 50% growth, including contribution from Kinetics.

BWXT Medical delivered a solid quarter with double-digit revenue growth driven by the pet diagnostic product lines and TheraSphere. Robust demand signals for the diagnostic and therapeutic isotopes support the outlook for over 20% growth this year. In product development, the Canadian Nuclear Safety Commission approved the irradiation of 390 and Lutetium 177, using the target delivery system with Lorentis Energy Partners at the Darlington site. On Tc-99 as we discussed last quarter, we've been perfecting the product attributes. Encouragingly, we have line of sight to address the final technical issues that are typical in the scale of an industrialization phase of complex projects and I'm quite encouraged by our progress. Given the timing I don't expect the product launch this year, the customer appetite remains strong, and this will be an important addition to our fast-growing portfolio of medical isotopes.

Turning now to commercial power, where demand is accelerating rapidly. In the Candu market, we have talked in depth about the opportunities in the ongoing life extensions and the potential for large-scale new builds. Ontario Power Generation and Bruce Power are evaluating options to expand their nuclear reactor fleets to meet increasing electricity demand in the region. While these projects are in the planning stages, BWXT and Conectric are trusted partners in the Canadian nuclear market and are engaging with these utilities now. For the AP1000, we are bidding on component engineering and manufacturing contracts across a global opportunity set.

There continues to be good momentum in the SMR market. In July, the NRC accepted TVs construction permit application to build a GE Hitachi BWRX-300 at Clinch River in Tennessee with the review expected to be complete by the end of next year. This would be a giant step in the U.S. Smart market and would complement the progress in Canada at the Darlington site for which BWXT is manufacturing the reactor pressure vessel and other important components potentially.

In addition to our work with GE, Hitachi, we are also working with TerraPower, Rolls-Royce and others as we anticipate multiple follow-on orders in the coming years. Our long history of manufacturing large complex nuclear components and existential and expanding capacity position us as a super merchant supplier to the SMR market.

With that, I will now turn the call over to Mike.

Thank you, Rex, and good evening, everyone. Very happy to be here. I've had a chance to meet with a number of you recently, and I look forward to meeting with more of you in the coming months. I'll start with some total company financial highlights on Slide 4 of the earnings presentation.

Second quarter revenue was $764 million, up 12%, with growth in both segments. Excluding contributions from acquisitions, organic revenue was up 4%. Adjusted EBITDA was $146 million up 16% year-over-year, driven by robust double-digit growth in government operations, which was partially offset by lower adjusted EBITDA in commercial operations. Corporate expense was lower compared to last year and we continue to expect corporate adjusted EBITDA expense in 2025 to be slightly lower than the $16.8 million reported last year. Adjusted earnings per share were $1.02 and up 24%, driven by strong operating performance, complemented by a lower tax rate, foreign currency gains and higher pension income, which were partially offset by higher interest expense due to debt associated with the Conectric and AOT acquisitions.

Our adjusted effective tax rate was 20% for the quarter, which was lower than anticipated due to various tax credits as well as higher stock compensation expense. Given the lower second quarter tax rate, we now expect our full year tax rate to be approximately 21%. This yields a second half tax rate of approximately 22.5% and which is more in line with our expectation of our tax rate going forward.

Free cash flow in the quarter was a robust $126 million, driven by good working capital management. Capital expenditures in the quarter were $33 million or 4.3% of sales due to timing of growth investments being more back half weighted during the year. We now expect capital expenditures to be 5.5% to 6% of sales for the year, driven by investments to meet growing end market demand, including the ongoing expansion of our Cambridge commercial nuclear manufacturing facility and infrastructure investments related to defense fuels and government operations.

Moving now to segment results on Slide 6. In government operations, second quarter revenue was up 9%, driven by growth in naval propulsion, timing of material procurements special materials performance and just over 2% contribution from the AOT acquisition. Adjusted EBITDA was up 23% year-over-year to $133 million yielding an adjusted EBITDA margin of 22.6%. This was driven by favorable mix, strong operating performance and favorable contract performance in our special materials portfolio. We continue to expect government operations to generate mid-single-digit revenue growth in 2025. However, with stronger margin performance in the first half, we now anticipate adjusted EBITDA margin to be approximately 20.5% for the year.

Turning to commercial operations. Revenue was $176 million, up 24% year-over-year driven by contribution from the Conectric acquisition and double-digit growth in Medical, which was partially offset by a modest decline in commercial power, as Rex discussed. Excluding Conectric, organic revenue was down 3%. Specific to commercial power, while we had strong revenue growth in components work on the BWRX-300 reactor pressure vessel and Pickering steam generators. This was more than offset by the expected decline in field services due to timing of key outage and maintenance projects during the year.

Adjusted EBITDA in the segment was $16 million compared to $23 million last year. This resulted in an adjusted EBITDA margin of 9.2%. While we had solid margin performance in commercial power components and fuel, this was offset by the decline in field services and growth investment to match the robust market demand. To provide some additional perspective, within Commercial Power, Field Services, 1 of our higher-margin business lines was just over 10% of revenue in the quarter, down from over 35% in the same period last year. This unfavorable mix accounted for over half of the year-over-year margin decline with the remainder due to unfavorable absorption of higher SG&A given lower revenue in the quarter.

At the segment level, we now expect commercial operations revenue to grow over 50% with mid-teens organic growth, complemented by the Conectric acquisition. However, adjusted EBITDA margin is expected to be 13.5% to 14% compared to the low end of 14% to 15% previously due to growth investment and modestly higher contribution from Conectric. Still, our guidance implies significantly improved results in the second half of the year with higher revenue, more favorable mix and the absence of commodity price pressure that acutely impacted our first quarter results.

Turning now to our 2025 total company guidance on Slides 7 and 8 of the earnings presentation. We are raising our guidance for revenue, adjusted EBITDA and earnings per share and increasing the low end of our free cash flow guidance. We now anticipate revenue of approximately $3.1 billion with modestly better revenue assumptions across the business as well as contributions from a slightly earlier close of the Conectric acquisition. Accordingly, we're raising our adjusted EBITDA guidance to $565 million to $575 million up $10 million at the midpoint as the stronger operational performance in government and slightly higher revenue in commercial is partially offset by mix and growth investment, as I previously discussed.

These changes to our operating outlook, combined with a lower tax rate and better pension and other income yield an increase in our adjusted EPS guidance to $3.65 to $3.75 per share. This is up about $0.23 at the midpoint compared to our original guidance, with half of the increase driven by operations and half by the nonoperating items I previously discussed.

Lastly, are increasing our free cash flow guidance to $275 million to $285 million, up $10 million at the low end as higher income and benefits from tax legislation are partially offset by slightly higher CapEx. Overall, we had a strong second quarter and are well positioned to meet our increased guidance for the year.

With that, I will turn it back to Rex for closing remarks.

Thanks, Mike. Over the past decade as a stand-alone public company, BWXT has invested both organically and inorganically to enhance our capabilities in the nuclear market. We have built significant industrial scale and our customers are increasingly relying on BWXT to meet their needs. We have had a strong start to the year, both financially and strategically. Our backlog is at a record level. Demand across our end markets is accelerating and our intense focus on operational excellence positions us well to continue to drive shareholder value in the years ahead. And with that, we look forward to taking your questions.

[Operator Instructions] And our first question comes from the line of Scott Deuschle with Deutsche Bank.

Mike, the 10-Q flags a $29 million favorable contract adjustment, I think, on nuclear operations. Can you clarify any more what that relates to and if any of that was assumed in the original guide?

Yes. Thanks, Scot. The $29 million, as you mentioned in the 10-Q, relates to 1 of the special materials contracts. As Rex mentioned, we had strong operating performance in Special Materials. Scott, as you know, we look at a number of different potential opportunities as it looks to those contracts. So portion of that was included in the guide. But I would say it was a little bit more favorable than we had originally anticipated. So I would say a part of it we assumed in our original guidance.

Okay. Great. And then, Rex, do you see any opportunity for B2XT to secure some level of content on new build AP1000s that may be built at some point in the U.S.? And if so, what type of content would the company be able to compete for those reactors?

Yes, Mike, Scott. We have -- in fact, we have an MOU with Westinghouse to potentially manufacture certain components for the AP1000 in the U.S. market and potentially in other markets. And what we would do there is what we -- similar to what we do and can do. We're qualified for or pressure components, high-pressure components like steam generators, heat exchangers, we could make that reactor pressure vessel in our Cambridge plant. So there's a lot there. And I think as industrial capacity starts to stretch, we might have some really interesting opportunities there.

Okay. And just to clarify, could your content on that potentially be as large as can do? Or would it be still materially smaller?

Yes, I'm not sure if I'd go that far. We'll have to see how that unfolds. For Candu, of course, we typically get all the steam generators, most of the heat exchangers, theaters and other such content. I'd say -- it's the same kind of scope of equipment, but I don't know if we would sort of run the table like we do at Kandy.

Our next question comes from the line of Jeff Campbell with Seaport.

Congratulations on the strong quarter. I thought I'd start with 1 kind of high-level question that I got a specific for the second. I thought the appointment of Kevin McCoy, the Chief Nuclear Officer is clearly important, but it's not clear to me how you will influence bottlenecks that don't historically reside at BWXT. So any high-level commentary you can provide there is certainly appreciate it.

Yes, Jeff, I didn't quite catch the question. Would you be enough to repeated?

Sure. I was saying that I noted Kevin McCoy's appointment Chief Nuclear Officer with interest, but I wasn't really sure what his mandate will be since BWXT is usually not the point of dragging when we have difficulties getting these projects through. So just any commentary that you can provide on how he's going to influence...

Right. Okay. I understand the question now. Right. So you're quite correct in the way that title is normally used. And let me just say that that's a bit of a sort of a holding place for cabin. And the reason for that is that Kevin is seconded to the Department of Defense to help the Deputy Secretary of Defense and the Secretary of the Navy with nuclear shipbuilding. So he remains an executive employee of BWXT but he is fully under contract to the Navy. And so that's the title that he's holding while he is occupying those positions with the Navy. In the meantime, we promoted Joe Miller up into President of Government operations to replace Cabin. So it's all part of that dynamic.

Okay. Yes, that makes a lot more SP29154009 My other question was Slide 7, the government operations margins of approximately 20.5%. That seems well above prior guidance. I just wonder if you could pinpoint some drivers of this improvement and maybe their durability.

Yes. So geo margin for the quarter was impacted by the EAC for the special materials contract that we just mentioned. We also had some really good pacing of work as well as some of the timing of materials that was good from an overall margin standpoint. I mean, overall, I would say we're comfortable and we're happy with some of the efficiencies and utilization that we're seeing at the plants. We think we're continuing to focus on that from a margin standpoint to create some long-term sustainability there. we'll see continued strong performance for the rest of the year, and we'll give you more clarity around what we're expecting in 2016 next quarter.

Next question comes from the line of Robert Labick with CJS Securities.

Congrats to Mike on his new role. Sure. I wanted to start -- Rex, you mentioned this in your prepared remarks, but you had the recent approval by the CNSC to radiate atrium and lutetium in your target delivery system. Can you talk about the opportunity there? What are the next steps and what it will take for you to get that through done and produce commercial material.

Sure, Bob. Yes, we're doing that in partnership with Lorente Energy Partners, as I said in the script. And the qualification of those products is really up to our partner. They're the ones that have developed the contracts to produce that material for certain clients. And so we have a bit of a passive role there. We did design and deploy that target delivery system. And so it will be a royalty opportunity for us.

Okay. Great. And then just switching gears a little bit for my follow-up. You have a tremendous amount of opportunities ahead of you talked about the new SMR growth, Paley build-out, et cetera. talk about capital allocation. How do you prioritize capital into each of these? What are the big amounts of capital that you need to deploy over the next 5 to 10 years for any of these or other opportunities and how you allocate?

Yes. Maybe I'll start and then flip it over to Mike. We've given the broad guidance that 4% for maintenance searching up to perhaps 5% or 6% episodically depending on the opportunity. We're doing the Cambridge plant build out right now, which is obviously not maintenance CapEx, and that's sort of 1% of our sales right now. And so that pushes it up in that 4% to 6% range. And I think that's how we see it.

We don't see in the windshield, Bob, any CapEx super cycles like we've been through, at least at the present moment. So I think you'd see it banded in that range, 4% to 6%, as to how we evaluate it, it's obviously a business case. And we've got so many high-quality business cases right now. and so much competition for capital, it's actually pretty tough. But that goes with the abundance of opportunities that we're facing. Maybe I'll pitch it over to Mike for any additional comments.

Yes, Rex, this is right. The only other thing I'd call out is we did raise guidance and expectations for CapEx to 5.5% to 6%. And part of that is driven by some investments we're making around defense fuels related to enrichment. But as Rex mentioned, we see this. And I think we've said before, we anticipate more of tens of millions of dollars in investments in some of these opportunities, but we don't see the same level of significant CapEx than we may have seen in the past.

Our next question comes from the line of David Strauss with Barclays.

This is Josh Korn on for David. So you've gotten 2 Navy contracts now in quick succession. How far are you contracted for those Navy programs?

Those contracts have a performance period of up to 8 years. It's typical for the delivery of a full ship set to take between 6 and 8 years, depending on whether that's Virginia and Columbia or 4. So 8 years from the time we signed the contract. .

Okay. And then I wanted to ask, so with Kenetrics closing a little earlier than you expected, how much did that contribute to the guidance increase? And then in the free cash flow guidance, what are you assuming for working capital?

Yes. So -- we had previously said Kinetics about midyear. As we mentioned, we look at a number of different scenarios. So you're right, it was a few weeks ahead of what we had planned. So part of what you're seeing in the guidance raise relates to that. I would say, though, that's a smaller portion, if you think about kind of the Conectric at an EPS level, it is slightly neutralized by the additional interest expense associated with funding from the acquisition. And so when you look at it from that standpoint, it's a smaller amount.

I think we're -- most of the rate really relates to kind of timing and pacing of work as well as our performance in our government operations business. And then as it relates to kind of working capital from an overall working capital standpoint, and I don't know if this was specific to Kinectrics. So we are anticipating kind of working capital and free cash flow generation similar to the rest of our business. So over 80% free cash flow generation specific to Kinetics.

Next question comes from the line of Pete Skibitski with Alembic.

Quarter. Rex, Rex, if I could follow up, I think it was Josh's question on the 2 naval reactor contracts in the last, call it, 6 or 7 months or so. I feel like historically, the Navy is kind of like an annual pace with you guys. But now we've got kind of a quicker pace pretty -- especially this latest win a pretty sizable award. Can you give us a sense of what's kind of motivating the Navy? Because I don't know if this is industrial-based funding or wage growth or -- but I don't really think of you guys as being kind of a bottleneck on submarine construction, right? So I'm just wondering if you can give us a sense of kind of what the motivation is here to -- for these size of awards and this kind of compressed time frame.

Yes. Pete, that was -- so the way that worked out this last pricing agreement that we announced, a $2.6 billion 1 was really kind of on time. You may remember on the last 1 that we had a number of delays and the related to the complexity of that negotiation and it was complex because we had gone through coin had a lot of labor and commodity price pressure, and it took a while to get through that. And so this 1 kind of came on time, the prior 1 came pretty late. So the pace is still the same.

We're still receiving orders to the 30-year shipbuilding plan that the Navy has. But I would say what's significant about it is you know there are concerns about whether or not the shipyards will keep pace with the supply chain. And we have offered that we believe that the names approach is going to be to try to fix the problem in the shipyards and keep the supply chain running at base. And so this last pricing agreement kind of validates that thesis. It has 2 Virginias per year, Colombia is now serial -- in serial ordering and then the next board when it comes. And so I think it was kind of important from that perspective to say that at least for us, the supply chain stay on schedule.

Okay. Got it. Got it. So don't expect the next 1 until 2026, it seems like. what we should think?

That's -- it depends. Sometimes it's on 2-year intervals, some time on 3. So we'll see how that unfolds with our customer..

Okay. Okay. And just 1 follow-up for me, in your prepared remarks that your comments about several advanced nuclear fuel opportunities. I feel like in the past, you guys have said that you're not really interested in commercial fuel opportunities. I just want to validate if that's still true, these fuel opportunities? Are they largely the government at this point. .

So not exactly. I'd say there's an interesting -- smallish, but an interesting demand signal for trice that we're responding to, and we can produce that fuel commercially. We're literally the only the only company that can produce TRISO at any scale. So there's commercial interest, and I expect we'll get a couple of contracts in that area this year. And then I think the other comment was around -- the other indication was around on the front of the fuel cycle for the defense enrichment program that we're involved with, depending on the scale of that thing and how it unfolds or it could be commercial outlets for that material. So I'd say a couple of opportunities there that are interesting to us.

Our next question comes from the line of Andre Madrid with BTIG.

Looking at micro reactor, I know a lot of moving pieces there. It looks like Palais progressing well. I guess, how should we think about that end market in the near to medium term given the progress on Palais, the loss of Drago, -- is there any contribution from Jetsen still? Just trying to figure out what the moving pieces are.

Yes. I'd say, Andrew, the -- so let me take those by par. For Pala, yes, it's progressing. We're assembling the reactor core as we have discussed. I was in the Pentagon just within the last month, talking to a senior official about what the path ahead is or for government micro reactors. And it looks like procurement strategy is going to be a competitive offering to put micro reactors at multiple DoD sites.

So this is what we had always hoped. We had hoped that Palais would become maybe a low rate initial production program with production programs to follow. And I think that could happen. Now that's certainly in the future a couple of years. But I think that's the endpoint for it. Concerning DRACO. So DRACO hasn't gone away. Just to be clear about that, start withdrew its participation from kind of a joint venture with NASA to develop that nuclear thermal propulsion technology. But the NASA program is going ahead. In fact, the CGS appropriation marks for al- sorry, for DRACO, for nuclear thermal propulsion were $175 million on the House side and $110 million on the Senate side.

So it looks like we will have a program going forward through NASA to develop that technology. And I'm actually pretty optimistic about that one. In terms of Jetson, the other program that you talked about, there's a sliver of a program there. It's a smallish thing. And then we have some other pieces vision surface power and other such programs. And I think from what I'm hearing necessary to gear up on fishing surface power pretty quickly. So there's a lot there, and I think we'll have a significant role in some of it.

Okay. That's definitely promising good to hear. And then, I guess, moving in a different direction, I guess, just talking about naval nuclear supply chain more broadly. I think 1 of your peers talked about the prospect of taking more work off the plates of the shipyards in order to help clear up some of those bottlenecks. Is that something that you guys would ever be interested in doing? Or has it kind of been there, done that, I don't really want to do that anymore. I know this is something that I think you guys have explored before, but I wasn't sure if you're maybe taking another look at it with fresh eyes.

I'd say, generally, it's not a high interest to us if it's not nuclear qualified components and that work would not be for the most part. So I wouldn't put it at the top of my list.

Got it. Got it. Okay. No, that makes sense. And 1 more, if I could squeeze it in. I guess, looking at the supply chain, again, to stick on that. Any further impact related to zirconium? What are you guys seeing there? Does it look like it's getting better, getting worse?

Seems to have leveled out. It certainly went through a spike there, and Mike talked about it in his remarks, it impacted us in the first quarter. There was a modest very minor impact in the second quarter. But just as a reminder, that zirconia price variability is the reason why we don't accept that risk in our contract. So that passes through to the customer. The impact was merely a timing impact related to how we do the percentage complete contract. So that bounces back to us. So I think it's first and settled down second, it comes back to us in the end.

Our next question comes from the line of Jed Dorsheimer with William Lear.

You have Mark Schutter on for Jed. Given all the new enthusiasm and the government support, -- can you try to place a metric on the engagement level you're seeing now versus a quarter ago or a year ago, maybe on the number of projects you're bidding on actively or maybe an increase of revenue opportunity?

Well, hard to answer that one, Mark. I would say we certainly see high activity in every 1 of our end markets. Medical has been compounding the 20% per year. The government appetite seems to be stronger than ever. In fact, I've said earlier today that we kind of can outgrow the government business. Commercial power, the opportunities are abundant. Yes, it's -- the markets are just strong everywhere, and we certainly haven't experienced time like this.

I appreciate it. I thought I'd ask. Just switching gears a bit to the TRISO fuel. I think I heard you mention that you expect some contracts by end of the year. Can you wrap that in any kind of unit economics or maybe a capacity? Or can you give us any more color on what we should be expecting there? Is that going to be any significant impact to the financials this or maybe even next year?

Yes, I'd say I don't want to be specific about timing and say I would be a little bit cautious about the scale of those. They're smallish, they're certainly smaller than the Palay contract fuel contracts. But -- but I think they're interesting because they're -- we're beginning to see the precipitation of modest demand for tribe fuel on the commercial side. So it's exciting strategically. It's not big economically yet.

Next question comes from the line of John France with Baird.

Mike and Chase. The first question, I just want to start on the reconciliation bill. There's a lot of big dollars truck ship building the support for the nuclear triad. So I just wanted to get your thoughts how you're thinking about that? And any sort of incremental orders that you expect to start to flow to BWXT where it wouldn't have existed if there was no reconciliation bill?

Yes, these reconciliation bill was good for us. There was funding in there for a second Virginia for 2026, of course. There was, if I recall it correctly, $100 million for defense enrichment which obviously is right in our wheelhouse and what we're working on with National Nuclear Security Administration, there was funding that specific to advanced reactors. You can read that as Palais. There was additional funding for the Strategic Capabilities Office. And so when you stack all that up, I think it was all quite edifying to programs that we had in progress.

Great. And then just a quick follow-up on the BWRX-300 -- just on the first reactor in Darlington, how should we think about the revenue recognition sort of when does that peak for the first reactor? And I guess to add to that question, is there a potential for the TVA deployment to sort of leapfrog reactors to the 4 at Darlington. So just as we think about those 2 sort of locations and just the revenue cadence for Reactor 1 on the design.

What we said historically on the revenue profile for that 300 is that -- well, first, we said the opportunity per X300 is in the range of $100 million and that the revenue profile was kind of evenly distributed over, let's call it, a 4-year period. And the reason for that is the reactor pressure certain other components that we could manufacture simply long-lead items for those reactors.

In fact, we received the order for the project was formally approved by the provincial government. And so you can think about it that way. In terms of the timing for TVA, I don't know if it will lead from 2, 3 and 4, Darlington. I mean I hope so. I hope I hope it goes fast. But -- but I think both of those opportunities -- think about that opportunity is probably 4 more x 300 added to the additional 3 at Darlington. And so it remains an exciting opportunity for us. I would think what would happen is maybe the first reactor at TVA fall somewhere in the middle of all that -- but I'm speculating.

And our next question comes from the line of Michael Ciarmoli from Truist Securities.

Nice results for the super merchant supplier at REX. -- guidance this year. On the guidance here, I know timing is always hard to predict, but the guidance assumes GO revenues could actually be down second half year-over-year? And I guess you've been looking at the EBITDA margin run rate. I know you got the positive EAC, but that second half run rate looks like it might be below 20%. You haven't done that in quite some time. Any -- was it all just timing? Is there anything going on with the mix of some of these newer programs? Should we just think about more cost plus coming in? Or what's the best you can help us with on that weaker second half?

Yes, I would say I don't think we're seeing a major shift in overall mix across the contract portfolio. So what I would say is we signed a pricing agreement that we mentioned a little bit ahead of schedule. That had a number of advanced material procurements that came into the quarter that we weren't expecting that typically would be in the back half of the year. I would say, in addition to that, when you look at kind of the special materials contract performance, typically, the fourth quarter is a very strong quarter for us. And in a lot of cases, we're seeing strong performance at that point in the year.

We see and we're able to get very confident in kind of our contract performance in Q2, which is where you're seeing some outsized growth in the quarter. So when we look at kind of the rest of the year, I mean, I think the way that we look at it, we feel confident in where we'll land, I don't think there's anything individually to call out too much around kind of overall revenue. But I would just say that we're seeing a number of things hit earlier in the year than we typically do.

Maybe I'll just add a note to that just going to add a footnote to what Mike just said, Mike. The operating condition of the plants is good. We've had a focused campaign around OpEx for -- with multiple dimensions to have, including factory throughput lead time, cost of poor quality, price of nonconformance is the name of our program. So the plants in Cambridge and across Canada, the plants and our NOG complex are performing quite well. I think we just had a very strong over performance in the first half, and it will normalize a little bit in the second half, but we feel good about our operational performance. So there's no degradation from that perspective.

Okay. Okay. And then just kind of on that topic.

Maybe the first year commercial, it sounds like you've got good line of sight to that field services. I thought that was good color, Mike, providing kind of percent of revenue. But presumably, you get a pickup in steel services, and that drives the margin strength in commercial second half?

That's right. Yes. So we were down seasonally compared to normally Q2 is a strong quarter for us. But obviously, we saw a significant decline down to 10% of revenue in that mix. So we feel good about where the rest of the year will shake out, and I think we're confident in what we're going to see in field services and the components margins for the next few quarters.

And our last question comes from the line of Ron Epstein with BAML.

Maybe just a couple of quick ones. One, when you look at the growth in the backlog, it bumped up a lot, how much of that is because of the acquisition and how much of that is organic?

Yes. So from -- the majority of that is going to be organic. If you look at ultimately, our book-to-bill for this quarter was 2.2. We had really about $240 million-ish of backlog associated with the acquisitions, but the majority of it was organic.

Got it. All right. Great. That's super bad. And then 1 more. We've heard some companies talking this quarter about shortages of critical minerals. Has that been an issue for you guys? Do you see it as a potential issue? And how are you mitigating it? Or is it just about an issue at all?

Yes. Maybe I'll take that one, Ron. We -- we're not seeing much pressure from that. We did -- the zirconia pricing that you saw in the first quarter was a derivative of that problem, but that seems to be settled out we seem to be settling out now. As I said earlier, apart from that, we manage our commodity risk pretty well and aren't that sensitive to critical minerals. Yes, it's not moving the needle for us.

Yes. The only thing I would say, I mean, we're not having an issue trying to get in the actual raw materials. And then from a pricing perspective, we typically -- and I think we've publicly said in the past that we our arrangements will have kind of pricing locked in for roughly 70% over overall materials purchases on our contracts, and that's either due to firm vendor quotes, extended ordering periods, those types of things. And so that's how we're able to manage.

That concludes the question-and-answer session. I would like to turn the call back over to Mr. Chase Jacobson for closing remarks.

Thank you. Thanks, everybody, for joining today. We look forward to seeing many of you and speaking with you in the upcoming weeks at investor events or on the phone. And if you have any questions, please feel free to reach out to me at investors bwxt.com. Thank you.

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