Rex Geveden: Oh, new and interesting nuclear-wise? Probably not, but I would say that, we’re continuing to see sustained and very good support for the programs of record, like DRACO and Pele, and hopefully that will continue.
Operator: Your next question comes from the line of Michael Ciarmoli from Truist. Please go ahead.
Michael Ciarmoli: Nice results. Maybe, Rex, just back to the multi-year pricing. Is that, I mean, you mentioned kind of maybe a delay. I don’t know if that’s the right word, but just what was going on with the fiscal 24, 25 budget. Is both Ford, CBN sort of schedule a factor in kind of what’s happening with that new multi-year contract?
Rex Geveden: Yes. I think that when we’re working through those agreements with our customer, Mike, it’s everything, right? So it’s what is the shipbuilding schedule, what is the budget available, how many spares do they want to order, what’s going on with escalation. So that blends up to a pretty complex thing, particularly right now with labor and materials inflationary pressure. So it’s sorting through that. And by the way, certainly not unusual for other defense contractors to be on, bridge contracts to negotiate through these things. So it’s all of that. It’s all the above. It was the FY 25, 24 appropriation. It was the supplemental, and it’s the shipbuilding schedule and the President’s budget request all blended up into what do we have here. And we’ll certainly sort it out.
Michael Ciarmoli: Got it. Got it. And then, Robb, just on the, back to the medical and the TC99, any sort of change in your thought process? I mean, it’s, I guess, directionally maybe it sounds like the TC99 approval is sliding to the right a little bit, but still comfortable with the trajectory of 24 and 25 revenues there for overall medical pushing to, $200 million and I guess getting that margin into the mid-30s?
Robb LeMasters: Yes. No, I don’t think there is any change really, overall. Again, we don’t anticipate any tech really moving the needle this year. In 2024, we talked about that last quarter. We’re not really seeing. We’re going to try to get commercial, but the actual impact will be minor in the near term. Ultimately, as we laid out that target, we said that it would really come from a couple different areas, our core portfolio, the therapeutics portfolio, and then the last area is the tech portfolio. And if you move through those and you really think about it, there’s been some pretty good upside on the [Nordeon] [ph]. I think therapeutics is, at least from a market standpoint, surprising. We need to get some contracts. We talked about Lutetium.
We’re the only commercial supplier in Actinium, so I wouldn’t be surprised if it gets surprised to the upside there. And then tech, for all the fits and starts that we’ve had is actually lining up pretty nicely. The market is ready for a third player, and so I wouldn’t be surprised if we nail that one as well. So the target overall for call it 25, 26, year to have that level of 200 million revenue still seems readily achievable.
Michael Ciarmoli: Got it. And then just last one for me, just, Robb, given your background, what were your thoughts when you saw Fusion kind of pre-revenue, pre-EBITDA getting acquired for $2 billion, knowing what you guys have in terms of your medical business?
Robb LeMasters: Yes. I thought it was a solid acquisition, I think, for the acquirer. We’re working very closely, as you know, with press release that we’re working closely with a couple of key companies. One of them is Fusion, and we’ve been constantly impressed with their products and their knowledge that understanding how to get supply of the actinium, which is what their drugs are really based on, is key. And if you read the press release from the acquirer, they’re really focused on the fact that they could bring that to bear to the parent company. So it’s not only the products they have, but the knowledge of the supply chain, and we’re a partner there. So in an indirect way, they’re affirming our strategy that that’s really a key aspect to what makes that company solid.
I think I’ve always been transparent that we don’t sell, we’re not into drug business. So those evaluations really are multiples of revenue, if you will. And we’re more of a picks and shovel player. But we’re a very solid part of the ecosystem that I think really will warrant evaluation when we bring our whole business plan to bear. And I know everybody’s been patient with that. But if we hit these targets, I think the valuation of that entity could be quite compelling.
Operator: Your next question comes from the line of Ron Epstein from Bank of America. Please go ahead.
Ron Epstein: Just give me a quick one. When you look at the cadence for submarine production, it seems like, Virginia class has kind of been, I don’t know, slowed down, given what the industry can do. And what impact does that have on you all? I mean, is it, are you kind of directly connected to that? Are you delivering, your stuff separately? I mean, how should we think about that?
Rex Geveden: Yes. Hey, Ron. I just touched on that in the script a little bit. I think you can think of us as somewhat decoupled from the shipyards. I mean, first off, the shipyards, HII and GD, are not our customers. We sell that product to naval reactors, and we sell it to them on their schedule. And then that’s government furnished to the shipyards. So we’re a little bit decoupled from that. And so I think that’s a way to think about it. Another aspect here, maybe three things to think about. Another aspect to consider here is that, look, this is the president’s budget request, and that’s the shipbuilding schedule. But it doesn’t mean that much until the authorizers and appropriators are done enacting the budgets for 25 and beyond.
So I think it’s certainly very early innings in that game of Virginia production. We’ve heard our, you know, our peer companies out there, HII and others, talking about how important it is to keep that production rate funding going. And obviously, very, very strong bilateral support for the Virginia program. So, you know, I’d say that one’s not done yet. The third thing I would say is that the industrial base, ultimately, and BWXT, ultimately, have to get to a higher production rate in order to meet the needs for office. And so this Virginia rate needs to go to 2.3 for a decade or more. And so we’ve got to build the industrial capacity and the workforce capability to do that. And so slowing down doesn’t make any sense to me. And so we’ll see what the appropriators do.
But it doesn’t worry me all that much, given the depth of our backlog and given the strategic priority that the Virginia represents.
Ron Epstein: Got it. Got it. Yes, that makes sense. And then, I think you spoke to that some, but can you speak to, what’s going on with labor for you all? I mean, labor has been a challenge for — it seems like everybody across the space. I mean, is it been any different for you in retaining people, hiring people, and, you know, potentially the people that you’re going to need to bring on board to eventually ramp up to meet the demand for the Navy?
Rex Geveden: Yes. I’d say maybe there’s a couple of things I would say about that. And I talked about this a lot in prior calls, and that is that we reengineered our, you know, our talent acquisition process under Bob Duffy’s leadership, who runs human capital for us over the last, let’s call it a year and a half. And the fruits of that were we hired 10% of our total workforce last year, as we said in the script. And so we, there were two things there, right? We’re able to achieve, largely achieve our growth needs, and do so in an environment where attrition post-COVID is higher than historically it has been. So I’d say that, you know, we sort of won on both sides of that one. All that said, it’s a tough environment for labor, right?
I think we’re re-industrializing the U.S., the U.S. economy, and certainly trying to ramp up submarine production, and that’s not an easy thing to do, and it’s hard to get your hands on those scarce resources. And so, when Robb talked about the pressure that we’re feeling on — the pressure that we’re getting in our margins, it has to do with onboarding that many people and that amount of churn. Our efficiencies are good. We’re making this product, with the profit that we thought we would, but you’ve got a lot of people sitting in training classes, and you’ve got a lot of people, churning through overhead because of that. So I want to say that, that we’ve done a really good job of dealing with what I think is a very challenging environment, and we just have to keep swinging the axe at this thing.
Robb, do you want to add anything?
Ron Epstein: Got it.
Robb LeMasters: No, I think you said it well. We’re absorbing. We got ahead of the industry, I think, on CapEx to build the capacity, and we tried to do the same thing last year, really swarmed the issue of workforce, and so we got ahead of it, and others are also in our industry, but that’s sort of how BWXT, goes about it. We try to just address the problem quickly. And now we’re turning through it, as Rex said, our utilization at our top component sites are off almost 400 basis points year-over-year, but we’re chewing through that, and we will all year. So we’re sticking with our, our guidance, which shows that we can take all that workforce in and still keep moving. So I think we’re going to be on the other side of this and be quite strong.
Operator: That concludes our Q&A session. I will now turn the conference back over to Chase Jacobson for closing remarks.
Chase Jacobson: Thanks, everybody, for joining us today. We will be speaking with many of you in the coming days and seeing many of you over the coming months. If you have any further questions, you can feel free to reach out at investors@bwxt.com. Thanks.
Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.
