BWX - Earnings Call - Q3 2025
November 3, 2025
Executive Summary
- Q3 2025 delivered double-digit organic revenue growth and strong cash generation: revenue $0.866B (+29% y/y), GAAP EPS $0.89 (+17% y/y), non-GAAP EPS $1.00 (+20% y/y), adjusted EBITDA $151.1M (+19% y/y), and free cash flow $94.9M; backlog reached a record $7.4B (+119% y/y) driven by multi-year special materials wins.
- BWXT raised 2025 guidance: non-GAAP EPS to $3.75–$3.80 (from $3.65–$3.75), adjusted EBITDA to ~$570M (midpoint of prior $565–$575M), revenue “$3,100+” and free cash flow to ~$285M.
- Against S&P Global consensus, BWXT posted a clear beat: Q3 EPS $1.00 vs. $0.875 consensus; revenue $866.3M vs. $804.0M consensus; EBITDA was above consensus on an adjusted basis but below on GAAP EBITDA; management highlighted seasonality and timing of large material procurements as drivers of the beat and Q4 sequential moderation. Values retrieved from S&P Global.
- Catalysts: newly awarded national security contracts (defense fuels centrifuge pilot and 10-year HPDU plant), nuclear power OEM partnerships (Rolls-Royce SMR steam generator design + MoU), and medical isotope capacity expansion (EMIS units at Kinectrics) bolster 2026 growth visibility, albeit with early-phase mix pressure on margins for customer-funded special materials programs.
What Went Well and What Went Wrong
What Went Well
- Robust bookings lifted backlog to $7.389B (+119% y/y), with Government Operations bookings of $2.086B and Commercial $159M in Q3; CEO: “robust bookings… large, multi-year special materials contracts”.
- Commercial Ops strength: revenue +122% y/y (reported), +38% organic; adjusted EBITDA up 163% to $35.5M driven by nuclear components, field services, fuels, and medical isotopes; management: “medical revenue grew double digits… outlook remains favorable”.
- Strategic wins: 10-year $1.6B HPDU award (Jonesborough plant, up to 300 MT/year), new Rolls-Royce SMR steam generator design and MoU for future manufacturing, and $174M Naval reactor fuel contract; these expand long-term revenue visibility in defense and clean energy.
What Went Wrong
- Government Ops operating income dipped modestly y/y ($97.4M vs. $101.6M), reflecting fewer favorable contract adjustments vs. prior year; adjusted EBITDA up only +1% y/y to $118.3M.
- Mix pressures and timing dynamics imply Q4 sequential moderation after Q3 beat; CFO cited earlier-than-expected long-lead material procurements shifting revenue and margin cadence, and lower initial margins on customer-funded special materials phases in 2026.
- Microreactor volumes were lower y/y; DRACO transitioned to NASA’s SENTRY with uncertain near-term funding, contributing to the microreactor softness despite progress on Project Pele (delivery now 2027).
Transcript
Speaker 0
Ladies and gentlemen, welcome to BWX Technologies Third Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. Following the company's prepared remarks, we will conduct a question and answer session and instructions will be given at that time. I would now like to turn the call over to our host, Chase Jacobson, BWXT's Vice President of Investor Relations. Please go ahead.
Speaker 1
Thank you. Good evening and welcome to today's call. Joining me are Rex Geviden, President and CEO and Mike Fitzgerald, Senior Vice President and CFO. On today's call, we will reference the third quarter twenty twenty five earnings presentation that is available on the Investors section of the BWXC 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 provisions 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.
Speaker 2
Thank you, Chase and good evening to all of you. I am 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 $7,400,000,000 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 wind streak that unfolded over the last several years. Our team began transition for the strategic petroleum reserve MNO contract in early October and the BWXT led joint venture, which includes Conetrix, 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 LIPORAT reactors 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 JANIS 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 trisulf nuclear fuel production.
We are excited to have a partner that is aligned with Google. BWXT is currently producing trisulf fuel for Project Pele and a variety of other customers and will 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 two of these opportunities both within the NISA materialized during the quarter. First, we were selected for the defense fuels contract valued at $1,500,000,000 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 1,600,000,000 ten year contract to supply high purity depleted uranium to the NMSA. 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 Jonesboro, 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 Kinetrix 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 TEK-ninety nine development is progressing nicely and is on track for an FDA submittal in the near future. In the therapeutics market, Kinetic's commissioned four new electromagnetic isotope separator units that increased production capacity of Juterbium-one 176, the precursor material for lutetium-one hundred seventy seven, 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, PWXT and Conetrix 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.
Speaker 3
Thanks, Rex, and good evening, everyone. I'll begin with total company financial highlights on Slide four of the earnings presentation. Third quarter revenue was $866,000,000 up 29% driven by both segments. Excluding contributions from acquisitions, organic revenue was up 12%. Adjusted EBITDA was $151,000,000 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. Non operating 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 Kinetrix acquisition, we expect our tax rate to be slightly higher year over year. Third quarter free cash flow was $95,000,000 driven by solid earnings performance and timing of cash receipts from major awards.
We anticipate free cash flow in 2025 to be approximately $285,000,000 the high end of our previous outlook range. Capital expenditures were $48,000,000 in the quarter and $114,000,000 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 six.
In Government Operations, third quarter revenue was up 10%, driven by naval propulsion, long and fleet material procurement, special materials and a roughly 3% contribution from the AOT acquisition, partially offset by a decline in micro reactor volume. Adjusted EBITDA of 118,000,000 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 Kinetrix 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 $36,000,000 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 Kinetrix, 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 five seventy million dollars the midpoint of our previous range. However, we now expect adjusted earnings per share to be $3.75 to $3.8 up $0.75 at the midpoint given the benefit from non operating 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 non operating 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 micro reactors. Of note, the defense fuels program and 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 Kinetrix. 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.
Speaker 2
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,
Speaker 0
our
Speaker 2
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.
Speaker 0
Thank you. We will now begin the question and answer If you dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via speakerphone in your device, First question comes from the line of Pete Skibitski with Alembic Global. Your line is open.
Speaker 4
Good evening, guys. 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 just wonder if you could clarify, did you book any revenue on the two new contracts in the quarter? Know it went into backlog, but did you book any actual revenue on those two 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.
Speaker 3
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.
Speaker 4
Okay. Just one last one for me, maybe for Rex. Hey Rex, on the new Janus program, it seems like this is supposed to be kind of a COCO 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 team agreement is all that's needed, but was curious as to your thoughts on that.
Speaker 2
Yeah. Hi, Pete. We certainly do intend to compete for that JANIS program. It's very interesting. The government's obviously looking at putting a number of reactors at a number of different sites.
And I think they'll pick at least two contractor teams for that. Yeah, 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.
Speaker 4
Got it. Thanks so much guys.
Speaker 2
Thank you.
Speaker 0
Our next question comes from the line of Robert Labick with CJS Securities. Your line is open.
Speaker 5
Hi, this is Will on for Bob. With six months or so under your belt now, what are the key takeaways from the Kinetrix acquisition? And what are some of the new market and revenue synergy opportunities?
Speaker 2
Well, as we said on the call, Kinetrix is outperforming so far. In fact, I might speak more broadly and just say the two acquisitions that we did this year, the Jonesboro acquisition, AOT and the Kinetrix 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 Kinetrix itself, the outperformance relates to the transmission and distribution business which is growing very smartly right now because of there's two 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 Conetrix 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 Conetrix itself. 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 Kinetrix business and it's a really great match for BW.
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.
Speaker 5
Thank you. 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?
Speaker 2
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 an 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 that 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 eight can do derivative large reactors at Wesleyville and at the Bruce site. And then obviously the Westinghouse announcement for $80,000,000,000 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 kind of a quasi commercial program because it's a contractor operated facilities for US military sites.
So that one's interesting in itself. And of course, we see commercial outlets for TriSo, growth in nuclear medicine, so it's everywhere.
Speaker 5
Thank you.
Speaker 2
You're welcome.
Speaker 0
Next question comes from the line of Peter Arment with Baird. Your line is open.
Speaker 6
Hey, good afternoon, Rex, Mike, Chase. Nice results. Hey, could you Rex, on the two large contracts that you booked in the quarter, the uranium enrichment and then the depleted uranium awards, I think Mike mentioned that there's this is going to be some government funded CapEx to help stand some of that up. But how does the revenue kind of cadence rollout as 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
Speaker 7
period does that last? Thanks.
Speaker 3
Yes. So for both of those contracts, they're kind of over an extended period of time. So I think for HPDU, we announced ten years. And in DUCE, we've talked about that being a roughly ten to fifteen 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 performance. So maybe a little bit waiting early, but certainly not significant. So it'll be relatively distributed over those ten ten to fifteen 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 that the kind of lower margin to last for the first couple of years. And then ultimately, we're we would be highly focused on driving improvement in that EAC and being able to recognize a higher profit.
Speaker 6
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 2027. I thought that was is that later than previously planned? Just give us any more updates there.
Thanks.
Speaker 2
Yes, Peter. That is later than the contract originally called for. That said, the requirements for that program have been evolving, particularly with all the national labs and that. And so it's not unexpected. And the program's 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 that program is going great.
Speaker 6
Thanks guys. Nice results.
Speaker 2
Thanks, Peter. Next
Speaker 0
question comes from the line of Jeffrey Campbell with Seaport. Your line is open.
Speaker 2
First of all, on the strong quarter. Regarding Deuce, the press release announcing the $1,500,000,000 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 in our nuclear fuel services business in Irwin, 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. Yes, thank you. And regarding the four new second generation electromagnetic isotope separator units that you announced being commissioned by Kinetrix, Does the entirety of that 500 kilogram of theuterium 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 Guterium 176, which of course is the base material for Lucius 177. So it's an important precursor for that nuclear medicine product. It is, there's no essential difference between these between this generation and the prior generation. It's really just an increased incapacity of about of about 500%, by the way. So it's an impressive capability.
But we haven't integrated Kinetrix Medical business into PWXT's Medical business for some good reasons. But those businesses are supporting one another and we're finding strategic synergies there that are pretty powerful. Okay. Thank you. You're welcome.
Speaker 0
Next question comes from the line of Scott Duschel with Deutsche Bank. Your line is open.
Speaker 8
Hey, good evening. Mike, could you size up the shipset value of the steam generator content you won with the Rolls Royce?
Speaker 3
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, you know, in the fifty to a hundred million dollar range. I think we're, you know, squarely in the middle of that as it relates to to the roles content. So we feel comfortable, kind of being in that that range from a roles perspective, but we haven't disclosed the specifics.
Speaker 8
Okay. And in the press release announcing that when 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?
Speaker 2
Yeah, think Scott, we were evaluating that and other opportunities for localization. That seems to be the trend in commercial nuclear power. So we certainly are considering it.
Speaker 8
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 result in that guide of flat to slightly up? Heard some of the pieces in the script. I'm just curious if you could put a bow on it for us.
Speaker 3
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 and call it cash conversion cycle days, which is the internal metric that we use. That's roughly about a $10,000,000 improvement each year. We've seen a sizable improvement going from 23,000,000 to 24,000,000 and then from 24,000,000 to $25,000,000 If you remember, we started the year at low end of the range of $265,000,000 Now we're guiding to two eighty five million approximately $425,000,000 So part of this is driven by some of these investments in the newer contracts.
We are able to negotiate some milestones on Doosan HPDU that are hitting in the 2025, 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 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 one day working capital improvement that's going be offset by call it 10,000,000 to $15,000,000 of timing related to kind of milestones payments for some of these larger new contracts.
Speaker 0
Thank you. Next question comes from the line of Jeff Gramppi with Northland Securities. Your line is open.
Speaker 3
Good evening,
Speaker 9
folks. Thanks for the time. I'm curious, when we look at this 2026 outlook, what do
Speaker 1
you guys view as kind of
Speaker 9
the main risks to achieving that outlook? And then maybe it's 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? Thanks.
Speaker 3
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 based different joint ventures with external partners to do MNO and other environmental cleanup on DOB 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 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 2026 for an extended period of time. Far as kind of the puts and takes from next year, I would say, yes, there 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 last quarter that I anticipated some of that to continue in 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 earlier this year, 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.
Speaker 9
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 is 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?
Speaker 2
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 four. We'll see who the next we'll see what the next announcement for SMRs is in The US. I think that should be Tennessee Valley Authority or another nuclear utility.
There's a lot of chatter about that. I do fully expect that nuclear utilities in Canada go forth with the large bills pretty soon. Like I said, we have task orders, contracts already to study the licensing for those Candida 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.
Speaker 9
Got it. Great. Thank you guys for the time. Appreciate it.
Speaker 2
Welcome.
Speaker 0
Next question comes from the line of Michael Ciarmoli with Truist Securities. Your line is open.
Speaker 10
Hey, evening guys. Thanks for taking the questions. 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 August 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 August flows in at some point, you need more CapEx or more capacity?
Speaker 2
Yes. Thanks for the question, Mike. I think it's taken quite a positive turn here in the last quarter, boring business in naval nuclear propulsion. Know what, maucus had been in question because it's being examined by the Department of Defense. But you saw the sort of love fest between the Australian Prime Minister and the President.
It looks like August 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 that announcement, that surprise announcement about South Korea and the idea that the South Koreans have built a shipyard for nuclear powered submarines in The US. Now that thing's excuse me, that thing was is not well formed from my perspective.
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 office program. And do have CapEx projects that are underway with our customer enabled reactors for that purpose. So there's been that going on already. So full steam ahead.
Speaker 10
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.
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?
Speaker 3
No, that's exactly right. You're if you look at 2026, most of it is mix pressure. Half of the revenue growth is driven by Doosan HPDU. And as we mentioned, we start off at 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
Speaker 0
I would just
Speaker 3
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.
Speaker 10
Got it. Helpful. Thanks guys.
Speaker 0
Next question comes from the line of Jed Dorsheimer with William Blair. Your line is open.
Speaker 11
Hey, thanks for taking my question. And yes, 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 Kinetrix and specifically in your radiopharma business, you know, that supply with Novartis. It looks, you know, Plavicto got off label from 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 Letitium-one hundred seventy seven? And previously you had talked about I think 30 plus Phase three. So I'm just wondering how we should expect radiopharma growth and whether or not that was limited by capacity?
Speaker 2
Yes, I don't hey, Jed, I don't think we were supply constrained for that product. We're pretty far downstream. Base material, Uterbium 176 and lutetium 177. We don't produce the active pharmaceutical ingredient that goes to a customer upstream of us. But we know 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.
Speaker 11
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 wanted to make sure that it seems like that would be the case,
Speaker 9
but just wanted to confirm it.
Speaker 11
In other words, six is a year of RFPs wins. And while most of the reactor side would be Bruce and OPG up in Canada, correct?
Speaker 2
Yes. Yes, that's correct.
Speaker 3
Yes, that's correct.
Speaker 2
Yes, don't have a lot of that kind of scope in the forecast, if that's what you're asking.
Speaker 1
Yes. That was one of the things.
Speaker 2
Yes. 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 book 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.
Speaker 11
Great. Thanks guys.
Speaker 2
Thank you.
Speaker 0
Next question comes from the line of Andrew Madrid with BTIG. Your line is open.
Speaker 7
Rex, Mike, Chase, good afternoon.
Speaker 2
Good afternoon.
Speaker 7
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.
Speaker 2
Yeah, that's exactly right. So the Draco program, it devolved into single agency support. It was DARPA. 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 a 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.
Speaker 7
Got it. Got it. No, that makes sense. And Mike on I think you called it out earlier, but on the 80 bill 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?
Speaker 3
Yes. I don't think I mean we haven't given specific guidance on what the size of that is at this point.
Speaker 2
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 think the opportunity set is pretty interesting, but it's not specific yet.
Speaker 7
Got it. Super helpful. I'll leave it there. Thanks gentlemen.
Speaker 0
Next question comes from the line of Ron Epstein with Bank of America. Your line is open.
Speaker 12
Hi, good afternoon. This is Alex Preston on for Ron today. I was just curious on M and A, right? Obviously, talked through a couple of times AOT and Kinetic is 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 two to three times leverage range going even to like the end of the year.
Speaker 2
Yes. But 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. But that said, we did a couple of really good ones this year with Kinetrix and AOT, and we've done some very good ones in the past.
Noreon was a good acquisition for us. The GE Hitachi assets in Canada, very good acquisition for us. I would say that we are interested in acquiring right now because as I've 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.
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.
Speaker 3
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 in dry powder to be opportunistic about acquisitions going forward.
Speaker 12
Got it. I appreciate the color. Thank you.
Speaker 0
Next question comes from the line of Pete Skibitski with Alembic Global. Your line is open.
Speaker 4
Yes. Just a quick housekeeping question, I guess, for Mike. Mike, the $15,000,000 step up in D and A in 2026, this is a small EBIT impact. But I was just wondering, does that relate to the two new contracts in government? Or is that from Tech ninety nine or something completely different?
Speaker 2
It's
Speaker 3
not related to either. 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 changes that relates to Tech 99. That won't happen until, 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 2026 that will kind of bleed in over a period of time.
Speaker 4
Got it. Okay. Thank you.
Speaker 0
And our last question comes from the line of Scott Duschel with Deutsche Bank. Your line is open.
Speaker 8
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? Thank you.
Speaker 2
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, you know, Uterbium 176, but just not in our playbook. And so I would say the answer to that is broadly no.
Okay. Thank you.
Speaker 0
Welcome. That concludes the question and answer session. I would like to turn the call back over to Chase Jacobson for closing remarks.
Speaker 1
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 investorsbwxt dot com. Thank you.
Speaker 0
Ladies and gentlemen, that concludes today's call. Thank you all for joining in. You may now disconnect.