Ladies and gentlemen, thank you for standing by and welcome to the BWX Technologies, Inc.'s Fourth Quarter 2015 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 your host, Mr. Alan Nethery, BWXT's Vice President, Investor Relations and Corporate Procurement. Please go ahead.

Thank you, Christie, and good morning, everyone. We appreciate your joining us to discuss our 2015 fourth quarter and full year results, which we reported yesterday afternoon. A copy of our press release is available on the Investor Relations section of our website at bwxt.com. Joining me this morning are John Fees, BWXT's Executive Chairman; Sandy Baker, President and Chief Executive Officer; and David Black, Senior Vice President and Chief Financial Officer. As always, please understand that certain matters discussed on today's call constitute forward-looking statements under federal securities laws. Forward-looking statements involve risks and uncertainties including those described in the Safe Harbor provision at the end of yesterday's press release and the risk factors section of our most recent 10-K and 10-Q filings. These risks and uncertainties may cause actual company results to differ materially and we undertake no obligation to update these forward-looking statements except where required by law. On today's call, we may also provide non-GAAP financial measures that are reconciled in yesterday's earnings release and our company overview presentation, both of which are available in the Investor Relations section of bwxt.com. BWXT believes that non-GAAP measures provide meaningful insight into the company's operational performance and provides these measures to investors to help facilitate comparisons of operating results with prior periods and to assist them in understanding BWXT's ongoing operations. And with that, I'll now turn the call over to John.

Thank you, Alan and good morning everyone. Looking back over the past year, I am proud of what we have been able to achieve as a company. We've successfully completed the spin-off of our former Power Generation business in July with no significant issues and in doing so, unlocked value for our shareholders as evidenced by BWXT's share price increase during the second half of 2015. After the spin we maintain focus on execution and delivered on the commitments we laid out for 2015. As a result, our adjusted or non-GAAP operating margin increased from 15.1% in 2014 to 16.8% in 2015 and adjusted EPS came in above our guidance at $1.42 for the year, a 7.6% increase over 2014. Our GAAP operating margin was 14.5% and GAAP EPS was $1.31. This growth was due in part to successful restructuring of our Nuclear Energy business as operating income grew by $25 million from a loss position in the prior year. Our Nuclear Energy segment accomplished its margin goals for 2015 and we believe it is on track to reach its previously announced margin target of 10% for 2016. Furthermore, we executed on our balanced capital allocation strategy and accelerated our share repurchase program purchasing $52 million of BWXT stock in the fourth quarter. As we begin a new year, we will continue to drive value to our shareholders by returning capital and delivering on our 2016 guidance which we will discuss later in this call. For the fourth quarter of 2015, our consolidated non-GAAP operating income was $62 million and reached $238 million for the full year, 8.7% higher than 2014. Our GAAP fourth quarter and full year 2015 operating income was $10 million and $206 million, respectively. We accomplished year-over-year growth due to margin improvement in the nuclear energy…

Thanks, John. The Nuclear Operations segment's fourth quarter 2015 results came in below its fourth quarter 2014 results due to beneficial contract amendments realized in the fourth quarter of 2014. Fourth quarter revenues were $300 million, down from revenues of $344 million in the same quarter of 2014. And the fourth quarter operating income was $66 million, down from $90 million in the prior year period. Similarly, for 2015, nuclear operation's revenue was down $41 million and operating income was down $13 million compared to 2014. For the year, the effect of the contract amendments was partially offset by higher volume. Operating income in our technical services segment was up $2 million in the fourth quarter of 2015 compared to the corresponding period of 2014, primarily due to higher fees realized at one of our sites. For the year, technical services operating income declined to $18 million from $35 million in 2014 due to the contracts for the Pantex Plant in the Y-12 National Security Complex ending in 2014 as well as the termination of our work scope for the American Centrifuge Program. Since the Technical Services segment, primarily operates through unconsolidated joint ventures at its sites, revenue isn't particularly meaningful in this segment. For the fourth quarter and for the year, revenues were relatively flat in the nuclear energy segment. The impact of weakening Canadian dollar exchange rate over the year was offset by revenue growth in our U.S. and Canadian services businesses as well as the work on the China steam generator project. Operating income increased from a loss of $19 million in the fourth quarter of 2014 to $2 million in the fourth quarter of 2015. For the year, operating income increased by $25 million from a loss of $23 million in 2014 with the fourth quarter…

Thanks, David and good morning, everyone. John and David have discussed in detail our strong full year results and I echo their remarks. I will now provide further details regarding our segment's operations in 2015 and going forward. Our nuclear operations segment continued its very good performance during the fourth quarter and we were again able to achieve an impressive operating margin due to smart execution on the backlog realizing contract incentives for ongoing cost reductions. As John mentioned, we continued discussions with their customer regarding the next product pricing agreement for 2016 awards and subsequent year options. We expect to complete these negotiations during the first quarter of 2016 and for the placement of the 2016 options to occur within a few weeks thereafter. With this schedule, we do not expect any disruptions to delivery or manufacturing schedules going forward. Additionally, the timing of the awards should have little impact on our 2016 results since the contract awards will be for work planned later in the year. We expect the total awards under this pricing agreement to be approximately $3 billion, inclusive of the work for our Nuclear Fuel Services business. Looking ahead, we continue to perform well on our missile tube work and are in discussions to perform more of this work going forward. Additional tubes have been requested under our current work order for with a potential award date sometime in the second quarter of this year. Proposals for block II of this work are due next month and could potentially be awarded in the third quarter of this year. Our customer has been pleased with our performance thus far and we feel positive about our opportunity to capture additional market share in this space. In addition to the missile tube work, we have several other opportunities…

Thank you, Sandy. The guidance we provided last quarter for 2016 remains unchanged with the exception of our mPower project spending which I'll discuss in a moment and our EPS guidance. As explained in our press release, we are increasing EPS guidance by $0.05. And now see the full year at between $1.50 to $1.60. In addition, our board has also evaluated our dividend and approved a 50% increase reflecting confidence in both near-term and long-term business prospects. This increase combined with our accelerated share repurchase activities demonstrates our commitment to returning capital to our shareholders. Through February 19, we have repurchased almost 1.1 million shares for $31.8 million in 2016. For our segments, we expect Nuclear Operations revenue to be consistent with the levels we've achieved in the last three years and expect an operating margin in the high teens with some potential for upside. Since some of our contracts are set to expire in our Technical Services segment and our upcoming contract awards are not expected to have a meaningful impact until 2017. We expect operating profit in the range of $15 million to $20 million as we continue to focus on improving the business and adding new projects. In our Nuclear Energy segment, we expect revenues to be between $160 million to $190 million with the margin improvement plan still on track, we expect to achieve full year operating margin of 10% at yearend. We are reducing our spending on mPower to less than $10 million annually while we continue to evaluate options for the program with our partners. Our un-allocated corporate costs are expected to be between $15 million to $20 million with an effective tax rate for the company between 34% and 36%. For your reference, the full list of our 2016 guidance is included in the company overview presentation that we issued yesterday evening. To wrap up, we had a great year in 2015 and delivered on all the objectives we laid out for our shareholders. post-spin. The company finished an excellent year with overall -- an excellent year overall and we are in a great position for strong 2016. We continue to execute on our balanced capital allocation approach as seen with our decision to increase the dividend and accelerate our share repurchases. Furthermore, we have our acquisition platform up and running and have developed a good pipeline of potential targets. We have begun acting on that pipeline and will continue to pursue opportunities while maintaining a disciplined approach towards evaluating these targets. That concludes our prepared remarks. I will now turn the call over to the operator, who will assist us in taking questions.

Thank you. [Operator Instructions] Our first question comes from the line of Bob Labick of CJS Securities. Your line is open.

Good morning and congratulations on a nice quarter and 2015.

Thanks Bob.

Thank you, Bob.

You talked about this a little bit on the call. I was hoping you could elaborate. You talked about the new pricing agreement that you expect to sign for 2016. And I know this is a normal course of business. Could you talk a little about how it works in relation to your existing projects given that you do multiple year projects that take a long time, so your past work and pricing does that stay intact, and then how does this impact what's going forward? And particular, as it relates to the commodity environment given that commodities are likely much lower than the last time you had a pricing agreement?

Yeah, Bob, this is Sandy. I'll try to answer that for you. The pricing agreement we've been working -- we started a little late with that customer, began negotiations in the November, December timeframe. What we see for this agreement – and we're in continuing negotiations right now that we will be completing that sometime in the March timeframe and that's not unusual. Our previous, what we call market basket contracts, which are typically three-year buys agreement on price for three year buys of equipment, this one's not any different than the others we've signed. The first market basket was booked in late March, the following – the beginning of the government year. Market baskets three and four were booked in the late January. So the fact that we haven't booked this one yet is not unusual and is not exciting me at all. We are working toward completion of that and expect to have it done by the end of March as I said. We watch commodity pricing very closely on the material side, it does play a part in our ability to save money for our customer. And so we watch those markets closely. We take action where we need to, to facilitate getting that material in place as quickly as possible. As I said, it's a three-year buy, so we reached pricing agreement on what they want to buy in 2016 with options to buy equipment in 2017 and 2018. That's kind of how it works. This is not any different than what we have experienced in the past. And I don't see it having any impact on our 2016 and go forward numbers.

Okay, great. Thank you. And as it relates to nuclear energy, you said you are tracking obviously to your guidance of 10% for the year for next year. I'm assuming that means you ramp up given that you are obviously below that ending this year. If that's the case, I just want to verify if that is the case, does that also mean that 2017 would be higher or given that you will start lower in 2016 and end higher than 10% probably in 2016?

Bob, I would say that it is going to be -- because of the commercial nature of that business, I would say that it's going to be a little lumpy. It's going to be up and down some but we expect that when we complete the year we will look back on the year collectively and the margins collectively for the year will be around 10%. We feel fairly firm in our convictions in that area. So I don't consider it to be a straight ramp up line, it's going to sort of ramp up and down a bit. But it's going to achieve that 10% for the year. We haven't really provided anything for 2017 at this time. We are taking a look at. We'll continue to take a look at our bookings and where we will go. We are excited about our prospects. What we are doing with Bruce is very exciting for to us as a company. We will just have to see how all that materializes. And as soon as we have a firm footing on what we think 2017 will be we will let you know.

Okay, fair enough. I figured I would try there. And congratulations on the Bruce Power. Can you just talk a little bit about -- I wasn't clear, is that currently in the backlog or is that's going to come into it as we go through 2016?

That will be coming to us as we go through 2016. It's not in the backlog at this point.

Okay, terrific. All right. That's it for me right now. I will get back in queue. Thank you very much. Operator: Thank you. Our next question is from Chase Jacobson of William Blair. Your line is open.

Hi. Good morning.

Good morning, Chase.

Good morning, Chase.

So couple of questions. First, I guess you mentioned some incremental CapEx required to ramp up the Ohio-class program. Can you just give us some color on that as to what it's for and how much it might be and then also how that compares to CapEx that was required ahead of previous programs, I guess Virginia class being the most relevant one?

Yeah, Chase, this is Sandy. I'll try to answer that. The CapEx -- the Ohio class replacement program is going to be a different kind of design. It's life of ship core [ph], and even though we're still just in the design phase, we know there are some aspects of the manufacturing processes that are going to be different than what we have for past product. And so there are some capital needs for that in the range of $20 million to $25 million, that we have to put in place to be able to manufacture the components. I can't talk about specifically what that is. I mean, I know what it is, but it's process related and I can't discuss that here. And this is not atypical of other first of a kind cores and equipment that we've had to build where we have to procure capital in order to meet the needs of the program. So this is not unusual at all.

Okay, yeah, $20 million to $25 million certainly sounds reasonable. On mPower, looking at the reduction there from $15 million to $10 million, I think previously, your partner was a little bit concerned with the reduction previously. Can you just talk about how you're working through that? And with the reduction to $10 million, what are your thoughts on the future of the program from here?

Again, we -- I don't think our thoughts have really changed substantially. We believe that we have a great technology. We feel that we've got a fabulous, robust design. We're concerned about the markets and where the markets are, based upon things like the cost of natural gas, the lack of newbuild construction in the world et cetera, et cetera. So those are all the concerns that we continue to bear, have continued to bear over the last several years. We are having a very good dialogue with our partners about how to continue to proceed in the future. We are looking for opportunities. We don't consider this to be a throwaway, we consider it to be a longer-term play and we're kind of working into it from that standpoint. So we will keep you tuned-in as we continue to make developments in this area. The thing we are trying to do is we are trying to prudently manage our expenditures but also trying to capitalize on opportunities as we see them.

Okay. And last one on capital allocation, I apologize if I missed it. But did you comment on pacing of further share repurchases under the new program that starts in a few days and what's baked into the guidance?

Well, as we indicated, we've updated you on what we've purchased so far. We've given you a view as to what has been authorized for purchases in the future. And we have a concept on how we want to proceed on those. I would not, at this point, try to give you a pacing kind of set of guidance. We're going to try to take advantage of the opportunities that we see there. We are going to try to buy, as we indicated before, at a more accelerated rate than we did in the past. I think we've demonstrated that in the fourth quarter and year-to-date today and we are just going to continue to pursue that and we will let you know where we end up when we get there.

Okay. Thank you.

Thank you. [Operator Instructions] Our next question is from the line of Kevin Ciabattoni of KeyBanc Capital. Your line is open.

Hi, good morning guys. Thanks for taking my question.

Good morning, Kevin.

A couple of I guess, big picture questions. On the naval side of the business, is there a cadence there in terms of build activity that you guys see. I supposed it would be more on the carrier side than on the Virginia-class, just given the quantities. But I'm wondering if you could talk about that given you mentioned some timing impacting 4Q and the full year results versus the comps in the press release, is there a predictable kind of cadence there?

I mean, I think, Kevin, if you look at our -- when we spun off, we had a slide inside of our presentation that's still on the website I think. And it showed a cadence pretty much from now to 2040. And two Virginia-class every year except for in some years there is going to be an Ohio-class and a Virginia-class and we gave you the carrier build. So I mean, we pretty much know what we're building for the next 25 years.

Right. But that hasn't changed at all though given kind of what we have seen in the budget?

No, I mean, that's a strong program.

Okay. And then along those lines I guess, now that we've got the President's budget out there I mean, anything you've seen that's led you to adjust how you're thinking about the budgetary environment or your specific programs?

No, we have analyzed the budget pretty closely and it stacks up well to what we expected. There's not a whole lot new in it but nothing was taken away, either. So we are in pretty good shape opposite the budget.

Okay. And then the last one for me, just going back to the bookings, I mean, you did a pretty good job of explaining the ongoing pricing negotiations. I mean, was there anything else in the fourth quarter. Obviously that was the bulk of it, but I mean, anything else that slipped out or didn't materialize that you were expecting to see?

No.

No, I mean, I think we've mentioned the fact that we've got the work coming into this year from Bruce and other things, but there's nothing from fourth quarter other than the fact that the normal market basket program with the government we're in negotiations still on that sometimes goes from fourth quarter to first quarter, so…

Okay. Thanks.

Thank you. Our next question is from the line of Nicholas Chen of Alembic Global. Your line is open.

Hi, guys. Good morning and congratulations on a great quarter.

Hey, good morning, Nick.

In terms of the missile tubes, it sounds like you got more work under the current order you guys have, what's your confidence in becoming the exclusive provider of those?

This is Sandy. A pretty high confidence. We've built nine missile tubes so far under this program. That's nine more than anyone else has built, and we've done a great job with it. The customer is really pleased with that and we're in dialogue on adding to the quantity on the current contract. And we're out putting our proposal together for Block II, which will be for somewhere between two and 48 tubes. So we feel pretty confident about our ability to manufacture the bulk of those units.

That's great. And then in terms of the M&A environment, I mean, right now, it seems like the capital allocation obviously in Q4 sort of focused on additional share buybacks accelerated and increasing the dividend. Is that a sign that the M&A environment isn't that appealing right now or what should we think of that?

No. It is not a sign of that at all. We have reasonably good cash generation. We certainly have balance sheet capacity. We have a number of things that we're looking at that we are attracted to. But as I indicated in some environments [ph] before, I think M&A is something that you look a lot, you buy very few and you buy things that you really like and you are confident that you would like to fit -- that they would fit strategically with where you're going as a company. So that's the approach we've taken. We're being very selective but we also being very aggressive. We have people dedicated to it. They work on it everyday. But we have a number of things that we like. So we're working through that process and I think we certainly have the capacity, as we indicated in the past to do all three; to provide a dividend; to repurchase some level of shares back off the street and in addition to that, pursue some level of M&A to incrementally add to the company and we continue to be on that track.

That's great. Thanks so much guys. I will jump back into the queue.

Okay.

Thank you. And I am not showing any further questions on the phone lines. I'd now like to turn the call back over to Alan Nethery for any further remarks.

Thank you for joining us this morning. That concludes our conference call. A replay of this call will be posted on our website later today and will be available for a limited time. If you have further questions, please call me at 980-365-4300. Thanks.

Ladies and gentlemen, thank you for your participation in today's program. You may all disconnect. Thank you. All have a good day.