Ladies and gentlemen, welcome to BWX Technologies Third Quarter 2024 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, Ron. Good evening, and welcome to today's call. Joining me are Rex Geveden, President and CEO; and Rob LeMasters, Senior Vice President and CFO. On today's call, we will reference the third quarter 2024 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. This afternoon, we reported strong third quarter results that were ahead of our expectations. We delivered 14% organic revenue growth which, combined with solid operational performance led to 19% adjusted EBITDA growth and 24% adjusted earnings per share growth. Given our strong year-to-date performance and despite weather-related challenges stemming from Hurricane Helene and other events, we are raising our 2024 adjusted earnings per share guidance to about $3.20, the high end of the previous guidance range, and we are maintaining our free cash flow guidance of $225 million to $250 million. As we look to 2025, we expect another record year with continued growth in Government Operations, complemented by accelerating growth in Commercial Operations. Our preliminary 2025 outlook is for mid- to high single-digit revenue, EBITDA and earnings per share growth compared to 2024 with expectations for at least 10% free cash flow growth. Before I jump into our quarterly results and market outlook, I would like to spend a few minutes on our special materials portfolio and the acquisition of A.O.T. announced today. Special Materials is a strategically important line of business for BWXT and one that I would suggest is underappreciated by some investors. The foundation of our special material portfolio is our Navy fuel business in East Tennessee. Through this business line, BWXT is the only commercial enterprise in America to hold a Category 1 NRC license, which permits BWXT to handle special nuclear materials. We have leveraged this credential to develop unique infrastructure and retain some of the top radiochemistry talent in the world to execute high-value national security programs for the Department of Defense and Department of Energy. Over the previous decade, we have built a portfolio of businesses around our Navy fuel franchise, including…

Thanks, Rex, and good evening, everyone. I'll start with some total company financial highlights on Slide 4 of the earnings presentation. Third quarter revenue was $672 million, up 14% organically with growth in both segments. Adjusted EBITDA was $127 million, up 19% year-over-year, driven by robust Government Operations growth, which was partially offset by lower Commercial Operations EBITDA due to project timing and the mix of revenues. Unallocated corporate EBITDA was lower compared to last year due to cost management and timing of health care costs. We continue to expect full year corporate EBITDA expense to be relatively flat compared to 2023. Adjusted earnings per share of $0.83 increased 24% compared to $0.67 in the prior year quarter. As shown in the EPS bridge on Slide 6, growth is largely driven by operations as slightly lower interest expense was offset by lower pension income and a slightly higher tax rate. Our adjusted effective tax rate in the quarter was 23.1% and 22.8% year-to-date. We expect our full year tax rate to be approximately 23.0%, a touch lower than our initial guidance. I would like to tip my hat to our tax team, which has embraced our culture of operational excellence, focusing on driving continuous improvement wherever possible. They're finding small but consequential items to generate incremental value for the shareholder. And frankly, I see more value in this area as we challenge ourselves further and come through various tax planning exercises. Free cash flow in the quarter was a use of $8 million as the timing of contracts impacted our working capital during the quarter. Despite that, we are reaffirming our full year free cash flow outlook of $225 million to $250 million. As you likely know, East Tennessee, where our nuclear fuel services facility is located is one of…

Thanks, Robb. Let me close by taking a moment to recognize our employees and their families at our nuclear fuel services side in Erwin, Tennessee, who were impacted by Hurricane Helene. Many of whom experienced loss of personal property and in some cases, friends and loved ones. We have and will continue to provide support for this region as it rebuilds. I'm extremely proud of how our team has navigated extreme weather event in addition to other shorter-term power outages and flooding at several of our other sites in the Midwest throughout the summer. Our workforce at all locations demonstrated their preparedness for emergencies by taking immediate action to ensure the safety of all employees and the safeguarding of special nuclear materials. Severe weather events like these are also a stark reminder of the impacts of climate change and the obvious need for clean, reliable baseload nuclear power. In conclusion, despite these weather events, it is an exciting time at BWXT. Over the past several years, we have invested in our people and our infrastructure and instill the culture of innovation and operational excellence. There are secular tailwinds supporting our key defense, clean energy and nuclear medicine markets and there are tangible signs of accelerating demand for nuclear solutions that will lead to steady earnings, free cash flow growth for BWXT. Our focus remains on providing our customers high-quality solutions to address their most critical missions, and we will continue to invest organically and inorganically to position BWXT for ongoing success. And with that, we look forward to taking your questions.

[Operator Instructions] Your first question comes from the line of Pete Skibitski with Alembic Global.

Nice quarter, guys. Thought I would start out, we're seeing a lot of supply chain issues at the shipyards due to things like steam turbines and such for submarines and carriers. Has that impacted you guys at all? Or is the systems guys and the Navy kind of keeping you guys level loaded and the supply chain issues aren't impacting you guys?

Yes, Pete. I would say -- a couple of things I would say about that. One is you obviously know that our build schedule is a couple of years ahead of the shipyards because of the advanced procurement and the reactor delivery times. And so I think there's some sense in which we get maybe a couple of years early visibility into problems like supply chain and materials and wage pressure and all of that. And so I think by and large, we've worked our way through some of those issues in pretty -- in reasonably good shape. And so I think we feel well positioned to do what we need to do for completing our products. And in terms of the supply chain that we use, again, we've sort of worked our way through that, done through the periods of COVID and managed that successfully in my view. And so I'm not -- we're not seeing pressures on our supply chain in that way. And I think we feel sort of well equipped to deliver what we need to to our customer.

Okay. That's great. And just one clarification for me. In Government this quarter, you had a strong growth. Was there some materials ordering that kind of drove that? I know sometimes in the past, the outsized growth has a material aspect to it. And then maybe that was kind of pulled ahead from the fourth quarter. Could you just maybe clarify that?

No, I don’t think anything to particularly call out. It was strongest growth rate we had all year. We’re really hitting nice strides in Advanced Technologies as we have both Project Pele and DRACO coming through. We’re hitting nice performance and some of the ramp-up of those immature programs just in general, kind of ramping those. So nothing just general good execution across the board. I would say some of our naval sites are digesting all the labor that they brought in and doing that nicely both at the margin as well as the top line. So kind of consistent drivers across the board really.

[Operator Instructions] The next question comes from the line of Bob Labick with CJS.

It's Pete Lukas for Bob. You covered a lot and I do appreciate that. Just a couple of broad questions. In terms of -- given the renewed interest or newfound interest as you mentioned in the nuclear space, can you remind us of your main competitive advantages other than experience i.e., your licenses, your commercial capabilities and kind of how this compares and lets you stand out from competitors?

Yes. And I'd say there are multiple aspects to how we're differentiated in the market. I mean, among them are -- we are really the market leader in advanced nuclear fuels, coated fuels, in particular, that we make for the space application and TRISO fuel, which has pretty exciting potential commercial outlets for all these advanced reactors. That would be one thing. We talk often about the fact that we're the only -- we're sort of the last man standing when it comes to large component manufacturing in North America. Our Cambridge site is capable of making large pressure vessels, which we use for steam generators, pressurizers, and heat exchangers and the like. And that's the site where we're manufacturing the reactor pressure vessel for the GE small modular reactor. It is an SMR by definition, but because of that technology, it's actually quite a large vessel. So we have that, those 2 things, I would say, in addition to all that, there's kind of a, you might say, a sort of a steady supply of experiential qualifications that we have that would be unlike a lot of competitors in the sense that we've been performing on nuclear projects for decades without interruption, particularly because of our commercial capabilities in Canada and because of our naval nuclear propulsion capabilities in the states, we've delivered literally of 415 reactors to the nuclear Navy. And so that stream of business never stops. And there's really no one that can talk about experiential qualifications that would stand up to something like that. There are probably multiple others that I could cite. But we are differentiated and pretty deep in serious ways.

Very helpful. And then just a last one for me. You talked a little bit about some of the incremental growth and proceeding nice -- making nice strides in Pele and DRACO. But can you walk us through a time frame for that growth in the isotopes microreactors and SMRs, specifically, when do we look for that to kind of bolster the P&L in a more meaningful way?

Yes. So I would say it's a pretty interesting situation. A lot of that really is now, right? We've built a portfolio in nuclear medicine that is really growing nicely. The therapeutics are starting to take off and our imaging products are really growing very -- in a very robust way. Microreactors, we have 2 prototype programs that are ongoing, and small modular reactors, we're clearly active with the GE product and with TerraPower's natrium reactor. And so maybe I'd sort of bucket into 3x horizons. In the near time horizon, I would say, nuclear medicine and small modular reactors are contributing to growth, the most growth near term. In the midterm, I would say, microreactors, even though we're doing work there now, as you get into production programs and commercial opportunities, I think you'd start to see that one rise. And then I'd put AUKUS in that midterm bucket, too, because we'll start to see interesting growth from that one over the next few years. And then on the long horizon, we've got enrichment opportunities for the national security application and perhaps commercial angle there that I think are really exciting. I think we can build an entire new franchise just on the national security component of enrichment. And then you're going to see -- and it's going to happen fast, you're going to see, I believe, announcements about large-scale nuclear reactors for grid scale applications obviously, to meet the emerging power demands. There are -- there's not just data center and AI, and I've talked about this a lot before, but there's the electrification of everything, transportation, industrial process as we drive toward clean energy solutions that puts immense demand on the grid. And it's going to require a mix of technologies to address that need, but most especially I believe, large commercial nuclear reactors will come around. And so we've got 3x horizons where we see growth coming. All of those are going to blend together to create, I believe, ever lasting almost growth signals for this company, growth opportunities for this company. And so we see these secular trends that we've talked about persisting for decades, certainly.

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

Robb, the 2024 guide implies a sequential decline in EPS from 3Q to 4Q. I think that's a big contradictory to your typical seasonality of the business though. Just wanted to see if you can walk through what's going to drive EPS to decline in the fourth quarter from the third quarter?

Yes. Thanks for the question, Scott. As you know, we traditionally do have a significant fourth quarter dynamic. All year, frankly, we've been just sort of bringing some of that goodness what we normally see in the fourth quarter. We never know how it's going to sort of play out for the year. So we're always banking on that happening, of course, by the fourth quarter. And you just think about different events that have happened throughout the year, performance fees at TSG or performance on different microreactor contracts. And so you just think about all that, we've kind of almost taken some of that into the numbers. So that derisks the fourth quarter numbers specifically. The other impact that I think you just need to be aware of is there will be a little bit of a sequential headwind from the activity we saw down in Tennessee, we were off-line for 3 weeks. Not only do you have that sort of headwind, if you will, but you have the ramp-up going into the rest of the year. And so we're just working our way through that. There's fits and starts of that. And so if you just think about the sequential Q4 versus Q3, that factor alone really would cause you to sort of step down. The last smaller thing is I think you know that our corporate expenditures generally bump up because of just cadence around health care. That has an impact in the fourth quarter. So that caused a sequential move down for the Q4 versus Q3.

Okay. That's helpful bridge. And then Robb, excluding tech-99, are you expecting growth to flow at the rest of BWXT Medical next year? Or should we expect the base BWXT Medical business to continue to drive this 25% type growth next year? Rex's comments kind of seem to be alluding to that, but I just wanted to check.

Yes, that’s right. The underlying growth is really how we guided preliminarily to say, look, ex tech, we have a very small slice of spot volumes that I frankly think at the profit level is relatively neutral as it relates to 2025, but your question is specific for sales. We do not bank on tech in order to hit that sort of similar growth as what we’re experiencing here in 2024. The portfolio is really strong across the pet products, TheraSphere is strong. So it’s really the underlying portfolio that’s going to drive that.

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

In terms of the new -- are the Navy pricing agreement, can you give some additional color? I know layer in over time with the other contracts you're currently working on. But does that pricing construct if that kind of holds going forward with future contracts? Does that allow the Government Operations EBITDA margins to kind of stay in that 20% or so range?

Yes, David. That's certainly what we hope. As you know, we negotiate those into the low mid-teens as a starting point of the cost baseline and then drive OpEx, try to gain advantages in materials pricing and other such things. And certainly, with a high focus on operational excellence, maybe volume matters to drive it into the high teens as we've done traditionally. So that's our model, and that's what we hope to achieve.

Yes, maybe I'll offer just a specific on the margin. The dynamic that we saw in 2024 was strong underlying performance on the GO basis, right, basically fighting through mix all through the year but holding that constant. And then we obviously had the missile tube issue last Q4. So when you exclude that, that we sort of held our own underlying ex the missile tube. That's how I'm really sort of thinking about 2025. Very similarly, of course, you have some immature programs that are ramping, whether it's microreactors or special materials. We obviously have the A.O.T. acquisition, small in revenue, but a touch lower in terms of margin. And so we're really looking to hold underlying margins, which is like saying, look, you're fighting mix and you're growing underlying margin to offset the mix. That's how I see 2025 margins for GO.

Got it. Okay. And Rex, your comment about the Kerio lull potentially extending into '26. What's the background there?

We've talked about that before, David, for a few quarters now. It has to do with the shipbuilding plan that the Navy published and when they intend to procure that next carrier. And so depending on how the advanced procurement pays out, it could have -- it could lead to an extra year of that same lull. We're hopeful, and we're working it certainly, and we would like to avoid the supply chain disruption that creates -- but it's what we've been signaling for a few quarters now.

Yes. No. 2 quarters ago, we announced the shipbuilding plan slightly changed adding that third year. Of course, as long as 2 investor days ago, we talked about that ordering cadence being a 2-year thing. And then the new shipbuilding plan as it came out was a third year. And so we just highlighted that to investors. That was pretty far off when we did that 2 quarters ago. And as Rex said, we’ll continue to – as we do this pricing agreement and the next one, try to look effectively. As you know, we sort of – all of our facilities are met for various types of volume. And so our customer is very focused on finding ways to drive as much volume as they can through a fixed cost infrastructure like we have. And we hope to be successful there.

The next question comes from the line of Peter Arment with Baird.

Rex, and maybe Robb will comment also just maybe thinking about -- you made comments about 2025 double-digit organic growth in commercial nuclear. Just is that -- how do we think about kind of the building blocks? Is it obviously a pickup in refurbishment activity. Are you starting to see already contributions from Pickering? And is there a material revenue change tied to kind of what you're doing with GE Hitachi?

Sure. Yes. Maybe I'll start by just saying that's exactly right. The big drivers we see in the commercial nuclear business, of course, there's 2 segments there. We've already talked about the Medical, which will be a really nice driver of growth in the CO segment in general. As it relates to commercial nuclear, we have ways that we can play across the value chain, if you will, of nuclear. We have the large position in Canada. We have the medium reactors, if you will, with the SMRs and then you have the microreactor play increasingly being of interest to people in that part of the market. And when you think through the large, medium and small presence we have, on the large side, we're really seeing both refurbishments with Pickering, some pickup of thinking a little bit about greenfield activity, that will be a little further out, but that's where we're going to see some growth there over time. It probably doesn't bleed into 2025. It's mostly about Pickering there as well as just generally the Canadian fleet seeing good growth, and we have that recurring business. On the medium side, our project at Darlington as it relates to BWRX-300, that will pick up steam as we enter 2025. So we'll get kind of a full year of that. And then a lot of cats and dogs in and around that, that we're doing for other competitors and trying to get some scope there and different engineering work for various companies. And in the small, we don't have a huge presence yet on the commercial side. But obviously, what we're seeing with Pele and DRACO educates our ourselves on how to play in that market. So I wouldn't be surprised if you get a little bit of at least some work that we're going to start to think about over the medium term.

Got it. And then just on the microreactor, I think Rex, you made a comment about the Army RFP that was out there. Is there any update on timing? And then just lastly, on 2025 CapEx, is it still, Robb, the kind of $100-plus million of maintenance plus the $40 million-ish of kind of growth CapEx? Just any thoughts on that.

Yes. On that first opportunity, Peter, with the Army -- sorry, with the Defense Innovation Unit. We submitted a proposal. We think a compelling one with a pretty interesting team. I know there was a lot of industry interest in that one and we haven't heard back from the government yet. So we're standing by for what we think is an interesting opportunity.

Yes, and I can deal with the CapEx question. So we guided free cash flow to be up. We really haven’t disaggregated the operating cash flow from the CapEx. We’ll provide you more guidance on that next quarter. I will say a couple of things. One, you just look at our Q4 cadence to finish out this year. It’s a step-up from the past couple of quarters. Why that is related around to the Cambridge expansion. As you know, we’re trying to bring as much of that forward just given all the demand signal we’re seeing for the BWRX-300 as well as all the growth in Canada. So we’re trying to wrap our heads around how that sort of feathers into 2025, so that’s one factor. I think the second factor that you just need to be aware of is as we sign this term sheet, we’re trying to decipher sort of the operating cash flow, if you will, versus the CapEx. Several of our peers on the shipbuilding side, there are certain triggers of profit, if you will, or different cash flow that makes somewhat fungible between operating cash flow and CapEx. It’s a small thing, but we’re kind of coming through that and deciding where we need to invest on the naval side given what our customer wants in terms of accelerating Colombia, in terms of preparing for international growth and so forth. And so those are all factors that still puts you in and around the level that we’ve been running this year, maybe a touch higher. And we’ll provide more guidance as we roll into 2025. But no matter what the scenario is, we’re sticking with our free cash flow, right? That’s kind of how we guide the overall company. And so we’ve really asked you to focus on the free cash flow, and we’ll deliver either operating cash flow or CapEx to perform at that level that we guided you to for 2025.

The next question comes from the line of Ron Epstein with Bank of America Merrill Lynch.

Rex, just a big picture question for you. when we've seen the shipyards report this quarter, and it's been really, really challenging for them, particularly on Virginia and Columbia. And you guys have been doing great on it. And like you mentioned, you've got a lead time on that. When does that catch up to you? I mean, meaning like -- or doesn't it, if they're still building on in the 1/3, maybe 1.5 in the Virginia class a year and it just seems like how much advanced procurement for power plants can Navy actually do given that the shipyards are so far behind where maybe anybody hoped they would be at this point.

Yes. Thanks, Ron. So a couple of things I would say. Yes, I'll reiterate the point that we're kind of a couple of years ahead of the shipyards when it comes to environmental labor conditions, all of that. And so that gives us a little bit of an advantage. And I think it's helped us to contend with those complex issues. I would add to that, that we have a very sophisticated customer and naval reactors and they really see around corners and they supported us few years ago with some setting industrial-based funding that enabled us to go and add some training capabilities to add some workforce, some talent acquisition capabilities and some other kinds of depth, including some digital transformation dollars that we needed. And so that's been extremely helpful to us. We're grateful to that to what we get from our customer there they help us think. I guess the other thing I would say about it is, look, the shipyards are not slowing down. They're just not achieving the shipbuilding tempo that's required by the Navy. So they're going full steam ahead and the supply chain is going full steam ahead. And I don't think there's any world in which you could conceive of just stopping the supply chain to let the shipyards catch up to the supply chain, right? So if you stood down the supply chain for 2, 3 years or whatever it was, you would literally lose the capability. And so I think the wisdom of the Navy, the wisdom of the appropriators is we've got to keep the supply chain going even if there are challenges at the shipyard and you just got to bet that the shipyards are going to get it sorted out and they'll get up to the production rates that are required for our defense needs. And I believe that they will. I certainly believe you got to bet on that outcome but you can't just ask your supply chain to go and take a vacation for 2 or 3 years. And so I think we're going to continue to produce at the levels that are appropriate for our business, including the idea of level loading our factory and letting our customer take full advantage of the rates that go with that.

Got it. Got it. Got it. And then maybe changing gears a little bit. At the Investor Day, you guys mentioned that you thought maybe the SMR market could be $300 billion by 2040. How much of that could you guys actually capture? And if -- how much of SMR is your business today? And where could we expect it to be in 5 or 10 years?

So that is a big picture question. Maybe a little tough to speculate, but I'll give you maybe some ways to think about it. You look at the GE BWRX-300, we've said that we thought we would get maybe $100 million of content. On that $100 million of content on that reactor U.S., we've got work going with TerraPower now and the natrium reactor and a contract there that could lead to maybe tens of millions. And so I think on a per unit basis, you can think about it in those terms, Ron. I mean, it's possible that we could put ourselves into a partnering configuration with a reactor developer and capture more scope. And certainly, we have those kind of conversations. But when you think about our role as a merchant supplier to the market, that's how I would scale it. And so take the number of units and multiply it with those kinds of numbers as kind of the baseline consideration for our growth with the possibility of sort of leveraging our capabilities with a partnering kind of approach.

Yes. I might add a couple of other just sort of call options in that space. Some of those platforms demand fuel solutions. So we have a really good expertise in that area of TRISO and so forth. And so we do have plays that we can’t actually get the component manufacturing that Rex talked about, underlying those. We’re certainly going to be ready and willing to help other players on the fuel side, and that’s a very challenging part of their equation. And so as they ramp, we’re ready and able to satisfy some of those SMR demands on the fuel side. The other thing that I would say is that we've expanded our acilityy to accommodate the BWRX-300 and the Canadian growth and as growth continues to show itself up in the U.S., you can imagine that our sites that are principally government sites in terms of component manufacturing in the U.S. are very able to have U.S. capacity. And so as those customers in the U.S. start to show themselves and look for solutions where they want a domestic supply chain, I think there’s other options that you’re going to see more from us in the near term in terms of manufacturing capability in the U.S. in addition to our expansion in Canada.

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

I wanted to ask a quick one. I think late October, the DOE selected 4 providers for domestic high SA, low-enriched uranium production. I think the max was about like $2.7 billion. Was this something that you guys were bidding on? I know you won a similar award earlier in the month for deconversion, but I wasn't sure if there are other ways you guys were looking to play the newfound demand for domestic uranium.

Yes. So that's an opportunity we did not submit a proposal for. That's really about developing commercial capability in the enrichment space and there are other companies that are better suited to do that. So there are places where we can play. We have some nice niches in deconversion, for example, that you mentioned. But our intention was not to get into large-scale commercial fuel enrichment. That's not where we play.

Got it. Got it. And then I think Amersham was selected for a the decommissioning contract in Lithuania. It was pretty small, but I kind of saw it and looked at it as a good opportunity to look -- revisit where you guys were exploring international opportunities moving forward? And how those could contribute to the broader business?

Around decommissioning?

Or just international opportunities at large to decommissioning and that large.

Okay. So maybe two different. Maybe I'll parse that one a little bit. From the standpoint of decommissioning or environmental remediation, we haven't really looked too much to international scope. And certainly, we're not interested in exposing ourselves to the risk that comes with sort of the fixed price large-scale decommissioning projects that are out there. We just haven't chosen to play there. We like the decommissioning and environmental remediation work in the DOE space. It's cost reimbursable. The risk is bounded there, and it's something that we understand and I think it contribute meaningful value to. And so I don't think you'd see us doing decommissioning in Lithuania or places like that. The commercial nuclear power development opportunities in international are pretty intriguing. I mean I think if you look at the CANDU footprint, we already work in places like Romania to a limited extent in Argentina and in South Korea. And I think those refurbishment projects in Romania and new reactors there that are around the CANDU technology are exciting and important for us for growth. And there's interest in scaling that CANDU technology to a gigawatt scale reactor called MONARK and we certainly have a role to play there. And we believe there will be an international footprint for that MONARK reactor and others, right? There are things out there like the AP1000 and others where you could see us contributing. So I think the international opportunity is significant, and we'll find ways to play.

Ron, can we go to next question please.

Michael Ciarmoli with Joe Securities.

Maybe, Robb, just to dig a little deeper on the EBITDA margins. It sounds like you're grappling with some of the hurricane-related disruption this year, and I know you called out mix, but what -- maybe what specifically is dilutive because I guess at the consolidated level, the EBITDA margins are going to be flat next year. I would have thought maybe you get a little bit more lift in Medical. Is anything materially changing with mix that's creating some of that, I guess, lack of margin expansion?

Yes. We've been talking about this all year. I mean the easiest examples you have is the microreactor programs that we have. We're not looking to take risk and make a lot of margin there, right? So we signed up the 2 most important contracts in Project Pele and Project DRACO. And so those come in at at lower margins with really solid revenue and allows us to maintain a lead by having those prototype contracts. That's a 2024 impact as well as into 2025. You also have a few special materials contracts that come in, we're constructing a line around metal, as you know. That comes in at a lower margin versus the other business. We also are just dealing with mix as it relates to the core enable segment. You know that we're going through the lull. And so we've been actually done quite a nice job of moving business around. We're seeing actually our Lynchburg plant do an excellent job of moving between upper tier and lower-tier components. And ultimately, that's driving us to continue to maintain margin despite a relatively sort of tide going out, if you will, right? And our naval business, as you can expect, is also a good margin business for us. So immature programs as well as just general nonrobust volumes, which we've been well choreographing for the first couple of years of our medium-term guidance until that aircraft carrier lull dissipates, all of that just makes us sort of have to grind through and maintain margins. So it's mix and a little bit of just core underlying softness just given you're not -- just don't have an abundant volume, which generally helps a business like ours.

Got it. That's fair. And just quickly on Pele, I think the initial contract is like $300 million, and it probably runs its course in '25. Do you get additional funding for that? Or do you kind of complete your portion of the work in '25? I guess I've seen the press releases out there with their kind of testing at construction sites. But what has to happen in terms of Pele and your funding and next steps?

Yes. It’s Robb. I’ll take that. Yes. So you’re right. That was the initial contract now. The customer – we work with the customer as they have expanded their scope and different things that they want as part of that, that will not end in 2025. We continue to see different interest in different features. We see different spending as we move it out to Idaho. And so that’s not going to be a program that terminates in 2025. So there will be a tail, and I wouldn’t be surprised if it runs higher than the $300 million.

The next question comes from the line of Tate Sullivan with Maxim Group.

You mentioned the potential to turn the enrichment to build a new franchise from the security portion of enrichment. Do you have the potential to be a sole source supplier in this market? Or will it be mostly be a design effort or technical services opportunity?

So Tate, we were the sole awardee of that contract. They did have -- the government did say they could award to multiple contractors, but they just awarded the BWXT. So it's possible we could be the sole supplier for both the centrifuges and for the enrichment capability. But that depends on what the government wishes to do in the long term here, but it's a very interesting opportunity for us.

And is the next step, according to the press release from August 29 related to submitting a report on the potential costs and time line to build a pilot enrichment facility starting 2027?

That’s exactly right. We started the contract in August this year. So it will run through late summer next year, and we’ll deliver our report on the concept for the manufacturing site for the centrifuges and other such things and then go into – hopefully go into Phase I.

That concludes our Q&A session. I will now turn the call back over to Chase Jacobson, Vice President of Investor Relations. Please go ahead.

Yes. Thanks, everybody, for joining us today. We look forward to seeing and speaking with many of you at conferences and other events over the next quarter. If you have any questions, please feel free to reach out to me at investors@bwxt.com. Thanks.

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