Ladies and gentlemen, thank you for standing by, and welcome to BWX Technologies, Inc. Third Quarter 2015 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to our host, Mr. Alan Nethery, BWXT's Vice President, Investor Relations and Corporate Procurement. Please go ahead.

Thank you Towanda, and good morning, everyone. We appreciate you joining us to discuss our 2015 third quarter 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 that are described in the Safe Harbor provision at the end of yesterday's press lease and the Risk Factor section of our most recent 10-K and 10-Q filings. These risks and uncertainties may cause actual company results to differ materially. 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 on the Investor Relations section of bwxt.com. BWXT believes the 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. With that, I will now turn the call over to John.

Thank you, Alan. Good morning, everyone. I'm pleased to report that BWX Technologies has delivered another solid quarter. We experienced three of our segments compared to the prior year period and our Nuclear Operations segment continues to provide strong steady performance. As a result, we delivered $0.40 of adjusted EPS this quarter, a 33% increase over the prior year period. We began work on the China steam generator project, which improved our Commercial Nuclear segment results and our Technical Services segment was driven higher by key performance improvements in favorable rate adjustments. With each of our business segments performing well in the third quarter, we're well positioned for strong results heading into 2016. Let me provide a few details. Consolidated revenue for the quarter were $359 million, 6% higher than the prior year quarter and adjusted earnings per share were $0.40 versus $0.30 in the third quarter in 2014. Non-GAAP operating income totaled $65 million for the period, a 31% increase over the third quarter of 2014. Our backlog is strong and it stands at $2.8 billion at the end of September, $145 million higher than September 2014. Bookings for the third quarter totaled $121 million, which is approximately $36 million lower than the third quarter of 2014 due to Nuclear Energy booking, a large equipment order in third quarter of 2014. Furthermore, we experienced an unfavorable foreign currency adjustment this quarter in Nuclear Energy, it drove our bookings below normalized levels. Despite the low bookings in the third quarter, the Nuclear Energy segment is healthy, continues to have backlog higher than levels seen in the past 3 years, is well positioned for solid growth heading into 2016. Turning to third quarter 2015, we purchased approximately 700,000 shares of BWXT stock at a total cost of $18 million. We plan to accelerate our share repurchase activity in the coming year beyond these levels to increase our return to shareholders. Last week, our board approved a new $300 million repurchase authorization for 2-year period beginning in February 2016. This is in addition to the $329 million of share repurchase authorization capacity set to expire in total by February 2016. We continued to pursue a balanced capital allocation approach led by share repurchases at appropriate dividends and our selective approach to niche acquisitions, which is underway. Before we get into the details of the operations and segment opportunities, which Sandy will present, let me turn it over to Dave as he would discuss the segment results and other financial matters.

Thanks, John. The Nuclear Operations segment reported strong third quarter revenues of $303 million, up from revenues of $297 million in the same quarter of 2014. The Nuclear Operations segment operating income in the quarter totaled $63 million, an increase of $1 million compared to $62 million in the prior year period. Backlog in Nuclear Operations at the end of the third quarter was $2.5 billion, $76 million higher than the same period last year. The Nuclear Energy segment revenues were $35 million in the third quarter of 2015 compared to revenues of $22 million in the corresponding period of 2014. The increase in revenues in the current quarter was due to an increase in our Nuclear Services business, related to the outage work in Canada as well as beginning the China steam generator design and build work. Operating income increased to $1 million in the third quarter compared to a loss of $7 million in the third quarter of 2014, also due to the previously mentioned outage work in the China steam generator project as well as improvements in the segments margin, as we continue our ongoing efforts to restructure the segment to produce increased returns. Return on sales was 4% compared to a loss of 31% on the same period of 2014. Our backlog position in this segment has strengthened significantly and we see additional opportunities in the pipeline. Backlog at the end of the third quarter was $342 million, an increase of $69 million, compared to $273 million a year ago. As John mentioned earlier, our bookings for the Nuclear Energy segment were driven lower this quarter due to an unfavorable foreign currency adjustment related to weakening of the Canadian dollar. Operating income in Technical Services was $8 million compared to $5 million in the corresponding period…

Thanks, Dave, and good morning, everyone. Before I get into the segment details, I'd like to extend the welcome to the newest member of our team, Rex Geveden, who joined us last Monday. Rex will serve as BWXT's Chief Operating Officer reporting to me and will be responsible for all of BWXT's Government and Commercial Nuclear Operations in the U.S. and Canada. We're pleased to have Rex on the team and his experience in domestic and international work, for both commercial and government clients, is an ideal fit for the execution of our strategic priorities. Now, moving to the segment operations. Our Nuclear Operations Group continued its strong performance and we were again able to achieve a very solid operating margin due to the smart execution of the backlog and increased manufacturing volume. As a result, we improved both revenue and operating income compared to the third quarter of 2014. The Nuclear Fuel Services operation, which manufactures nuclear fuel for the U.S. Navy and supports nuclear nonproliferation through downblending activities, delivered solid results again this quarter for growth in both revenue and operating income. And we continued to perform well on our first missile tube contract. Our bookings for the quarter were $63 million higher and our backlog is $76 million higher than the same period last year, leaving us well positioned for the future. We continued discussions with our customer regarding the next product pricing agreement that will set the prices for the annually funded procurements for the next three government fiscal years. If this agreement is delayed until the first quarter of 2016, we expect no significant disruptions to delivery or manufacturing schedules, but we will work with our customer for initial procurements to avoid any adverse schedule or cost variances. If the discussions take longer than expected,…

Thanks, Sandy. At our Investor/Analyst Day held in June, we provided guidance for 2015 on a segment basis. That guidance remains largely unchanged. We expect the Nuclear Operations segment to achieve revenues consistent with the levels achieved in the last few years and the operating margin to be in the high teens for the remainder of the year with some potential upside as we have seen in our recent quarters. For TSG, we anticipate achieving operating income in the range of $15 million to $20 million. We expect nuclear energy revenues to be between $150 million and $175 million with an operating margin in the low-single digits. We are on track to deliver these results year-to-date. We expect the adjusted 2015 EPS to be at the higher end of our 2015 guidance range of $1.30 to $1.40 per share. Given the high degree of visibility we have in -- really, any out-year and the fact that BWXT is new in this consolidated story, we've been looking into 2016 and we wanted to give you some advance look as what we would expect. We would expect to achieve consolidated revenues between $1.4 billion and $1.45 billion and adjusted EPS of $1.45 to $1.55 per share. For our segments, we expect Nuclear Operations revenues to be consistent with the levels we've achieved in the last 3 years and expect an operating margin in the high teens with some potential for upside. In our Technical Services segment, we expect operating profit in the range of $15 million to $20 million as we continue to focus on improving the business and adding to new projects. In our Nuclear Energy segment, we expect revenues to be between $160 million and $190 million. With the margin improvement plan still on track, we expect to achieve full…

[Operator Instructions] Your first question comes from line of Michael Ciarmoli with KeyBanc Capital Market.

Let me first -- just on the current year outlook, the EPS coming into towards the high end, you did have that $5 million discrete tax item in the quarter. Was that already embedded in the guidance or is that part of the reason why the EPS slides up in the high end?

That was part of the reason why, because we are waiting for an audit completion, which we don't forecast in that discrete item. So that was not and that's part of the reason why for the third quarter, it's in there.

Okay, perfect. And then looking out into 2016, obviously, go guys have great visibility and predictability here. Looking at, not a lot of topline growth, margins look to be -- and I appreciate the conservatism. On the EPS line, can you give us a sense of what is embedded there in the buyback? Just optically it looks like most of that bottom line growth is going to come from a buyback, so you guys have that built in there or is it just more conservativism on the operating margins?

I would -- there is an influence in 2016 results from what we're assuming on the buyback scenario and we're really going to let you get a view of that as we achieve results in that area. But I would say that, that -- it should not be necessarily the total focus for 2016. 2016 is driven largely by operational performance. It is driven largely by cost control and cost management and things along those lines. Certainly, there is an influence, but I would not consider it to be the predominant factor in our view on 2016.

Got it. Well, on that topic, will there be any headwind on margins from either the acceleration or the elevated activity on the missile tubes or even as you guys ramp up CapEx for the Ohio class? Will that result in any kind of overhead absorption headwinds that you guys are kind of battling into next year?

No.

Okay. Last one from me and then I will jump off here. To your budget deal, obviously, more than news for the defense industry. Does that give you any [Audio Gap] I meant as you're working with our customers or is it more of a neutral impact to you guys?

It's a nuclear impact. I mean, we have a pretty good visibility into the forecast and what the government's going to buy. It's already included in the pricing agreement when we are discussing with the government. So it all stands up pretty solid.

Your next question comes from the line of Bob Labick with CJS Securities.

Just wanted to start -- I know you touched on this slightly before certainly but on the missile tube project, can you tell us kind of the next steps and milestones and when we may here if you're in, if you are one of 3, one of 2, et cetera? What should we expect to hear over what time period?

Yes. We're in discussions now, and so I can't talk a great deal about it. But we expect by the first half of 2016, we will hear regarding the next block buy from missile tubes. And I certainly anticipate that BWXT will be a major player in that.

Okay. Great. And then just generally speaking, commodity prices have obviously fallen a significant amount over the last year or so. I know you guys have very long lead times on what you build and -- how does the lower prices impact your margins and -- not only on what's in your pipeline and what your building, but also on that nuclear procurement and pricing on a go-forward basis?

Yes, commodity prices can have a significant impact up or down and we watch those very closely and take advantage of them as appropriate. And in some cases, that's already in our pricing. So it provides [indiscernible] benefit, in some cases it provides an improvement. So we paid close attention to the commodities market and we strike as appropriate.

Great. And then you mentioned the CapEx going up to 55, 60 for the Ohio class replacement, is that -- should we think of that as kind of a normalized level going through 2018 or 2020 or will it continue to go up or is it 1 year buildout in CapEx?

I think that you can consider the 55, 60 now going to be a normalized level. We feel that the CapEx for the Ohio replacement could be $25 million over a 3- to 4-year period. So we built that in there to levelize that.

Okay. Great. And then last one for me. I'll jump back. You mentioned in terms of your capital allocation, strategic M&A as a potential as well. I know it's early. It's hard to find businesses with the visibility in the margin profile that you guys have, can you give us a sense of what types of things you're looking at in terms of M&A? And obviously, where do -- you said you're accelerating your share repurchase because that's another opportunity with your capital allocation, but can you find stuff as good as the current business?

Well, it's -- we've got a great business, we've got a great client [indiscernible] business. We also have good customers in the department of energy and some of our nuclear energy customers. We think there is a view into other adjacencies and other things that line up with what we do well as a company, which is high critical must work applications whether it be in commercial, like the commercial nuclear or as well as a naval-type product, which we build. So there are some opportunities there, we're looking at those, we're aggressively pursuing them. I would categorize on this point to be more additive as opposed to transformational relative to the overall company. But we do have some nice options by which we could deploy capital. But likely, we've always talked about with acquisitions. I think you look at a lot of them and you buy very few. And you try to be focused on value and value creation as opposed to just buying things for buying things sake. And so we're very deliberate in our process, we are well underway and we'll see where that takes us. But we certainly have the capacity to do a reasonable amount of work there, but we always use return of capital to shareholders just as sort of a benchmark, and we certainly have to exceed any kind of return that we can give to our shareholders in that regard to really make it additive for creation of shareholder value and so that's generally our philosophy approach.

[Operator Instructions] Your next question comes from line of Robert Norfleet with Alembic Global Advisors.

This is actually Nick Chen for Robert Norfleet. I was hoping you guys could just give a quick update on the current dynamics in the downblending market, and any potential new opportunities you're seeing there?

Sure. The -- we're in the throes of finalizing a contract with the government for the next tranche of downblending, which will be about 10 metric tons. We expect to see that in the late first quarter, early second quarter of next year. That will be a sizable contract for us. And after that, there is still other material in the pipeline that we see is available for downblending. And in support of the nuclear nonproliferation program that the government has we expect that to continue.

Great. Just getting into a little bit more detail there, can you remind us some sort of -- and I'm not sure how much detail you can provide, sort of what the rates are per ton for downblending that? And then just also in terms of what the market out there is, is there any way to quantify what the potential could be there?

I don't know exactly, I can't discuss that, that's -- we operate in a competitive environment there and to discuss the rates would be not appropriate for me. Yes, it is hard to quantify what the total available materials size is, because they use that material for other things, but it is -- it exceeds all the work we've already done on downblending. So it's sizable quantity.

Your next question comes from the line of Paul Dircks with William Blair.

So just a couple of questions from me. First of all on the nuclear operations business, obviously, in the prepared remarks and in the 2016 guidance, you'd mentioned that there is some room for upside from the -- on the high teens level. So just want to kind of pressure on that and find out is that comment based on your negotiations for the next market basket? Is it perhaps based on some of the success you've had with Nuclear Fuel Services business? Or what kind is behind that business to suggest some room for upside next year in energy margins?

Yes, I'll take that on. The work that goes on inside of NOG as John mentioned in his opening remarks, is centered around cost control, cost management, cost reduction program. And although we do predict, that, that will continue very much like it has in the past. There continues to be opportunity in that arena to achieve better and larger savings. So we push on that very hard. We don't forecast to flawless performance. Occasionally, we do get flawless performance and things work out well. So we think there is an upside there. We think in the commodities market that we talked about earlier, there is some upside there. The market basket, the pricing agreement we're working on with that customer now will have little impact in 2016.

That's helpful. I appreciate the color. And 1 more for me as well. On the share repurchases and the announcement today, obviously, the announcement of the new authorization coming in 2016 does not necessarily mean that you will execute the remainder of your existing program before the end of the February. And so I just kind of want to ask not expecting numbers here, but just qualitatively, what is accelerating the pace of repurchases actually mean? And to that point, aside from the litigation proceeds that came in the quarter, has there been any change as far as the cash flow from the business to change your thinking on the timing of repurchases?

I'll take the repurchase one and give you some color on that. If you take a look to the authorization, it expires in February. That was put in place roughly 2 years ago this coming February. That was put in place on a basis of BWC prior to the spend of [indiscernible] and BWXT that occurred in the middle of this year. And what ended up occurring is that we rode on the back of that authorization after the spend and continued to buy back at a certain rate that we prescribed in the matrix that we put out there in the 10b5 Plan as we described. That matrix is really designed to protect the share repurchase levels in an area of volatility, where we -- there was some expectation based upon advice and analysis that we did as well, that there may be some volatility going into the postspend environment. So that was really -- we wanted to return to shareholders, we wanted to -- we felt that, it was important for us to do that, but we didn't want to be caught in traps of periodic volatility. And so what we did is we've put in place a plan that would best serve that. What we got instead was really good progressive growth of the share price, which is a great thing. But it didn't work well with the grid that we had in place. So what ended up happening is that we purchased below our expectations. So what our view is going forward is if we wanted to have something that survived, that old authorization. So we put a new authorization in place under the new board that takes place after the other expires and, at the same time, simultaneously, implementing a grid that would be more…

And Paul on our cash question, I mean, obviously, we we're quite happy about the $95 million after tax, $60-some million of cash and that gives us confidence in our capital allocation flexibility. We don't anticipate in the rest of our operations any other surprises at this point in time. The rest of the cash should be coming in as we anticipated for the year.

And with no further questions in queue, I would now like to hand the conference over to Alan Nethery for closing 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 limited time. If you have further questions, please give me a call at (980) 365-4300. Thank you.

Ladies and gentlemen, thank you for joining today's conference. That concludes the presentation. You may now disconnect, and have a great day.