BWX Technologies Inc

NYSE:BWXT

Earnings Call Analysis

BWXT Sees Strong Revenue and EBITDA Growth

BWXT finished 2023 with robust performance, reporting $2.5 billion in revenue, a 12% increase. The fourth quarter saw 16% organic revenue growth, contributing to a record year. Adjusted EBITDA grew 13% in the quarter and 7% annually. Despite this, full-year adjusted EPS decreased slightly to $3.02 from $3.13 in 2022, affected by nonoperating items like lower pension income and higher interest expenses. Free cash flow was impressive at $212 million, surpassing the $200 million initial target. Headcount also rose by 10%, reflecting investments in talent acquisition. BWXT secured a $300 million naval nuclear fuel contract and extended a $122 million downblending contract with Tennessee Valley Authority through mid-2027. For 2024, the company guides for mid-single-digit revenue growth exceeding $2.6 billion, with EBITDA growth and improved free cash flow between $225 to $250 million. The tax rate is expected at approximately 23.5%, with adjusted EPS forecasted at $3.05 to $3.20.

Continued Growth in Q4 with a Positive Outlook for 2024

The company reported an 8% increase in adjusted earnings per share (EPS) in the fourth quarter, rising to $1.01 from $0.93 the previous year. Highlighting this quarter's financial achievements, free cash flow emerged as a standout, climbing to $171 million for the quarter and totaling $212 million for the year, a marked improvement over the previous year. This sets an optimistic tone, hinting at a brighter financial trajectory ahead. The story of growth is further supported by a 16% increase in government operations revenue, reaching $602 million, with the segment's adjusted EBITDA moving up by 13% to $131 million. However, the EBITDA margin in government operations witnessed a slight dip, closing at 21.8% compared to 22.4% in the same quarter last year.

Commercial Sector Drives Increase in Revenue and Profitability

A significant revenue uptick of 16% in commercial operations was largely driven by a surge in commercial nuclear field services and a substantial 40% growth in the medical sector. This offset a minor decline in commercial nuclear component volume. Consequently, the fourth quarter saw the commercial operations adjusted EBITDA leap to $21.3 million from $13.6 million in the previous year. Anticipations are set for the EBITDA margin in commercial operations, currently at 12.9%, to scale toward the mid-teens through 2024, propelled by high-margin medical sales and a more favorable mix of commercial nuclear field services.

Forecast Promises Continued Expansion Across Segments in 2024

The company's forecast for 2024 sets the bar with anticipated mid-single-digit revenue growth, eclipsing $2.6 billion. Commercial operations are projected to outgrow government operations, hinting at a diverse and balancing growth strategy. Specifically, government operations are set to experience low to mid-single-digit growth, thanks to rising submarine production and advancements in microreactor technology, alongside greater demand for specialized materials. Commercial operations, on the other hand, are tipped for low double-digit growth, backed by robust medical and commercial nuclear services expansion.

Earnings and Free Cash Flow: A Landscape of Optimism

The investment narrative strengthens further with an earnings forecast suggesting an increase to an adjusted EPS of $3.05 to $3.20, incorporating a minor uptick in depreciation, amortization, and a stable tax rate of approximately 23.5%. In the realm of free cash flow, the company paints a hopeful picture with expected growth ranging between $225 million and $250 million. This forward-looking guidance mirrors a company set on a positive financial trajectory fueled by strategic growth initiatives and disciplined cash flow management.

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, welcome to BWX Technologies Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions].

I would now like to turn the call over to our host, Chase Jacobson, BWX's Vice President of Investor Relations. Please go ahead.

[Chase Jacobson, executive]

Thank you, John. 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 fourth quarter and full year 2023 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'd also note that we'll be hosting an Investor Day tomorrow in New York state. The event will be streamed live beginning at 8:30 a.m. Eastern, and you can register on the Investor Relations website at [e-mail]. Because of the Investor Day, we will be focusing our comments on today's call to our fourth quarter and full year results and our 2024 guidance.

I would now like to turn the call over to Rex.

[Rex Geveden, executive]

Thank you, Chase. Good evening to everyone, and I'm looking forward to seeing many of you in person tomorrow at our Investor Day. This afternoon, we reported good fourth quarter results. It was a strong finish to a record year for BWXT with all guidance metrics at or above the targets we originally set. We reported a very strong 16% organic revenue growth in the fourth quarter with double-digit growth in both segments. This brought our 2023 revenue to $2.5 billion, up 12% compared to last year, with growth across all major business lines. Adjusted EBITDA was up 13% in the quarter and up 7% for the year. This includes double-digit EBITDA growth in our government operations segment and a turn to positive EBITDA at BWXT Medical.

This led to fourth quarter adjusted earnings per share of $1.01, up 8% compared to last year and full year adjusted earnings per share of $3.02 down slightly from last year as operating earnings growth was more than offset by nonoperating items such as lower pension income reported in other income and higher interest expense as we expected.

Free cash flow for the year was a robust $212 million, a fact of which we are proud as we have increased focus and improved processes around working capital management. Our efforts here may take time to fully pay off, but we are making good progress and we'll continue to drive this priority through the business. Underpinning our good financial performance and not always as visible, we are pleased to have achieved some important operational goals in the quarter and throughout the year.

First, I want to highlight workforce growth. Over the past year, we reengineered and invested in our talent acquisition process leading to a remarkable 10% growth in total headcount, in line with the aggressive goal we established at the beginning of the year and roughly matching the strong revenue numbers we reported. Considering the growth opportunities we see ahead for BWXT, we view talent acquisition and management as foundational components of our operating strategy.

Looking at our business units in our special materials franchise within government operations, we recently announced a $122 million 2-year extension of our down blended contract with the Tennessee Valley Authority to support the National Nuclear Security Administration's defense program objectives. This has been an enduring program for BWXT and it will now run through mid-2027.

In the fourth quarter, we were also awarded a $300 million contract for the manufacturing of naval nuclear fuel through mid-2025. This is the first step in finalizing the other elements of our next multiyear pricing agreement for naval propulsion reactors and components, which we expect to complete once all assumptions on the exact product mix and rates are confirmed by BWXT and our naval reactors customer. We continue to expand our special materials portfolio outside of naval fuel and downblending as well, about which you will hear more at our Investor Day tomorrow.

This includes strategic programs such as a 5-year contract for uranium conversion and purification for the NNSA and a contract to recycle scrap material from the Y-12 National Security Complex and to high-assay, low-enriched uranium or [ HALU ], which may serve as feedstock material for the DOE's advanced reactor development program. These are highly technical programs where BWXT has a unique competitive advantage given its licensing and experiential qualifications, further strengthening our position in the nuclear industry and driving future growth.

Despite onboarding efficiencies and higher -- loss that we experienced throughout the year, our government operations team performed quite well. Notably, we completed the missile tubes and on a strong footing despite some challenges along the fourth quarter, we finished better than expected delivering a positive final EAC related to that closeout in addition to a [ final ] with our customer to account for the previous cost growth that was driven by out-of-shop changes and absorbed by BWXT over the past couple of years.

Finally, we continue to see the benefits from our intense focus on operational excellence initiatives throughout organization, including remarkable gains in operational equipment effectiveness and the use of digital tools and supply chain management to drive solid margin performance.

Turning to our Commercial Operations segment. Growth prospects remain strong. In our commercial Nuclear Power Group, we continue to see robust demand for our market-leading manufacturing, engineering and design and field services capabilities. Utilities around the world are increasingly turning to -- for their electricity generation needs. As many of you have seen, nuclear was put on the global stage at the COP 28 conference at the end of December with more than 20 countries signing a declaration to triple nuclear energy by 2050. At the same time, BWXT signed the net zero nuclear industry pledge, along with many other industry participants calling for the same goal.

We expect that this increased focus on nuclear energy and support from the global industrial base will translate into longer-term demand for BWXT as countries around the world look to add new grid scale nuclear capacity with small modular reactors and large reactors. In the larger grid scale nuclear reactor market in which we play at the end of January, Ontario Power Generation announced that it will proceed with a long-term life extension of its Pickering site units 5 through 8 as the province remains committed to meeting growing electricity demand with clean energy and put significant investment into its CANDU nuclear fleet. This is a significant opportunity for BWXT that will likely provide another 10 years or more of visibility into our existing backlog of life extension work in the [ that ] started almost a decade ago. We also continue to see growing demand in the SMR market, where we are well positioned as a merchant supplier, which we will talk more about at Investor Day tomorrow.

At BWXT Medical growth in our base diagnostic and contract drug manufacturing business remained strong in the fourth quarter and throughout last year. Full year revenue in that business was just over $70 million, which is a strong 25% growth compared to 2022, and that is even before sales kick in from our new Tech-99 product line. As we have discussed, we continue to see healthy demand for our diagnostic isotopes and expect similar growth in 2024 that will be complemented by increasing sales of therapeutic isotopes such as actinium and lutetium is our [ cut ] work to bring novel cancer treating therapeutic drugs to the market. We continue to work with the FDA through the approval process for our Tech-99 generator product and continue to expect commercialization in 2024.

So overall, we had a great 2023 with strong financial performance. We achieved key operational and business development objectives and our end markets continue to gain momentum. This positions us well for 2024. Our guidance calls for mid-single-digit revenue and EBITDA growth and improving free cash flow performance. Our focus remains on innovation and operational excellence as we work to provide our customers with nuclear technologies to solve their most important challenges in the global security space, clean energy and medical markets. I look forward to articulating our strategy and outlook at Investor Day tomorrow.

And with that, I will turn it over to Rob to provide more detail on our fourth quarter and full year results and walk through the details of our 2024 guidance.

[Robb LeMasters, executive]

Thanks, Rex, and good evening, everyone. I'll start with some total company financial highlights on Slide 4 of the earnings presentation. Fourth quarter revenue was a robust $725 million, up 16% organically on a consolidated basis and up about 16% in each segment as well. Adjusted EBITDA was up 13% to $148 million, in line with our expectations given solid performance from both business segments. As we have discussed throughout the year, our fourth quarter EBITDA benefited from the closeout and final recovery on our past missile tube contract. At the segment level, our adjusted EBITDA expanded modestly compared to last year, largely driven by improved performance in Medical, which, as Rex mentioned, is now in a positive EBITDA position.

However, our consolidated adjusted EBITDA margin in the quarter was slightly lower compared to last year. This was mainly due to higher year-over-year corporate costs. I will remind you that corporate costs in 2022 was unusually low because of retirements, health care underruns and captive insurance releases. 2023 also had a step-up in corporate costs related to digital systems and human capital investments in HR and finance to posture for the exciting growth ahead.

Adjusted earnings per share was $1.01, up 8% from $0.93 last year. As you can see in the EPS bridge on Slide 5 of our presentation, the majority of our EPS growth came from operations but was also helped by a lower effective tax rate and a modest FX currency benefit in the quarter, which was partially offset by higher interest expense and low pension income as was the case throughout the year.

Compared to our implied fourth quarter guidance, onetime tax and FX currency benefits contributed $0.03 to our final EPS result. Our fourth quarter effective tax rate was 22.5% due to the timing of discrete items around state taxes, including prior year true-ups. Without those true-ups, our tax rate would have been about 23% in the quarter. Our full year effective tax rate was 23.2%, and we expect a tax rate of approximately 23.5% in 2024. Full year 2023 adjusted EPS was $3.02, down from $3.13 in 2022. The EPS bridge on Slide 6 of our earnings presentation shows a similar trend to that of our fourth quarter results. Operationally, 2023 adjusted EBITDA was up 7% year-over-year. Although this was offset by the lower pension income and higher interest expense that I previously mentioned.

Free cash flow was certainly a bright spot for us in the quarter, and we believe that we have now turned the corner and we'll see an upward climb in free cash flow. Free cash flow was $171 million in the quarter, and $212 million for the year, up significantly from 2022. This was driven by -- working capital management and some modest positive collections late in the quarter that ultimately led to a solid beat versus our initial target of about $200 million that we provided in early 2023. And which was the first time we had guided cash flow in our history.

Our capital expenditures were $150 million for the full year. This was consistent with maintenance CapEx requirements and select investments to support growth in our microreactor programs. We will provide a deeper dive into our longer-term expected free cash flow growth prospects at Investor Day tomorrow.

Moving now to the segment results on Slide 7. In government operations, fourth quarter revenue was up 16% to $602 million driven by growth in nearly all of our business lines. Adjusted EBITDA in this segment was $131 million, up 13% from last year. Government operations EBITDA margin was 21.8% and down slightly from 22.4% in fourth quarter of 2022.

First, I will note that while we recognize the missile tube recovery in the fourth quarter of 2023, last year's fourth quarter also benefited from strong EAC performance. The elements that contributed to the modest year-over-year margin decline were: one, outsized growth in our cost reimbursable microreactor projects and in our new special materials programs; two, we continue to experience labor inefficiencies related to the rapid growth of our workforce; and three, on a relative basis, we had a modestly lower contribution from technical services income.

In commercial operations, revenue was up 16%, driven by increases in commercial nuclear field services and nearly 40% medical growth. That was partially offset by lower commercial nuclear component volume, mainly because of timing. Fourth quarter commercial operations adjusted EBITDA was $21.3 million compared to $13.6 million last year. The increase was largely driven by improved profitability in Medical. Commercial options EBITDA margin was 12.9% in 2023, which we anticipate will trend toward the mid-teens throughout 2024 as commercial nuclear field services mix is less of the headwind and the benefits of higher-margin medical sales contribute more to this -- to the segment's overall margin profile.

Turning now to our 2024 guidance on Slide 8 and 9 which is generally in line with the preliminary outlook we provided last quarter. On the top line, we expect mid-single-digit revenue growth to over $2.6 billion with growth in commercial operations outpacing that of government operations. Government operations growth is expected to be in the low to mid-single digits as increasing production of Columbia class submarines, growth in microreactors and higher special materials revenue is offset by the low and aircraft carrier work due to the cadence of the Navy's ship ordering schedule.

Commercial operations revenue is expected to grow in the low and in the high single to low double digits, with solid growth in commercial nuclear complemented by accelerating growth in Medical. We also expect adjusted EBITDA to grow mid-single digits to approximately $500 million and an EBITDA margin of about 19%, in line with the 2023 level. The impacts of program mix and the absence of any recoveries we experienced in 2023 and the nonnaval components business will lead to slightly compressed government operations margin on a year-over-year basis. This will be offset by higher commercial operations margins. We project this will lead to adjusted earnings per share of $3.05 to $3.20. Included in this forecast is a DNA step-up of approximately $10 million, slightly lower other income and a tax rate of approximately 23.5%.

At this juncture, we expect earnings per share to be slightly weighted toward the back half of the year. On a quarterly basis, we would expect relatively consistent EPS performance in the first and second quarters and building thereafter.

Lastly, we expect free cash flow growth to be in the range of $225 million to $250 million, reflecting about 80% free cash flow conversion at the midpoint. This will be driven by further working capital improvement and disciplined capital expenditure investment. We expect CapEx to be about flat to slightly lower compared to 2023 and as we manage our maintenance CapEx at around 4% of sales, would select near-term and visible growth investments, pushing that to near the level we saw in 2023. As I mentioned, we believe we have turned the corner and are now at a point where we will see steady increases in free cash flow growth ahead.

To sum it up, we had another solid quarter to end a strong year and expect continued growth in 2024. Demand trends across our global security, clean energy and medical end markets remain strong and our unique capabilities and infrastructure position us well to benefit from these trends. We are committed to driving more predictable earnings and free cash flow conversion with a balanced capital allocation approach that we believe will continue to drive meaningful shareholder value. I look forward to seeing many of you and providing a more in-depth perspective on our strategy, growth prospects and financial targets at our Investor Day tomorrow.

[Chase Jacobson, executive]

Thanks, Robb. Before I turn it over to John to open the line for Q&A. I will kindly ask that you please limit your questions to our fourth quarter and full year results and our 2024 guidance, and we'll be providing more in-depth commentary on our outlook and strategy tomorrow. Ready to open it up for Q&A, John.

[Operator]

[Operator Instructions]. Your first question comes from the line of Bob Labick from CJ Securities.

[Bob Labick, analyst]

We're looking forward to seeing you tomorrow as well.

[Unknown Executive]

Great. Thank you, Bob.

[Bob Labick, analyst]

Sure. Yes. So to stick with your rules, I'll just ask about next year. Can you -- you obviously had very strong growth in BWX Medical this year and getting to EBITDA breakeven or better. And I think you were forecasting equally strong or very strong growth in medical next year as well. Can you kind of dig down a little and talk about which isotopes are driving that or which like related drugs are driving that? And how much, if any, [ moly ] do you have baked into your book growth for next year?

[Rex Geveden, executive]

Yes, I'll take that one, Bob. We -- so all the -- really all the product lines are growing within medical or the diagnostic side of the portfolio where we have germanium, strontium is growing very strongly. Of course, we're in the Actinium market. I think it's correct to say we're the only commercial supplier of Actinium in the market today. And so that's been a good product for us. And TheraSphere, which is a contract manufactured product for Boston Scientific continues to just kind of gallop along and compounded at 10% rate. So really all the ducks across the portfolio are growing quite nicely. We don't -- and I think we've said this before, we didn't forecast any Tech-99 in the 2024 year. Maybe flip it over to Robb for any additional comments.

[Robb LeMasters, executive]

No, I think that's right. We'll -- we don't require any meaningful contribution for tech to hit the forecast that we laid out for you earlier today.

[Bob Labick, analyst]

Okay. Super. Great. And then I guess just last one for me, I'll jump back in queue. How are you treating the hamper tank project in guidance? And what are the other kind of big wildcards that could impact the year given almost everything else is pretty much locked in and strong with your strong visibility.

[Robb LeMasters, executive]

Yes, I think that's right. We do have actually the year. If you note, we gave a range of $0.15 this year, whereas in prior years, we've given as much as $0.20. I think we've increased fidelity just on our overall forecasting process. So I'd note that. I would also say, you're right, there are not a lot of wildcards that we have this year. We have a pretty predictable set of businesses. The same thing, Bob, in our guidance where we essentially predict a set of items that we probability and time adjust. One of those would be Hanford. We have included something in there and probability adjusted, but it's really not meaningful. And just like last year, right, certain items fell out certain items came in. And so that's not something, again, like tech that we're sort of biting our nails about. If that comes in, I'm sure something else will fall out. So we kind of have a lot of sticks in the fire and we have multiple ways to get there.

[Bob Labick, analyst]

Looking forward to seeing you tomorrow.

[Operator]

Your next question comes from the line of Peter Arment from Baird.

[Peter Arment, analyst]

Thanks for your color on the Pickering commentary. Is that when they do the units 5 through 8. Is that something where we actually start to see backlog this year associated with that?

[Rex Geveden, executive]

Yes, I'd say a modest amount of backlog for that this year. As you know from our business characteristics. Peter, we tend to be involved in. Both on the Navy side and the commercial side, we tend to be involved in sort of the advanced procurement or long lead items. So we expect to make, for example, steam generators for those Pickering reactors and their 48 in total for those 4. And so yes, I think we'd start to see a little bit of a ramp on that this year.

[Peter Arment, analyst]

That's great. That's great. And then just, Robb, just quickly, just so I understand on the medical, it's great to see that it's turned profitable. So I assume that because there's no Tech-99 baked in this year that we wouldn't see any of that depreciation cost kind of kicking in that you had originally talked about way back.

[Robb LeMasters, executive]

That's right. What we talked about even on the last call or the call before was the fact that the depreciation comes on, first of all, in a couple of phases. It's not all in 1 block. So it kind of phases in terms of different assets getting deployed. And then the assets getting deployed is really mostly based on commercial activity. So again, if we're just running samples for ourselves or getting into the market, and we're not commercial yet, we don't turn on that depreciation.

So to the extent that we're successful and get in the market, say, in late 2024, yes, that would come with a little depreciation and frankly, offset that sale. So that's why it's not meaningful for ultimately getting say, our EPS target because either you get the sales or you get the DNA at the same time. So it sort of will ramp up slowly from a profit standpoint.

[Peter Arment, analyst]

I appreciate all the color. I look forward to tomorrow.

[Operator]

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

[Scott Deuschle, analyst]

Robb, was the -- how large was the missile tube recovery that you received in the quarter? I think the 10-K talks about the [ $28 ] million benefit from nonnuclear components. So I want to check if that was the right number.

[Robb LeMasters, executive]

Yes, that's not. So first, the EAC disclosure, you'll see a couple of different elements we break out in there. One of them is the nonnaval components, and then there's just a total company number in there. You're right that we attributed that to the nonnaval component business, and we don't really want to break that down just given the sensitivity around customer, Navy and so forth. But let me help you with that a little bit. Ultimately, that number that you quoted right there includes a couple of different elements that we talked about in the transcript, we did successfully recover the amount and then some from 2022. I think I continually pointed people to that $11 million number in 2022 in the second quarter. We were successful, let's say, at recovering that and then a little more. And then we did have 6 full performance overall on that contract. So as you close those out, as you know, you really scrub where your EAC lands. And so that was also a meaningful component to that ultimate EAC item that you talked about.

And I'd like to just leave there just given the sensitivity around the customer and the negotiation and other competitors in this market.

[Scott Deuschle, analyst]

Okay. Yes, that's really helpful. And then Rex, I was wondering if you could quantify at all how large actinium line was in 2023, either in terms of revenue or doses, then curious if that might be the fastest-growing product line of BWX Medical in '24 in dollar terms and whether or not you might be able to shed some light on that?

[Rex Geveden, executive]

Yes. I think we might decline to break out the products -- the product lines on a sales basis. But I would say that actinium's certainly have fast-growing product, and we expect some meaningful revenue contribution in '24 from that.

[Bob Labick, analyst]

Okay. And then if -- I mean if some of these Phase III trials are successful with actinium, and you're the only commercial supplier, I mean, could the market opportunity here be potentially larger than Technetium with better margins? Or am I being too wishful thinking in that?

[Robb LeMasters, executive]

Yes. I think any 1 product in therapeutics, we still have a lot of hope for the Tech-99. So I think we've laid out where our targets are there. I think Actinium and [ lutetium ] as well as just to be clear, the pet diagnostic portfolio, which really follows what happens in the therapeutics, right, that they're not the category we're going to talk about that a lot tomorrow has been a huge growth driver for us. That's germanium, specifically within our portfolio as well as just pull-through of other items.

But tomorrow, we're going to walk you through is exactly what you said, which as you move from, call it, Phase I to Phase II, Phase III, you're still only having patient samples of, call it, 500 patients maybe as those turn in '26 and '27, you get multiples, right, thousands of commercial patients. And so the scale goes up meaningfully. So to address your specific question about the size of the actinium or lutetium line, it's fall, but it can explode meaningfully when you actually convert from a sort of a Phase III to a [ common ] trial. And we see that -- you can read around. A lot of those are predicted in kind of the '26, '27 time frame. And so that's when we'll get more isotopes and hopefully even some contract drug manufacturing alongside that.

[Scott Deuschle, analyst]

Okay. Great. And last question. Just Rex, maybe you can shed some light on what's currently adding to the approval time line on Tech-99 and whether or not you might be able to commercialize that before the fall when I think a lot of the forward year sales go in contract.

[Rex Geveden, executive]

Yes. There's no change in that. We -- I think we've been saying consistently that we expect approval here in '24, and we're still on that track.

[Operator]

Your next question comes from the line of [ Chardan Diane ] from Bank of America.

[Unknown Analyst]

Just had a question on the defense business. We're hearing from other naval suppliers, the Navy starting to have discussions about CapEx reimbursement. [ HR ] report it other suppliers are saying they're in talks. Is that something you guys are hearing to? Or would you expect to benefit from it?

[Rex Geveden, executive]

So maybe I'll -- Jordan, I'll take that one, maybe give a little broader perspective here and change attitude from your question. I'd say first off, remember that for BWXT, where our reactors and fuel are long lead items for those submarines and aircraft carriers. And so we frankly had to get out in front of those capital needs before the shipyards did. And so if you look at our buildup to the 2 Virginias with the Columbia on top of that, and then we went through that 2-carrier buy and actually had to put considerable capital in for that. So we got ahead of that, and that was one of our major capital campaigns.

And so that's kind of done for us. And we were frankly ahead of that submarine industrial base funding activity. And so that's where we've been, and we're sort of well equipped to deal with the volume that we see out there ahead. That said, as some new scope comes in, for example, the [ inertness ] example or accelerated Colombia, then we would certainly have discussions with our customer and do have discussions with our customer about where is the appropriate place to bear the capital load. So those discussions do go on, but I would say that we certainly got ahead of the capital issue relative to the shipyards.

[Operator]

Your next question comes from the line of Michael Ciarmoli from Truist Securities.

[Michael Ciarmoli, analyst]

Rex, just back to Tech-99 and the FDA process. What's sort of the back and forth right now? What's the dialogue like? Any surprises with what they're requesting or with what you're doing or anything new there? I know you're talking about the approval later this year, but any color you can give us?

[Rex Geveden, executive]

Yes. There's really nothing new there, Michael. We had some findings from the FDA and some issues to work down, including some equipment modifications to run some reference batches and all that sort of thing, and we're just sort of running right through that. So it's absolutely on track relative to everything we've said for the last several quarters. No change in posture at all.

[Michael Ciarmoli, analyst]

Okay. Perfect. And then, I guess, Robb, just as we think about '24 and specifically the revenue growth in government. I think the initial view may have been a little bit more conservative. Can you give us any sense as to what's really kind of picking up some momentum in that portfolio? Is it more the microreactors, some of the new start programs? Or just kind of give us a sense what's kind of really offsetting some of those headwinds from the carrier?

[Robb LeMasters, executive]

Yes, I can. Thanks for the question. Yes, on the top line within the government bids in general, we're seeing a couple of drivers that contributed to the outsized performance in Q4 and will roll through in 2024 to name a couple of those. They're outside of the core naval business, frankly, on the nonnaval side, we're really ramping DRACO nicely. So that's our space microreactor program. As you know, we learned a lot from [ Paylain ] terms of standing up the supply chain and getting after that, and that allowed us to spend capital and hire people efficiently and get the materials we need to get working. So you saw some pretty good growth in that in the fourth quarter, and I think that's going to roll through. Now those are cost reimbursable programs. So that's one of the sort of drags on margin. But to me, that's a good news story to be ramping those quickly and serving our customers well.

Then on the special materials business that we've been talking, we're going to spend a lot of time on that tomorrow in terms of our key capabilities around processing and handling. I think a lot of people think about that as a fuel business and a downblending business. But now we've landed this terrific program around new metal, where we're recovering some [ HALU ] scraps and turning those over to ARDP winners. We have other prospects to expand that franchise. So within that special materials portfolio, we do have mature programs, and so that's a good margin. But again, as you're bringing on new metal or you bring on HALU that comes with good revenue as you're standing it up.

But our new approach, right? So that has implications also which we talk about from a top line and a margin perspective. Those are notable. And then just the core NOG, legacy NOG business is doing well. It's coming with revenue -- we've got the workforce now, as we talked about, hiring 10% net workforce overall as a company really is going to allow us to grow the top line nicely in 2024 in all of our business lines in geo, but particularly in the ones that naval as well, it's just the core shipbuilding naval propulsion business.

[Michael Ciarmoli, analyst]

Got it. Got it. Helpful. And then just last one. I know you guys aren't wildly impacted by the budget environment continuing resolution. But any risks that we should be aware of even looking at '25, I know they're kind of throwing out there maybe on Virginia class, although that seems to be a function of just kind of what the supply chain can handle. But any thoughts there?

[Rex Geveden, executive]

Yes. Maybe just a broad thoughts here, Michael, maybe to frame it a little bit, of course, some of our business is naturally completely insulated from that noise, our commercial business in Canada. We've got a little footprint in the U.K. But to the extent that our government programs are affected by continuing resolutions or stalling out actions on appropriations. And just every program in our portfolio is program of record, I mean that's meaningful, everything from [ Pala ] to our Navy programs and certainly our national security programs with the NNSA. So that doesn't -- those are don't influence our business very much because those are crucial programs on multiyear money.

I would say the one place that might affect us, and you can talk to Sue Sterner about this tomorrow, the one place that can affect this is the DOE site cleanup type work where you might have a funding break and go into sort of a standdown mode. So those kind of things can and have happened in the past. But overall, our business is really pretty well insulated from that kind of action.

[Michael Ciarmoli, analyst]

Okay. Got it. I'll see you tomorrow.

[Operator]

That concludes our Q&A session. I would like to turn the call over back to Chase Jacobson for brief closing remarks.

[Chase Jacobson, executive]

Yes. Thanks, everybody, for joining us today. We look forward to seeing and speaking with many of you tomorrow and at upcoming investor events. If you have any questions, you can reach me by phone at [ 980-3655-4300 ] or by e-mail at investors.bwxt.com. Thank you.

[Operator]

This concludes the BWX Technologies Fourth Quarter and Full Year 2023 Conference Call. Thank you for your participation. You may now disconnect.