BWX Technologies, Inc. Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2022, compared with the corresponding 2021 periods. BWXT operates through Government Operations and Commercial Operations. The company revised segment reporting in 2022, with historical information recast accordingly.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $554.2 million | $505.1 million | $1,084.9 million | $1,033.4 million |
| Operating income | $95.2 million | $73.8 million | $166.8 million | $156.2 million |
| Net income attributable to BWXT | $74.6 million | $59.3 million | $133.6 million | $129.1 million |
| Diluted EPS | $0.82 | $0.62 | $1.46 | $1.35 |
| Operating margin | 17.2% | 14.6% | 15.4% | 15.1% |
| Net margin attributable to BWXT | 13.5% | 11.7% | 12.3% | 12.5% |
- Q2 revenue increased 9.7%; six-month revenue increased 5.0%. Government Operations contributed $436.5 million in Q2 revenue and Commercial Operations contributed $118.5 million.
- Q2 operating income rose 29.1%, while six-month operating income rose 6.8%. Q2 improvements reflected higher volume, increased equity income, favorable commercial mix and lower corporate expense.
- The effective tax rate was 23.9% in Q2 and 23.8% for the six-month period, versus 24.7% and 24.4%, respectively, in 2021.
- Cash and cash equivalents were $67.4 million at June 30, 2022; total cash, including restricted cash, was $73.1 million. Working capital was $443.3 million, up from $314.1 million at December 31, 2021.
- Operating cash flow was $72.0 million for the six months, down from $158.3 million in 2021. Investing cash flow was negative $164.8 million, including $94.9 million of capital expenditures, the $47.3 million cash cost of an acquisition, and $22.6 million invested in equity-method investees.
- Financing cash flow was positive $125.0 million, including $322.4 million of debt borrowings and $132.4 million of repayments. The company repurchased $20.0 million of common stock and paid $40.8 million in dividends.
- Long-term debt was $1.38 billion at June 30, 2022, compared with $1.19 billion at year-end 2021. The company had $590.0 million drawn and $35.4 million of letters of credit under its $750 million revolving facility, leaving $124.6 million available.
- Government Operations operating margin was 19.2% in Q2 and 18.0% for the six months. Commercial Operations operating margin was 10.9% in Q2 and 7.7% for the six months.
Material changes versus the prior comparable period
- Government Operations revenue increased 7.7% in Q2 and 4.8% for the six months, primarily from higher volume in nuclear component manufacturing and timing of long-lead material procurement.
- Commercial Operations revenue increased 16.4% in Q2 and 4.4% for the six months. Q2 growth was led by in-plant inspection, maintenance and modification services, nuclear fuel handling and medical radioisotopes.
- Commercial operating income benefited from improved revenue and product mix, but prior-year Canadian COVID-19 wage subsidies were lower by $3.3 million in Q2 and $3.6 million for the six months. Six-month results also included $2.2 million of restructuring costs.
- Contract estimate changes were less favorable than in 2021. A non-nuclear component manufacturing project generated $11.3 million of operating-income reductions and reduced EPS by $0.09 in both Q2 and the six-month period. BWXT is exploring recovery of the cost overruns.
- Backlog declined to $4.721 billion from $5.176 billion at December 31, 2021, primarily because Government Operations backlog fell to $3.989 billion from $4.532 billion. Commercial Operations backlog increased to $732 million from $644 million.
- On April 11, 2022, BWXT acquired Dynamic Controls Limited and Citadel Capital Corporation, including Cunico Corporation, for approximately $49.9 million. The businesses were assigned to Government Operations and added preliminary goodwill and intangible assets.
- Weighted-average diluted shares declined to 91.5 million in Q2 from 95.5 million in the prior-year quarter, reflecting share repurchases and treasury activity.
Guidance, outlook, risks and unusual items
- The filing does not provide specific full-year revenue or earnings guidance. Management stated that it expects sufficient cash, borrowing capacity, operating cash generation and debt-market access to meet cash requirements for the next 12 months and beyond.
- Approximately 57% of the $4.721 billion of remaining performance obligations is expected to be recognized by the end of 2023. The backlog includes $89.6 million of unfunded U.S. Government work and excludes approximately $0.4 billion of unexercised options subject to future appropriations.
- Government Operations remains dependent on U.S. Government defense spending, Congressional appropriations and contract performance. Backlog may be cancelled, modified or delayed and is not necessarily indicative of future results.
- Fixed-price contracts expose BWXT to labor productivity, steel and other raw-material cost inflation, schedule and performance risks. Changes in estimated costs to complete can materially affect revenue, earnings, liquidity and cash flow.
- COVID-19-related operational effects had subsided significantly, but employee illness, supply-chain disruption and future variants could still adversely affect operations. The Canadian wage-subsidy program ended for new claims in May 2022.
- As of June 30, 2022, BWXT was in compliance with its credit facility and senior-note covenants. The company had approximately $109.3 million of outstanding surety bonds and $78.3 million of underfunded pension and postretirement obligations, with expected remaining-2022 contributions of approximately $9.6 million.
- Foreign-exchange exposure is hedged primarily with forward contracts. The notional value of outstanding contracts was $442.3 million, with maturities through December 2024.
- The filing states that there were no material contingencies during the period and no material changes to previously disclosed risk factors. Disclosure controls and procedures were assessed as effective.
Important facts for investors to verify
- Whether the non-nuclear component contract cost overruns can be recovered and whether further adverse estimate revisions will occur.
- The sustainability and funding profile of the $4.721 billion backlog, including the effect of appropriations, unfunded work and unexercised options.
- Leverage, interest expense and remaining availability under the revolving credit facility as debt increased to $1.38 billion.
- Cash conversion and working-capital requirements, particularly contracts in progress of $564.3 million and the decline in operating cash flow.
- Integration, purchase-accounting adjustments and performance of the Dynamic Controls and Citadel/Cunico acquisition.
- Exposure to fixed-price contract execution, supply-chain constraints, labor availability, commodity costs, COVID-19 impacts and commercial nuclear-market timing.