BWX Technologies, Inc. — Form 10-Q Summary
Business context and reporting period
BWXT filed this unaudited quarterly report for the three and nine months ended September 30, 2021. The company operates through Nuclear Operations Group, Nuclear Power Group and Nuclear Services Group, serving U.S. government, commercial nuclear, medical isotope and advanced technology markets.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $498.7 million | $519.9 million | $1.532 billion | $1.567 billion |
| Operating income | $87.5 million | $88.8 million | $243.6 million | $269.5 million |
| Net income attributable to BWXT | $59.9 million | $73.2 million | $189.0 million | $212.9 million |
| Diluted EPS | $0.63 | $0.76 | $1.99 | $2.22 |
| Operating margin | 17.5% | 17.1% | 15.9% | 17.2% |
- Q3 revenue declined 4.1%; nine-month revenue declined 2.2%.
- Q3 net income attributable to BWXT declined 18.1%; nine-month net income declined 11.2%.
- Effective tax rates were 22.6% for Q3 and 23.8% for the nine-month period, versus 20.3% and 22.3%, respectively, in the comparable periods.
- Cash provided by operating activities was $225.6 million for the nine months, up from $148.1 million. Capital expenditures were $236.7 million, resulting in negative operating cash flow less capital expenditures of approximately $11.1 million.
- Cash and cash equivalents were $69.4 million at September 30, 2021; total cash, including restricted cash, was $75.3 million. Working capital was $416.0 million.
- Gross long-term debt was $1.265 billion, or $1.254 billion net of deferred issuance costs, compared with $875.0 million gross at December 31, 2020.
- The company had $465.0 million drawn under its $750.0 million revolving credit facility, $32.8 million of letters of credit and $252.2 million of remaining availability.
- Backlog was approximately $4.501 billion, up from $4.406 billion at December 31, 2020. Approximately $3.4349 billion of Nuclear Operations Group backlog with the U.S. government was unfunded at September 30, 2021.
Material changes versus the prior comparable period
- Nuclear Operations Group: Q3 revenue was essentially flat at $386.6 million, while operating income increased $10.9 million to $79.4 million, primarily from more favorable contract adjustments. Nine-month revenue declined $50.5 million and operating income declined $21.9 million, mainly due to timing of long-lead material procurement.
- Nuclear Power Group: Q3 revenue decreased $24.7 million and operating income decreased $20.2 million, driven by lower in-plant inspection, maintenance and modification activity and lower parts and components volume. Nine-month revenue increased $28.6 million, but operating income declined $8.6 million.
- Nuclear Services Group: Q3 revenue increased $2.0 million and operating income increased $2.7 million. Nine-month revenue declined $12.4 million following the 2020 divestiture of the U.S.-based commercial nuclear services business, while operating income increased $3.7 million.
- Canadian wage subsidies fell to $0.7 million in Q3 and $4.9 million for nine months, compared with $16.6 million in each comparable 2020 period, reducing Nuclear Power Group profitability.
- BWXT issued $400 million of 4.125% senior notes due 2029 and redeemed $400 million of 5.375% senior notes due 2026. The refinancing generated a $10.8 million early-redemption premium and a $4.2 million debt issuance cost write-off.
- The company repurchased approximately $185.8 million of common stock during the nine months, including approximately 3.0 million shares during Q3, and declared quarterly dividends of $0.21 per share.
Guidance, outlook, risks and unusual items
- The filing does not provide specific full-year revenue or earnings guidance. Management stated that it is pursuing growth strategies and expects to fund opportunities through operating cash flow, debt, equity or a combination.
- Management expects to recognize approximately $589 million of backlog revenue in the remainder of 2021, $1.409 billion in 2022 and $2.503 billion thereafter.
- Approximately $1.0 billion of unexercised U.S. government contract options were expected to be awarded in 2021, subject to annual Congressional appropriations. Backlog may be cancelled, modified or delayed.
- COVID-19 remains a risk through employee illness, attrition, vaccine mandates, labor disruption, supply-chain delays and potential operational interruptions. BWXT announced a vaccine mandate for U.S. employees in October 2021.
- Contract estimates, particularly on fixed-price contracts, remain sensitive to labor productivity, steel and other raw material costs, completion dates and performance requirements. Favorable contract estimate revisions increased operating income by $18.1 million in Q3 and $27.8 million for nine months.
- The company deferred $21.4 million of payroll taxes under the CARES Act, with payments beginning in December 2021.
- Outstanding surety bonds totaled approximately $110.2 million. Underfunded pension and postretirement obligations totaled approximately $138.2 million, and expected contributions for the remainder of 2021 were approximately $1.5 million.
- Management reported no material contingencies during the period and stated that the company was in compliance with its debt covenants. It believes available cash, borrowing capacity and letters of credit capacity are sufficient for at least the next 12 months.
Most important facts for investors to verify
- Whether the decline in nine-month Nuclear Operations revenue and profitability reflects temporary procurement timing or a sustained change in program activity.
- The effect of reduced Canadian government wage subsidies and the recovery trajectory of Nuclear Power Group margins.
- Future U.S. government appropriations, funding of the $3.4349 billion unfunded backlog and exercise of approximately $1.5 billion of options excluded from backlog.
- Debt leverage, interest expense and liquidity after the 2021 refinancing, share repurchases and elevated capital spending.
- Potential contract-cost overruns or reversals of favorable estimate adjustments on fixed-price and incentive-fee contracts.
- Operational and workforce effects of COVID-19 vaccine requirements, supply-chain constraints and employee attrition.