BWX Technologies, Inc. 2021 Form 10-K Summary
Business context and reporting period
BWXT filed an annual report for the fiscal year ended December 31, 2021, with comparative results for 2020 and 2019. The company manufactures nuclear components, reactors and fuel; provides government nuclear, environmental and site-management services; supplies commercial nuclear equipment and medical radioisotopes; and develops advanced nuclear technologies.
Reportable segments were Nuclear Operations Group, Nuclear Power Group and Nuclear Services Group. The U.S. Government represented approximately 76% of consolidated revenue, compared with 77% in both 2020 and 2019. BWXT employed approximately 6,600 people at year-end.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $2,124.1 million | $2,123.5 million | Flat |
| Operating income | $345.8 million | $358.6 million | Down $12.7 million |
| Operating margin | 16.3% | 16.9% | Down approximately 0.6 points |
| Net income attributable to BWXT | $305.9 million | $278.7 million | Up 9.8% |
| Diluted EPS | $3.24 | $2.91 | Up 11.3% |
| Effective tax rate | 22.6% | 22.9% | Down 0.3 points |
| Cash flow from operations | $386.0 million | $196.4 million | Up $189.6 million |
| Capital expenditures | $311.1 million | $255.0 million | Up $56.0 million |
Net income benefited materially from other income, particularly pension and postretirement mark-to-market gains. Other income was $49.9 million in 2021 versus $3.6 million in 2020. The fourth quarter included a $39.6 million favorable benefit from these adjustments, compared with a $6.4 million unfavorable effect in the fourth quarter of 2020.
Segment results were mixed. Nuclear Operations Group revenue declined 1.4% to $1,622.6 million and operating margin declined to 19.0% from 19.8%. Nuclear Power Group revenue increased 9.6% to $407.1 million, while its operating margin declined to 12.9% from 14.0%. Nuclear Services Group revenue declined 9.5% to $123.5 million, but its operating margin increased to 22.6% from 19.4%.
Liquidity, debt and capital allocation
- Unrestricted cash and available borrowing capacity totaled approximately $347.7 million at December 31, 2021, down from $649.3 million in 2020.
- Cash and cash equivalents were $33.9 million; total cash, restricted cash and investments were approximately $53.1 million.
- Gross long-term debt was $1.2 billion, consisting of $800 million of senior notes and $400 million drawn under the revolving credit facility. Net carrying value was $1.189 billion.
- The $750 million revolving credit facility matures in March 2025; $313.8 million remained available after borrowings and letters of credit. BWXT was in compliance with its debt covenants.
- BWXT redeemed its $400 million 5.375% senior notes due 2026 in July 2021 and issued $400 million of 4.125% senior notes due 2029 in April 2021. The redemption generated a $10.8 million premium and a $4.2 million write-off of deferred debt issuance costs.
- BWXT repurchased $225.8 million of common stock in 2021 and paid $79.7 million of dividends. Approximately $417.6 million remained available under the repurchase authorization at year-end.
- Surety bonds and letters of credit outstanding totaled approximately $145.7 million, including $109.5 million of surety bonds and $36.2 million of letters of credit.
Material changes versus the prior comparable period
- Revenue was essentially unchanged, but operating income declined because of lower Nuclear Operations Group results and reduced favorable contract adjustments.
- Net income and EPS increased primarily because of pension-related mark-to-market gains and other favorable items, despite lower operating income and higher interest expense.
- Operating cash flow more than doubled, principally due to project cash-flow timing and improved collections.
- Capital spending increased substantially, with major investments supporting naval nuclear demand and medical radioisotope commercialization. Management expects elevated capital spending to begin declining in 2022 as projects near completion.
- Total backlog increased to $5.176 billion from $4.406 billion. Nuclear Operations Group backlog increased to $4.511 billion, while Nuclear Power Group backlog declined to $644 million.
- In October 2021, a BWXT joint venture received the Savannah River Integrated Mission Completion contract, with turnover expected in the first quarter of 2022.
- Beginning in the first quarter of 2022, BWXT planned to report Government Operations and Commercial Operations segments instead of the three 2021 segments.
Guidance, outlook, commentary and risks
Management expected 2022 revenue of approximately $1.573 billion from Nuclear Operations Group backlog and $260 million from Nuclear Power Group backlog, excluding new awards and change orders. The company expects continued demand for naval nuclear components based on the U.S. Navy’s long-range shipbuilding plans. Nuclear Power Group results remain dependent on maintenance outages, Canadian nuclear refurbishment activity, nuclear fuel demand and medical radioisotope commercialization.
At year-end, approximately $1.854 billion of backlog was expected to convert to 2022 revenue, $1.244 billion to 2023 revenue and $2.078 billion thereafter. Approximately $121.8 million of Nuclear Operations Group U.S. Government backlog had not yet been funded, and government options excluded from backlog totaled approximately $0.4 billion.
- Government dependence: appropriations, continuing resolutions, contract renewals, option exercises, audits and termination rights could delay or reduce revenue.
- Contract execution: substantial revenue is recognized over time using cost-to-cost estimates. Changes in labor productivity, steel prices, supplier performance, schedules or contract scope could materially affect margins and earnings. Net favorable contract estimate changes contributed $26.5 million to operating income in 2021, down from $42.8 million in 2020.
- COVID-19: facilities remained operational as essential businesses, but employee illness, labor issues, supply-chain disruption and delayed nuclear outages could continue to affect results. Canadian wage subsidies declined to $5.4 million from $20.4 million.
- Nuclear, environmental and regulatory exposure: environmental accruals totaled $102.4 million, and future remediation or decommissioning estimates could change materially. Price-Anderson indemnification protections are scheduled to expire on December 31, 2025 unless renewed.
- Pension risk: pension and postretirement plans were underfunded by approximately $57.3 million in aggregate at year-end, and results remain sensitive to discount rates, asset returns and actuarial assumptions.
- Other risks include cybersecurity, severe weather, single-source suppliers, labor availability, bonding capacity, joint-venture performance, fixed-price contracts and regulatory approvals for medical isotope technologies.
Most important facts for investors to verify
- Whether the reported increase in net income is sustainable, given the substantial contribution from pension mark-to-market gains and other unusual items.
- The conversion, funding and profitability of the $5.176 billion backlog, particularly the unfunded government backlog and options subject to appropriations.
- Whether Nuclear Operations Group margins recover from the 2021 decline and whether Nuclear Power Group capital projects generate expected commercial returns.
- The pace of capital expenditure reduction in 2022 and the effect on free cash flow after dividends, share repurchases, pension contributions and joint-venture funding.
- Leverage, interest-rate exposure and refinancing requirements, including the $400 million revolving facility maturity in 2025.
- Progress and regulatory approvals for medical radioisotope commercialization and the planned 2022 segment reorganization.
- Potential changes in contract estimates, environmental liabilities, pension obligations, government appropriations and COVID-19-related operating disruptions.