BWX Technologies, Inc. — Form 10-Q Summary
Business context and reporting period
BWXT filed an unaudited Form 10-Q for the quarter and nine months ended September 30, 2020. The company operates through Nuclear Operations Group, Nuclear Power Group and Nuclear Services Group, serving U.S. government, commercial nuclear, Canadian and medical radioisotope markets.
Financial performance and key metrics
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Revenue | $519.9 million | $506.0 million | $1,566.6 million | $1,393.7 million |
| Operating income | $88.8 million | $98.5 million | $269.5 million | $242.6 million |
| Net income attributable to BWXT | $73.2 million | $74.8 million | $212.9 million | $182.7 million |
| Diluted EPS | $0.76 | $0.78 | $2.22 | $1.91 |
| Operating margin | 17.1% | 19.5% | 17.2% | 17.4% |
| Net margin attributable to BWXT | 14.1% | 14.8% | 13.6% | 13.1% |
For the quarter, revenue increased 2.7%, while operating income declined 9.8%. For the nine-month period, revenue increased 12.4% and operating income increased 11.1%. The nine-month effective tax rate was 22.3%, compared with 22.1% in the prior year; the quarterly rate was 20.3%.
Nine-month operating cash flow was $148.1 million, compared with $91.0 million in 2019. Capital expenditures were $180.0 million, up from $122.6 million, and investing cash use was $193.6 million. Total cash, including restricted cash, was $50.6 million at September 30, 2020, compared with $92.4 million at December 31, 2019.
Long-term debt was $902.2 million, compared with $809.4 million at year-end 2019. Gross debt consisted of $800.0 million of senior notes and $115.0 million drawn under the revolving credit facility, net of $12.8 million of deferred issuance costs. The company had $568.9 million of availability under its $750.0 million revolving facility and was in compliance with its debt covenants.
Material changes versus the prior comparable period
- Nuclear Operations Group: Nine-month revenue rose $162.9 million, driven by increased Columbia-Class production, U.S. government component volume and naval fuel and downblending activity. Third-quarter revenue declined $8.0 million and operating income declined $25.2 million, partly because the prior-year period benefited from higher favorable contract adjustments.
- Nuclear Power Group: Third-quarter revenue increased $23.7 million and operating income increased $20.2 million. Results benefited from the Laker Energy Products acquisition, higher inspection and maintenance activity, and $16.6 million of Canadian wage subsidies. Medical radioisotope demand declined because of fewer elective diagnostic procedures.
- Nuclear Services Group: Nine-month revenue increased $11.6 million and operating income increased $9.5 million, primarily from advanced-technology design and engineering work and improvement in the U.S. commercial nuclear services business before its divestiture.
- Corporate costs: Unallocated corporate expense increased $8.0 million in the quarter and $6.4 million year to date, including a $2.6 million reserve related to a prior-year franchise tax audit, higher incentive compensation and other professional costs.
- Backlog: Total backlog declined to approximately $4.365 billion at September 30, 2020 from $5.288 billion at December 31, 2019. Nuclear Operations Group backlog was $3.610 billion, including $394.2 million of unfunded U.S. government backlog.
Guidance, outlook, risks and unusual items
The filing does not provide a specific quantitative full-year earnings or revenue guidance range. Management stated that it believes available cash, borrowing capacity and letter-of-credit capacity are sufficient to fund operations for at least the next 12 months.
Remaining performance obligations were approximately $4.365 billion, with $517 million expected to be recognized in 2020, $1.379 billion in 2021 and $2.469 billion thereafter. Approximately $1.0 billion of U.S. government contract options remained outside backlog and were expected to be exercised through 2025, subject to annual appropriations.
- COVID-19 caused localized workforce and operating challenges, delays in U.S. government bidding and contracting, rescheduled nuclear plant outage services and lower medical radioisotope demand. Further disruption to labor, suppliers, customers or government operations could materially affect results.
- The $16.6 million Canadian Emergency Wage Subsidy reduced operating expenses. The Canadian government may audit or disallow the subsidy, which could adversely affect earnings and cash flow.
- Revenue recognized over time depends on estimates of total contract costs. Fixed-price contracts expose BWXT to potential cost overruns, productivity changes and material-price volatility. Favorable contract estimate adjustments increased operating income by $28.8 million in the first nine months of 2020.
- BWXT completed the acquisition of Laker Energy Products for $15.9 million and completed a cashless exchange involving its U.S.-based commercial nuclear services business.
- The company had approximately $176.0 million of underfunded pension and postretirement obligations and expected approximately $4.4 million of contributions during the remainder of 2020.
- Outstanding surety bonds totaled approximately $73.4 million. The filing reported no material contingencies for the period.
Most important facts for investors to verify
- Whether COVID-19 effects on medical radioisotopes, nuclear outage services, staffing and government contracting persist or intensify.
- Whether backlog conversion and U.S. government appropriations support the expected $4.365 billion of remaining performance obligations.
- The sustainability of margins after the $16.6 million CEWS benefit and the effect of contract estimate adjustments.
- Execution of the increased capital program and its effect on free cash flow, given $180.0 million of capital expenditures versus $148.1 million of operating cash flow year to date.
- Debt repayment capacity, covenant compliance and refinancing requirements, including $115.0 million due in 2025, $400.0 million of notes due in 2026 and $400.0 million of notes due in 2028.
- Potential audits or repayment obligations associated with government assistance and the company’s exposure to pension, environmental, surety and fixed-price contract obligations.