BWX Technologies, Inc. 2021 Q2 Form 10-Q Summary
Business context and reporting period
BWXT filed its unaudited Form 10-Q for the quarter and six months ended June 30, 2021. The company operates through Nuclear Operations Group, Nuclear Power Group and Nuclear Services Group, with substantial exposure to U.S. government nuclear programs, commercial nuclear power, nuclear services and medical radioisotopes.
Key financial metrics
| Metric | Three months ended June 30, 2021 | Six months ended June 30, 2021 |
|---|---|---|
| Revenue | $505.1 million | $1,033.4 million |
| Operating income | $73.8 million | $156.2 million |
| Operating margin | 14.6% | 15.1% |
| Net income attributable to BWXT | $59.3 million | $129.1 million |
| Diluted EPS | $0.62 | $1.35 |
| Cash flow from operations | Not provided for the quarter | $158.3 million |
| Capital expenditures | Not provided for the quarter | $170.2 million |
- Cash and cash equivalents were $190.8 million at June 30, 2021; total cash, including restricted cash, was $196.5 million.
- Total debt was approximately $1.2 billion gross, consisting of $400.0 million classified as current and $800.0 million long-term, before deferred issuance costs.
- BWXT had no borrowings under its $750 million revolving credit facility and $720.5 million of borrowing and letter-of-credit capacity available, including $29.5 million of outstanding letters of credit.
- Backlog, measured as remaining performance obligations, was approximately $4.849 billion, including $4.133 billion in Nuclear Operations, $674 million in Nuclear Power and $42 million in Nuclear Services.
Material changes versus the prior comparable period
- Second-quarter revenue increased $0.6 million from $504.5 million in 2020, while six-month revenue declined $13.4 million, or 1.3%, from $1,046.7 million.
- Second-quarter operating income declined $8.7 million, or 10.5%, to $73.8 million. Six-month operating income declined $24.5 million, or 13.6%, to $156.2 million.
- Nuclear Operations revenue decreased $28.9 million in the quarter and $50.6 million year to date, primarily because of the timing of long-lead material procurement. Its operating margin fell to 18.1% in the quarter from 21.0%.
- Nuclear Power revenue increased $33.9 million in the quarter and $53.3 million year to date, driven by higher inspection, maintenance, modification, fuel-handling and parts activity. Its quarterly operating margin improved to 10.6% from 1.6%.
- Nuclear Services revenue declined $3.2 million in the quarter and $14.5 million year to date, partly reflecting completion of work and the 2020 divestiture of the U.S.-based commercial nuclear services business. Operating income nevertheless increased in both periods.
- Net cash from operations increased $2.7 million year to date, while capital spending increased $54.7 million to $170.2 million, resulting in net cash used in investing activities of $169.6 million.
- Financing cash flow was $159.4 million provided in the first six months, compared with $50.4 million used in 2020, primarily because of net debt issuance and repayment of the prior-year bank overdraft.
Guidance, outlook, risks and unusual items
- The filing does not provide specific quantitative earnings or revenue guidance. Management states that backlog may not predict future results because contracts may be canceled, modified or affected by government appropriations.
- Approximately $1.0 billion of unexercised U.S. government contract options were expected to be awarded in 2021, subject to annual Congressional appropriations. At June 30, 2021, $94.5 million of Nuclear Operations government backlog had not yet been funded.
- Management reported that COVID-19 impacts had subsided significantly but continued to pose risks from worker illness, quarantines, supply-chain disruptions and changes in demand. BWXT recognized $4.2 million of Canadian wage subsidies during the first six months.
- Contract accounting depends on estimates of costs and progress toward completion. Favorable contract estimate changes increased operating income by approximately $3.2 million in the quarter and $9.7 million year to date, compared with $11.4 million and $21.0 million, respectively, in the prior-year periods.
- On July 15, 2021, after quarter-end, BWXT redeemed its $400 million 5.375% senior notes due 2026 using cash and credit-facility borrowings. The transaction will produce a $10.8 million early-redemption premium and a $4.2 million write-off of deferred financing costs in the third quarter.
- BWXT had approximately $111.2 million of outstanding surety bonds and approximately $151.3 million of underfunded pension and postretirement obligations. It expected approximately $3.1 million of benefit-plan contributions during the remainder of 2021.
- The company stated that there were no material contingencies during the period, was in compliance with its debt covenants, and believed liquidity was sufficient for at least the next 12 months.
Important facts for investors to verify
- Whether Nuclear Operations revenue and margins recover as long-lead material procurement timing normalizes.
- The timing and Congressional funding of the approximately $1.0 billion of expected 2021 contract-option awards.
- The third-quarter impact of the July 2021 debt redemption premium and deferred financing-cost write-off.
- Whether elevated capital expenditures and contract assets, including $530.9 million of contracts in progress, convert into expected cash flows.
- The sustainability of Nuclear Power Group improvement, including the effect of Canadian wage subsidies and returning medical-radioisotope demand.
- Potential changes in COVID-19 effects, supply-chain conditions, labor availability, fixed-price contract costs and government appropriations.