BWX Technologies, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2019; filed November 4, 2019. BWXT operates through Nuclear Operations Group, Nuclear Power Group and Nuclear Services Group, serving U.S. government, commercial nuclear and medical-isotope markets.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Revenue | $506.0 million | $425.5 million | $1,393.7 million | $1,321.9 million |
| Operating income | $98.5 million | $50.4 million | $242.6 million | $201.8 million |
| Operating margin | 19.5% | 11.8% | 17.4% | 15.3% |
| Net income attributable to BWXT | $74.8 million | $77.9 million | $182.7 million | $205.0 million |
| Diluted EPS | $0.78 | $0.78 | $1.91 | $2.04 |
- Q3 revenue increased 18.9%; nine-month revenue increased 5.4%. Q3 operating income rose 95.4%, while nine-month operating income rose 20.2%.
- Net income attributable to BWXT declined 4.0% in Q3 and 10.9% year to date. Net margin was approximately 14.8% in Q3 and 13.1% for nine months, compared with 18.3% and 15.5%, respectively, in the prior-year periods.
- Nuclear Operations Group revenue increased 23.5% in Q3 and 9.2% year to date; operating income increased $48.1 million and $46.2 million, respectively. Its operating margin improved to 23.7% in Q3 and 21.4% year to date.
- Nuclear Power Group revenue increased 6.6% in Q3 but declined 4.6% year to date; nine-month operating income declined $2.2 million. Nuclear Services Group revenue increased 17.2% in Q3 and 1.3% year to date, while operating income declined in both periods.
- Net cash provided by operating activities was $91.0 million for the first nine months, compared with cash used of $8.4 million in 2018. Capital expenditures were $122.6 million, up from $60.5 million.
- Cash and cash equivalents were $13.6 million at September 30, 2019; total cash, including restricted cash, was $20.0 million. Working capital was $287.7 million, up from $165.1 million at December 31, 2018.
- Debt included $849.6 million of long-term debt and $14.5 million of current maturities. Credit Facility borrowings were $472.5 million, comprising $272.5 million of term loans and $200.0 million drawn on the revolver. $236.0 million remained available for borrowings or letters of credit.
- Backlog increased to $4.22 billion from $3.48 billion at December 31, 2018. Approximately $474 million was expected to be recognized in 2019, $1.277 billion in 2020 and $2.469 billion thereafter.
Material changes versus the prior comparable period
- The principal earnings improvement came from Nuclear Operations Group activity on U.S. government nuclear-component programs and the absence of the prior-year $26.7 million Q3 and $29.2 million nine-month unfavorable contract adjustments related to rework on non-nuclear components.
- Q3 2019 other expense was $4.0 million versus $34.2 million of other income in Q3 2018; nine-month other expense was $7.5 million versus $47.0 million of income. The prior year included a $35.1 million pension remeasurement gain and favorable benefit-plan items.
- Interest expense increased to $27.1 million for the first nine months from $19.4 million, reflecting higher debt levels.
- Operating cash flow improved largely because 2018 included $157.9 million of pension and postretirement contributions, including an accelerated $118.1 million contribution; 2019 contributions were substantially lower.
- Capital spending increased by $62.1 million year to date. The 2018 comparison also included the $213.0 million acquisition of the Nordion medical-isotope business, which was completed in July 2018.
- On January 1, 2019, BWXT adopted the new lease standard, recognizing $45.1 million of right-of-use assets and $11.9 million of lease liabilities; the adoption did not affect income or cash flow.
Guidance, outlook, risks and unusual items
- The filing does not provide explicit quantitative full-year revenue or earnings guidance. Management stated that cash generated from operations or additional debt or equity could fund growth opportunities.
- Management cited strong U.S. government demand and a March 2019 nuclear-component and fuel award exceeding $2.1 billion, including options. Approximately $1.5 billion had entered backlog by September 30, 2019; roughly $0.6 billion of options remained outside backlog and was expected to be exercised primarily in 2020, subject to Congressional appropriations.
- A September 2019 long-lead-materials award was valued at $806.0 million including options; approximately $75.0 million entered backlog in Q3, with six annual options through 2025 subject to appropriations.
- Key risks include U.S. government budget and appropriations cycles, cancellation or modification of backlog, cost overruns on fixed-price and fixed-price incentive contracts, labor productivity and raw-material cost changes, project guarantees, nuclear industry demand and outage timing, and execution of medical-isotope and advanced-nuclear initiatives.
- Remaining contract cost estimates may change materially. Q3 and nine-month 2019 net contract estimate changes increased operating income by approximately $24.9 million and $48.6 million, respectively.
- Unfunded pension and postretirement obligations totaled $185.4 million; approximately $3.1 million of contributions were expected for the remainder of 2019. Outstanding surety bonds totaled approximately $73.2 million.
- The company reported no material contingencies during the period, no material change in previously disclosed risk factors, and compliance with its Credit Facility and senior-note covenants at September 30, 2019. Management believed liquidity was sufficient for at least the next 12 months.
Most important facts for investors to verify
- Whether Nuclear Operations Group contract volume and margins remain sustainable after the favorable comparison to 2018 rework charges.
- The timing and Congressional funding of the approximately $0.6 billion of unexercised options and other U.S. government backlog.
- Progress on converting the $4.22 billion backlog into billings and cash, particularly the $399.0 million of contracts in progress and $70.3 million of retainages at quarter-end.
- Capital-spending requirements, revolver utilization, debt reduction plans and compliance with leverage and interest-coverage covenants.
- Execution, profitability and cash generation of the Nordion medical-isotope business and other Nuclear Power Group initiatives.
- The sensitivity of results to contract-cost estimates, pension funding requirements, appropriations, nuclear-industry demand and raw-material or labor costs.