BWX Technologies, Inc. Form 10-K Summary
Business context and reporting period
BWXT is a specialty manufacturer and nuclear technology and services provider serving the U.S. Government, commercial nuclear utilities, Canadian nuclear customers, and medical radioisotope markets. Its three reportable segments are Nuclear Operations Group, Nuclear Power Group, and Nuclear Services Group. The filing covers the fiscal year ended December 31, 2020; quarterly data shows fourth-quarter revenue of $556.9 million and net income attributable to BWXT of $65.7 million.
The U.S. Government represented approximately 77% of consolidated revenue in 2020. BWXT had approximately 6,700 employees worldwide at year-end.
Financial performance and key metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $2,123.5 million | $1,894.9 million | Up 12.1% |
| Operating income | $358.6 million | $325.5 million | Up $33.0 million |
| Operating margin | 16.9% | 17.2% | Down approximately 30 bps |
| Income before taxes | $362.2 million | $313.7 million | Up $48.4 million |
| Net income attributable to BWXT | $278.7 million | $244.1 million | Up 14.2% |
| Diluted EPS | $2.91 | $2.55 | Up 14.1% |
| Net margin | 13.1% | 12.9% | Improved |
| Effective tax rate | 22.9% | 22.0% | Up 90 bps |
- Nuclear Operations Group revenue increased 15.2% to $1,646.3 million, while operating income increased 9.3% to $326.0 million. Margin declined to 19.8% from 20.9% as production expanded for the Columbia-Class nuclear propulsion system.
- Nuclear Power Group revenue increased 5.3% to $371.3 million, primarily from the Laker Energy Products acquisition and higher nuclear fuel and maintenance activity. Operating income declined 3.4% to $52.0 million, with margin falling to 14.0% from 15.3%.
- Nuclear Services Group revenue increased 3.9% to $136.5 million, while operating income increased 85.8% to $26.4 million. The improvement reflected advanced technology work and operating improvements before divestiture of the U.S.-based commercial nuclear services business.
- Other income was $3.6 million in 2020 versus an $11.8 million expense in 2019, primarily reflecting a favorable year-over-year pension and postretirement benefit adjustment.
- Net favorable contract estimate changes increased operating income by approximately $42.8 million in 2020, compared with $71.6 million in 2019.
Cash flow, capital spending, debt and liquidity
- Net cash provided by operating activities was $196.4 million, down from $279.4 million in 2019, primarily because of project cash-flow timing and a $98.3 million increase in accounts receivable.
- Capital expenditures were $255.0 million, up from $182.1 million, including substantial spending in the Nuclear Operations and Nuclear Power Groups. Property, plant and equipment increased to $816.5 million from $580.2 million.
- Net cash used in investing activities was $265.3 million, including $15.9 million for the Laker Energy Products acquisition.
- Cash, restricted cash and investments totaled $61.4 million at year-end, compared with $105.9 million in 2019. Working capital increased to $243.9 million from $225.0 million.
- Total gross debt was $875.0 million, consisting of $400.0 million of 5.375% senior notes due 2026, $400.0 million of 4.125% senior notes due 2028, and $75.0 million of revolving credit borrowings. Debt net of issuance costs was $862.7 million.
- The revolving credit facility was expanded to $750.0 million and extended to March 2025. Available borrowing and letter-of-credit capacity was $606.7 million at December 31, 2020. BWXT was in compliance with its credit facility and senior note covenants.
- Letters of credit outstanding were $68.3 million and surety bonds outstanding were $73.7 million. Management stated that liquidity was sufficient for operating requirements for at least the next 12 months.
- BWXT issued $400.0 million of 2028 senior notes and used the proceeds to repay the term loans and reduce revolving credit borrowings.
Backlog and material changes versus the prior period
| Backlog | December 31, 2020 | December 31, 2019 |
|---|---|---|
| Nuclear Operations Group | $3,659 million | $4,515 million |
| Nuclear Power Group | $726 million | $730 million |
| Nuclear Services Group | $21 million | $43 million |
| Total backlog | $4,406 million | $5,288 million |
- Total backlog declined 16.7%, primarily because of the Nuclear Operations Group reduction. Backlog included $3,248.7 million of Nuclear Operations Group U.S. Government work, of which $391.1 million was not yet funded.
- BWXT expects to recognize approximately $1,549 million of backlog revenue in 2021, $1,090 million in 2022, and $1,767 million thereafter.
- BWXT acquired Laker Energy Products on January 2, 2020 for approximately $17.8 million and added it to the Nuclear Power Group.
- On May 29, 2020, BWXT divested its U.S.-based commercial nuclear services business in a cashless exchange of approximately $18.0 million of net assets for a manufacturing facility and land of approximately equal value.
- COVID-19 caused delays in government bidding and contracting, rescheduling of Canadian nuclear outage services, and lower medical radioisotope demand. BWXT received $20.4 million of Canadian wage subsidies and deferred $21.4 million of U.S. payroll taxes.
- Capital expenditures increased substantially, particularly for anticipated growth in naval nuclear demand and Canadian operations.
- The company repurchased 338,521 shares for $22.0 million during 2020 and had approximately $143.4 million remaining under its repurchase authorization.
Guidance, outlook, commentary and risks
- Management expects 2021 revenue of approximately $1,221 million from existing Nuclear Operations Group backlog and $307 million from existing Nuclear Power Group backlog, excluding new awards and change orders.
- Management expects continued demand tied to the U.S. Navy’s anticipated fleet expansion, including additional submarines and aircraft carriers, but noted that the fiscal year 2022 budget could change under the new Administration.
- The Nuclear Power Group outlook remains dependent on nuclear plant maintenance outages, Canadian refurbishment programs, nuclear fuel demand, medical isotope demand, and the competitiveness of nuclear power.
- Management expects the Nuclear Services Group to benefit from government cleanup, facility-management, and advanced technology opportunities, although the segment’s activity remains dependent on federal funding and joint ventures.
- Revenue recognition relies heavily on cost-to-cost estimates for long-term contracts. Cost overruns, productivity changes, steel and other raw-material inflation, schedule delays, claims, liquidated damages, or revisions to estimates could materially affect future earnings.
- Government appropriations, contract renewals, option exercises, audits, terminations for convenience, sequestration, and changes in defense or DOE spending could reduce revenue, backlog, cash flow, or profitability.
- COVID-19 may continue to affect workforce availability, supply chains, customer demand, bidding and contracting timelines, Canadian nuclear outages, and medical procedures. The filing states that the future impact cannot be predicted reliably.
- Environmental and nuclear liabilities remain material judgment areas. Environmental accruals, including asset retirement obligations, were $91.3 million at year-end, and required decommissioning financial assurance totaled $61.8 million in the U.S. and $47.9 million in Canada.
- Underfunded pension and postretirement obligations totaled approximately $174.5 million. Future discount rates, asset returns, healthcare costs, and actuarial changes may create earnings volatility.
- Price-Anderson nuclear indemnification protections are scheduled to expire on December 31, 2025, subject to renewal. Insurance and indemnification may not cover all nuclear, environmental, cybersecurity, product liability, asbestos, or other losses.
Most important facts for investors to verify
- Whether the $3.659 billion Nuclear Operations Group backlog converts to revenue as projected and how much remains unfunded or subject to appropriations.
- Whether the significant 2020 capital investment produces expected capacity, revenue, and margin growth without execution or cost overruns.
- The sustainability of the 2020 earnings increase after considering the $20.4 million Canadian wage subsidy, favorable pension-related income, and contract estimate changes.
- Operating cash conversion, accounts receivable and contracts-in-progress growth, and the effect of project billing timing on liquidity.
- Leverage, refinancing requirements, and covenant headroom as the $75.0 million revolving borrowing matures in 2025 and the senior notes mature in 2026 and 2028.
- COVID-19 effects on medical radioisotope demand, Canadian outage services, government contracting schedules, and supply-chain continuity.
- Exposure to U.S. Government budget changes, contract termination or rebidding, environmental remediation costs, nuclear liability protections, pension assumptions, and joint-venture performance.
- The filing reports unqualified audit opinions and effective internal control over financial reporting as of December 31, 2020; investors should nevertheless review the critical audit matter concerning estimates of costs to complete long-term contracts.