BWX Technologies Reports Third Quarter 2018 Results

BWX Technologies, Inc. (NYSE: BWXT) (BWXT, we, us or the Company) reported third quarter 2018 revenue of $426 million, a 1.5% increase compared to $419 million in the third quarter of 2017. GAAP net income for the third quarter 2018 was $77.9 million, or $0.78 per diluted share, compared to net income of $46.6 million, or $0.46 per diluted share, in the prior-year quarter. Non-GAAP net income for the third quarter 2018 was $40.1 million, or $0.40 per diluted share. A reconciliation of non-GAAP results is detailed in Exhibit 1.

We continue to exhibit top-line strength while building backlog, said Rex D. Geveden, president and chief executive officer. Third quarter results were negatively impacted by a reserve on missile tubes and increased interest expense; however, our long-term outlook remains unchanged. We have updated our 2018 guidance and continue to reiterate our low double-digit EPS CAGR based on our superior competitive positioning, robust organic growth opportunities, and balance sheet capacity.

We made substantial progress during the quarter on the missile tube welding issue. The problem is fully characterized, and the required remediations are understood. Accordingly, we have taken a charge in the third quarter to account for those items. Excluding this charge, third quarter NOG margins would have been 21.7%, or about 120 basis points higher than the third quarter of 2017.

Third Quarter 2018 Segment Results Nuclear Operations Group (NOG) segment revenue was $319 million for the third quarter of 2018, a 1.6% decrease from the prior-year period driven primarily by lower missile tube revenue partially offset by an increase in naval nuclear fuel and downblending services. NOG operating income was $45.6 million in the third quarter of 2018, down 31% compared with the prior-year period primarily driven by a $26.7 million charge for re-work related to missile tubes. Third quarter 2018 segment operating margin was 14.3%.

Nuclear Power Group (NPG) segment revenue was $79.2 million for the third quarter of 2018, a 15.4% increase from the prior-year period driven by an increase in field services, fuel manufacturing and the medical radioisotope acquisition. NPG operating income was $9.1 million in the third quarter of 2018, a 7.6% increase from the prior-year period. Third quarter 2018 segment operating margin was 11.4%.

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Nuclear Services Group (NSG) segment operating income was $6.5 million for the third quarter of 2018 compared with $0.8 million for third quarter of 2017, primarily driven by an increase in operational performance, lower costs and new contract starts.

Liquidity and Debt The Company utilized cash in operating activities of $25.8 million in the third quarter of 2018, inclusive of $118.1 million of voluntary pension contributions, compared with cash generated from operating activities of $80.7 million in the prior-year period. At the end of the third quarter 2018, the Companys cash and short-term investments position, net of restricted cash, was $68.9 million.

As of September 30, 2018, the Company had gross debt of $781.2 million and $67.7 million in letters of credit issued under the Companys revolving credit facility. Gross debt included $400.0 million in senior notes, $291.2 million in term loans and $90.0 million in borrowings under the Companys revolving credit facility. As a result, the Company had $342.3 million in remaining availability under its revolving credit facility.

Capital Deployment The Company returned $79 million to shareholders during the third quarter 2018, including $63 million in share repurchases and $16 million in dividends. On November 6, 2018, our Board of Directors declared a quarterly cash dividend of $0.16 per common share. The dividend will be payable on December 13, 2018, to shareholders of record on November 20, 2018. The Board of Directors also approved a $250 million share repurchase authorization, resulting in a total available share repurchase authorization of $337 million.

2018 Guidance BWXT revised its guidance for 2018:

  • Total Company revenue is now expected to be approximately $1.8 billion
  • Non-GAAP EPS is now expected to be in a range of $2.23 to $2.27 (excluding mark-to-market of pension and post-retirement benefits)
  • NOG revenue is now expected to be approximately $1.3 billion with operating margin in the high teens inclusive of CAS pension reimbursements and missile tube reserves
  • NPG revenue is now expected to be approximately $370 million with operating margin of approximately 14%
  • Non-GAAP effective tax rate is now expected in a range of 22% to 23%

BWXT reiterated the following guidance for 2018:

  • NSG operating income of approximately $20 million
  • Research and development costs of approximately $15 million
  • Corporate unallocated costs of approximately $20 million
  • Other income primarily related to pension and other post-employment benefits of $30 to $35 million
  • Capital expenditures of approximately $150 million, primarily to support growth in Navy business
  • Depreciation and amortization of approximately $60 million

Long-term Guidance BWXT reiterated long-term guidance that, beyond 2017, and excluding the benefit of tax reform, the Company anticipates an EPS Compound Annual Growth Rate (CAGR) in the low-double digits over a three to five year period based on a robust organic growth strategy and balance sheet capacity.

Conference Call to Discuss Third Quarter 2018 Results

Date:

Wednesday, November 7, 2018, at 8:30 a.m. EST

Live Webcast:

Investor Relations section of website at www.bwxt.com

Forward-Looking Statements BWXT cautions that this release contains forward-looking statements, including, without limitation, statements relating to backlog, to the extent they may be viewed as an indicator of future revenues; the anticipated benefits of our acquisition of Nordions medical isotope business; timing of future revenues from the acquisition of Nordions medical isotope business and new medical radioisotope business; the timing and impact of the missile tube welding issue; our plans and expectations for the NOG, NPG and NSG segments; and our 2018 guidance and long-term guidance. These forward-looking statements are based on managements current expectations and involve a number of risks and uncertainties, including, among other things, our ability to execute contracts in backlog; the lack of, or adverse changes in, Federal appropriations to government programs in which we participate; the demand for and competitiveness of nuclear power; capital priorities of power generating utilities; adverse changes in the industries in which we operate and delays, changes or termination of contracts in backlog. If one or more of these risks or other risks materialize, actual results may vary materially from those expressed. For a more complete discussion of these and other risk factors, see BWXTs filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2017 and subsequent quarterly reports on Form 10-Q. BWXT cautions not to place undue reliance on these forward-looking statements, which speak only as of the date of this release, and undertakes no obligation to update or revise any forward-looking statement, except to the extent required by applicable law.

About BWXT Headquartered in Lynchburg, Va., BWX Technologies, Inc. (NYSE:BWXT) is a leading supplier of nuclear components and fuel to the U.S. government; provides technical and management services to support the U.S. government in the operation of complex facilities and environmental remediation activities; and supplies precision manufactured components, services and fuel for the commercial nuclear power industry. With approximately 6,250 employees, BWXT has eleven major operating sites in the U.S. and Canada. In addition, BWXT joint ventures provide management and operations at more than a dozen U.S. Department of Energy and two NASA facilities. Follow us on Twitter @BWXTech and learn more at www.bwxt.com.

EXHIBIT 1

BWX TECHNOLOGIES, INC.

RECONCILIATION OF NON-GAAP OPERATING INCOME AND EARNINGS PER SHARE(1)(2)(3)

(In millions, except per share amounts)

Three Months Ended September 30, 2018
GAAP

Pension & OPEB MTM (Gain) / Loss

Acquisition Related Costs

Loss on Forward Contracts

One-time Tax Benefit

Missile tube reserve

Non- GAAP

Operating Income$50.4$$0.9$$$51.3
Other Income (Expense)34.2(35.1)1.30.3
Provision for Income Taxes(6.5)8.1(0.2)(0.3)(12.5)(11.3)
Net Income78.1(27.0)0.71.0(12.5)40.3
Net Income Attributable to Noncontrolling Interest(0.2)(0.2)
Net Income Attributable to BWXT$77.9$(27.0)$0.7$1.0$(12.5)$40.1
Diluted Shares Outstanding100.4100.4
Diluted Earnings per Common Share$0.78$(0.27)$0.01$0.01$(0.12)$0.40
Effective Tax Rate7.7%22.0%
NOG segment margins(4)14.3%7.4%21.7%
Three Months Ended September 30, 2017

GAAP

Non- GAAP

Operating Income$66.8$66.8
Other Income (Expense)3.83.8
Provision for Income Taxes(23.9)(23.9)
Net Income46.746.7
Net Income Attributable to Noncontrolling Interest(0.1)(0.1)
Net Income Attributable to BWXT$46.6$46.6
Diluted Shares Outstanding100.3100.3
Diluted Earnings per Common Share$0.46$0.46
Effective Tax Rate33.9%33.9%
(1)Tables may not foot due to rounding.
(2)BWXT is providing non-GAAP information regarding certain of its historical results and guidance on future earnings per share to supplement the results provided in accordance with GAAP and it should not be considered superior to, or as a substitute for, the comparable GAAP measures. BWXT believes the non-GAAP measures provide meaningful insight and transparency into the Companys operational performance and provides these measures to investors to help facilitate comparisons of operating results with prior periods and to assist them in understanding BWXTs ongoing operations.
(3)BWXT has not included a reconciliation of provided non-GAAP guidance to the comparable GAAP measures due to the difficulty of estimating any mark-to-market adjustments for pension and post-retirement benefits, which are determined at the end of the year.
(4)

Additional information about the missile tube reserve impact to Revenue, Operating Income and Operating Margin for 3Q and YTD can be found in our most recent Investor Briefing on the BWXT website at www.bwxt.com/investors.

EXHIBIT 1 (continued)

BWX TECHNOLOGIES, INC.

RECONCILIATION OF NON-GAAP OPERATING INCOME AND EARNINGS PER SHARE(1)(2)(3)

(In millions, except per share amounts)

Nine Months Ended September 30, 2018
GAAP

Pension & OPEB MTM (Gain) / Loss

Acquisition Related Costs

Recognition of Debt Issuance Costs from Former Credit Facility

Gain on Forward Contracts

One-Time Tax Benefit

Non- GAAP

Operating Income$201.8$$2.5$$$204.3
Other Income (Expense)47.0(35.1)2.4(4.7)9.5
Provision for Income Taxes(43.6)8.1(0.6)(0.6)1.2(12.5)(47.9)
Net Income205.2(27.0)1.91.8(3.5)(12.5)166.0
Net Income Attributable to Noncontrolling Interest(0.2)(0.2)
Net Income Attributable to BWXT$205.0$(27.0)$1.9$1.8$(3.5)$(12.5)$165.8
Diluted Shares Outstanding100.5100.5
Diluted Earnings per Common Share$2.04$(0.27)$0.02$0.02$(0.03)$0.12$1.65
Effective Tax Rate17.5%22.4%
Nine Months Ended September 30, 2017
GAAP

Framework Agreement & Litigation

Impairment (Gains) / Charges

Non- GAAP

Operating Income$228.5$(7.9)$$220.6
Other Income (Expense)11.0

(0.4

)

10.6
Provision for Income Taxes(75.6)2.80.0(72.7)
Net Income163.9(5.1)

(0.4

)

158.4
Net Income Attributable to Noncontrolling Interest(0.4)(0.4)
Net Income Attributable to BWXT$163.5$(5.1)

$

(0.4

)

$158.1
Diluted Shares Outstanding100.4100.4
Diluted Earnings per Common Share$1.63$(0.05)

$

(0.00

)

$1.57
Effective Tax Rate31.6%31.5%
(1)Tables may not foot due to rounding.
(2)BWXT is providing non-GAAP information regarding certain of its historical results and guidance on future earnings per share to supplement the results provided in accordance with GAAP and it should not be considered superior to, or as a substitute for, the comparable GAAP measures. BWXT believes the non-GAAP measures provide meaningful insight and transparency into the Companys operational performance and provides these measures to investors to help facilitate comparisons of operating results with prior periods and to assist them in understanding BWXTs ongoing operations.
(3)BWXT has not included a reconciliation of provided non-GAAP guidance to the comparable GAAP measures due to the difficulty of estimating any mark-to-market adjustments for pension and post-retirement benefits, which are determined at the end of the year.

BWX TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

September 30, 2018December 31, 2017

(Unaudited) (In thousands)

Current Assets:
Cash and cash equivalents$66,125$203,404
Restricted cash and cash equivalents4,3597,105
Investments2,7322,934
Accounts receivable “ trade, net194,575189,217
Accounts receivable “ other46,18319,365
Contracts in progress326,355420,628
Other current assets44,52830,437
Total Current Assets684,857873,090
Property, Plant and Equipment1,073,8931,013,141
Less accumulated depreciation684,530664,512
Net Property, Plant and Equipment389,363348,629
Investments8,6049,301
Goodwill278,939218,331
Deferred Income Taxes45,10586,740
Investments in Unconsolidated Affiliates62,16043,266
Intangible Assets240,081110,405
Other Assets26,59522,577
TOTAL$1,735,704$1,712,339

BWX TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS EQUITY

September 30, 2018

December 31, 2017

(Unaudited) (In thousands, except share and per share amounts)

Current Liabilities:
Current maturities of long-term debt$14,745$27,870
Accounts payable100,00493,421
Accrued employee benefits74,39882,477
Accrued liabilities “ other53,50864,738
Advance billings on contracts104,646246,192
Accrued warranty expense12,42613,428
Total Current Liabilities359,727528,126
Long-Term Debt756,492481,059
Accumulated Postretirement Benefit Obligation20,11121,368
Environmental Liabilities89,42979,786
Pension Liability102,093296,444
Other Liabilities15,35119,799
Commitments and Contingencies

Stockholders Equity:

Common stock, par value $0.01 per share, authorized 325,000,000 shares; issued 125,796,671 and 125,381,591 shares at September 30, 2018 and December 31, 2017, respectively1,2581,254
Preferred stock, par value $0.01 per share, authorized 75,000,000 shares; No shares issued
Capital in excess of par value112,30098,843
Retained earnings1,159,552990,652
Treasury stock at cost, 27,070,536 and 25,964,088 shares at September 30, 2018 and December 31, 2017, respectively(884,200)(814,809)
Accumulated other comprehensive income3,5429,454

Stockholders Equity “ BWX Technologies, Inc.

392,452285,394
Noncontrolling interest49363

Total Stockholders Equity

392,501285,757
TOTAL$1,735,704$1,712,339

BWX TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended September 30,Nine Months Ended September 30,
2018201720182017

(Unaudited) (In thousands, except share and per share amounts)

Revenues$425,507$419,360$1,321,891$1,257,600
Costs and Expenses:
Cost of operations326,314302,267971,887883,839
Research and development costs3,9592,59711,6735,268
Losses (gains) on asset disposals and impairments, net243(2)(2)(33)
Selling, general and administrative expenses53,91951,351159,199150,881
Total Costs and Expenses384,435356,2131,142,7571,039,955
Equity in Income of Investees9,3233,63022,69810,832
Operating Income50,39566,777201,832228,477
Other Income (Expense):
Interest income1,1214022,340750
Interest expense(7,925)(3,837)(19,354)(11,260)
Other “ net40,9687,25263,98421,487
Total Other Income (Expense)34,1643,81746,97010,977
Income before Provision for Income Taxes84,55970,594248,802239,454
Provision for Income Taxes6,48223,90143,57875,556
Net Income$78,077$46,693$205,224$163,898
Net Income Attributable to Noncontrolling Interest(158)(140)(201)(364)
Net Income Attributable to BWX Technologies, Inc.$77,919$46,553$205,023$163,534
Earnings per Common Share:
Basic:
Net Income Attributable to BWX Technologies, Inc.$0.78$0.47$2.06$1.65
Diluted:
Net Income Attributable to BWX Technologies, Inc.$0.78$0.46$2.04$1.63
Shares used in the computation of earnings per share:
Basic99,421,03199,328,67799,542,93399,313,264
Diluted100,420,766100,260,255100,501,597100,367,383

BWX TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,
20182017

(Unaudited) (In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income$205,224$163,898
Non-cash items included in net income from continuing operations:
Depreciation and amortization43,69242,135
Income of investees, net of dividends(8,471)731
Gains on asset disposals and impairments, net(2)(33)
Gain on forward contracts(4,743)
Recognition of debt issuance costs from Former Credit Facility2,441
Provision for deferred taxes38,68517,501
Recognition of (gains) losses for pension and postretirement plans(33,699)1,320
Stock-based compensation expense8,5199,879
Changes in assets and liabilities:
Accounts receivable3,384(17,748)
Accounts payable2,061(10,978)
Contracts in progress and advance billings on contracts(35,049)(2,963)
Income taxes(46,511)21,587
Accrued and other current liabilities3,344(33,736)
Pension liability, accrued postretirement benefit obligation and employee benefits(184,898)(47,109)
Other, net(2,418)345
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES(8,441)144,829
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment(60,488)(49,361)
Acquisition of business(212,993)
Purchases of securities(3,111)(3,237)
Sales and maturities of securities3,37812,406
Investments, net of return of capital, in equity method investees(9,037)2,142
Proceeds from asset disposals499142
Other, net4,743(24)
NET CASH USED IN INVESTING ACTIVITIES(277,009)(37,932)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt901,30073,600
Repayments of long-term debt(624,987)(94,320)
Payment of debt issuance costs(9,443)
Repurchase of common shares(62,558)
Dividends paid to common shareholders(48,014)(31,072)
Exercise of stock options3,51116,019
Cash paid for shares withheld to satisfy employee taxes(5,402)(7,389)
Other(515)(415)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES153,892(43,577)
EFFECTS OF EXCHANGE RATE CHANGES ON CASH(8,464)15,290
TOTAL (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS(140,022)78,610
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD213,144134,600
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS AT END OF PERIOD$73,122$213,210
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest$13,325$10,762
Income taxes (net of refunds)$51,779$36,425
SCHEDULE OF NON-CASH INVESTING ACTIVITY:
Accrued capital expenditures included in accounts payable$13,457$7,680

BWX TECHNOLOGIES, INC.

BUSINESS SEGMENT INFORMATION

Three Months Ended September 30,Nine Months Ended September 30,
2018201720182017

(Unaudited) (In thousands)

REVENUES:

Nuclear Operations Group$319,325$324,545$968,096$962,492
Nuclear Services Group28,36627,50790,995100,146
Nuclear Power Group79,16268,621267,675200,864
Adjustments and Eliminations(1,346)(1,313)(4,875)(5,902)
TOTAL$425,507$419,360$1,321,891$1,257,600

SEGMENT INCOME:

Nuclear Operations Group$45,580$66,459$180,283$203,503
Nuclear Services Group6,49477611,18216,577
Nuclear Power Group9,0638,42638,63727,094
Other(5,142)(2,255)(13,542)(4,937)
SUBTOTAL55,99573,406216,560242,237
Unallocated Corporate(5,600)(6,629)(14,728)(13,760)
TOTAL$50,395$66,777$201,832$228,477

DEPRECIATION AND AMORTIZATION:

Nuclear Operations Group$8,102$7,706$24,004$23,261
Nuclear Services Group7929142,6002,788
Nuclear Power Group4,6153,43611,69410,243
Other
Corporate1,7631,8805,3945,843
TOTAL$15,272$13,936$43,692$42,135

CAPITAL EXPENDITURES:

Nuclear Operations Group$22,047$18,851$50,471$43,090
Nuclear Services Group71178306489
Nuclear Power Group5951,0472,3173,235
Other2861,340
Corporate3,5295386,0542,547
TOTAL$26,528$20,614$60,488$49,361

BWX TECHNOLOGIES, INC.

BUSINESS SEGMENT INFORMATION

Three Months Ended September 30,Nine Months Ended September 30,
2018201720182017

(Unaudited) (In thousands)

BACKLOG:

Nuclear Operations Group$2,939,464$2,970,088$2,939,464$2,970,088
Nuclear Services Group26,21137,52026,21137,520
Nuclear Power Group868,258527,708868,258527,708
TOTAL$3,833,933$3,535,316$3,833,933$3,535,316

BOOKINGS:

Nuclear Operations Group$571,762$32,272$646,698$446,771
Nuclear Services Group10,78643,00486,109108,295
Nuclear Power Group56,800115,718502,085255,070
TOTAL$639,348$190,994$1,234,892$810,136

BWX Technologies, Inc.
Investor Contact:
Alan Nethery,
980-365-4300
Vice President and Chief Investor Relations Officer
[email protected]
or
Media
Contact:
Jud Simmons, 434-522-6462
Director, Media and Public
Relations
[email protected]