Q1 2020 Earnings Call
Ladies and gentlemen, welcome to be Wx technologies first quarter earnings conference call.
At this time, all participants trying to let alone.
Oh your company's prepared remarks for couldn't talk to that question answer session and instructions will be able to stop.
I'd now like to turn the call over to our host Mr. Mark Congrats.
W. executes director of Investor Relations. Please go ahead.
Thanks Grant.
Good morning, and thank you for joining BW piece first quarter 2020 earnings call. Joining me today, our Rex Jackson, President and Chief Executive Officer, David Blackman, Senior Vice President and Chief Financial Officer.
On today's call, we will discuss certain matters that constitute forward looking statements involve risks and uncertainties.
Including those described in the Safe Harbor provision found in yesterday's earnings release, and BW X T SEC filings.
We will also provide non-GAAP financial measures, which are reconciled to GAAP measures in the quarterly materials copies of these documents along with today's earnings presentation are available on the Investor section of our website.
With that I will turn the call over to Rex. Thank you Mark and good morning.
Yesterday, we reported exceptional first quarter results. Despite a generally challenging business environment, resulting from the cobot 19 health crisis.
Consolidated revenues were up 30% with all three segments growing.
And earnings were 79 cents per share BOCC setting new quarterly records for BW X T. First quarter outperformance was led by the nuclear operations group achieved through the Columbia class product line ramp a combined with solid operating performance.
And recognition of contract savings as well as accelerated long lead material production originally anticipated in the second quarter. This year.
Well, we're well placed with the first quarter results, we remain acutely focused.
On protecting employee health and safety data is our top priority as we navigate through the Corona virus crisis.
And the first quarter, we created a pandemic planning and response team to address the covert 19 threat.
We updated policies procedures in practice is required to respond to all aspects of the health crisis. Examples include temperature screenings that factory entry points.
You have to staggering and teleworking where possible.
Based on C.D.C. guidance, we also provide employees with faced coverings to where at work and we continue to require social distancing where possible.
It is worth noting that our employees have been remarkably resilient in adapting to very significant changes in how we do business.
We have experienced a limited number of Corona virus cases at some BW X T sites. The protocol that we established for responding to these cases are quite thorough.
So far appears to be effective in minimizing the impact to other employees and the business.
As the situation continues to evolve we will evaluate modify and update our practices frequently to maintain a high level of effectiveness across all be of U.S.T. locations.
As you May know the U.S. federal government inappropriate Canadian provincial governments have designated the various businesses.
TWX t. as essential.
Given our roles and National Security energy production and medical manufacturing all 12 of our major operating sites are running more or less normally at this time, having said that we have experienced grown up Irish related business and packs and I wanted to offer some details at the business segment level.
As I stated earlier the nuclear operations group is off to a strong start to the year Cobot 19 impacts have been limited and this segment with no notable disruptions to the business to date.
We continue to hire and ramp as we entered the first full calendar year of Columbia class production and our gearing up for incremental growth on the Ford carrier work that we secured like last year.
On the budget front, the house and Senate Armed Services Committee.
Are slated to provide their markups to the President's budget request in the coming month, and we're seeing incremental bipartisan support for a second Virginia class submarine.
And the F. wide 21 budget discussions.
We continue to work with the Navy customer on the next multiyear pricing agreement and we are providing pricing information for both wanted to Virginia class propulsion systems and government fiscal year 21. However, we still anticipate and are planning for the next multiyear pricing agreement to encompass two years government fiscal year 21.
22 and to contain content for for Virginia class fast attack submarines and the next Columbia class ballistic missile summary.
We may see a scenario, where where the second Virginia class submarine whole is not ordered but the nuclear propulsion equipment for a second submarine is still ordered with advanced procurement funding. This would enable to government to keep shop hours balanced and take advantage of cost efficiencies through optimize production volume for these key systems that BW X T.
Provides for the Navy's nuclear fleet.
[noise] the nuclear power group segment has experienced the largest impact from the covert 19 pandemic Canadian utility customers are managing on site work differently to limit personnel exposure and have opted to delay some upcoming refurbishment and service outage activities until conditions improve.
Additionally, we are seeing weaker demand for current medical radio isotope products as hospitals prioritize resources for code 90 patients.
Well most isotope procedures are still considered critical positions, our scheduling fewer procedures to limit potential patient exposure to cover 19.
Lastly for MPG, the global economic fall out and lower oil prices have weakened the Canadian dollar. The result of which is to lower revenue and operating income for that segment through the currency conversion. The three four going conditions lead us to lower MPG segment guidance for the year, both from a revenue and margin perspective.
From a cobot standpoint, NSG has experienced some operational impacts both most deal we laboratory in production sites are in Medsafe condition to limit side personnel exposure and we do not yet know the potential impacts to award or performance fees.
We're also seeing incremental delays and New awards. For example, we now anticipate the Hanford tank contract will occur sometime in late summer, where the contract transition to occur in the fall timeframe.
The VW actually supply chain across the company has been resilient through the global health crisis. So far covert 19 impacts have been relatively minor and we continue to closely monitor the health of the supplier base.
The fundamentals of BW ex these long term business remains strong.
The near term business impacts we are witnessing are generally characterized as timing related.
Typically from the nuclear power group.
First quarter performance combined with the current outlook across the company lead us to reiterate earnings guidance for the year, while modifying some of the underlying components of guidance.
The 2020 guidance has been updated to reflect the current business conditions as they relate to the koeppen 19 pandemic.
Based on generally positive trends within our business concerning active cases and employee quarantined count the updated guidance assumes that the current conditions continue through the second quarter of 2020 and return to generally normal conditions beyond that.
Our guidance does not contemplate worsening conditions that could extend beyond the second quarter and further in 2020 [noise].
We will continue to closely monitor business activity across the company and will provide investors with any significant updates as appropriate and with that I will turn the call over to David.
Thanks, Rex and then good morning.
Starting with total company results on slide five of the earnings presentation first quarter revenue set a new high watermark at $542 million up 30% on a consolidated basis with all segments growing.
First quarter non-GAAP EPS was also a record at 79 cents.
EPS was up 55% compared with the first quarter of 2019 of which the majority came from 27 cents of operational volume and contract improvements.
Other favorable income and expenses were partially offset by a higher tax rate of 23.2%.
Quarter over quarter bridge can be found on slide six of the presentation.
Moving to segment results on slide seven.
Nuclear operations group delivered a record quarter with revenue up 39% to $424 million, we continue to see higher volume from Columbia class production and also some accelerated material purchases into the first quarter energy operating income was $90 million, resulting in a 21.3% operating.
Margin this was up significantly versus the first quarter of 2019, as a result of higher volume and favorable contract adjustments as we recognize savings and efficiencies.
The nuclear power group produced $88 million revenue in the first quarter, a 4% increase when compared with the first quarter last year, primarily primarily driven by the Laker energy acquisition and higher component manufacturing, partially offset by lower field service activity with an.
In addition, organic NPG revenues were down about 2%.
NPG first quarter non-GAAP operating income was $8.6 million, resulting in a non-GAAP operating margin of 9.8% operating income in margin were down when compared to the first quarter 2019, due to an unfavorable shift in product line mix, including the absence of the China steam generator.
Project.
And lastly, the nuclear services group delivered operating income of $6.4 million in the first quarter up $4.8 million versus the prior year period as a result of lower expenses and increased volume from U.S. commercial nuclear services and advanced technology programs.
Turning now to guidance on slide eight.
As Rex mentioned during his opening remarks, we're reiterating our consolidated guidance for 2020 revenue is still expected to be up approximately 8% with earnings of about 280 per share.
Although we had an exceptional first quarter, we reiterate our expectation that earnings for the year are still slightly back half weighted with approximately a 48 52 first half versus second half split, resulting in the second quarter being the low point for the year due to accelerating some long lead material.
Going into Q1, and covert 19 service outage delays impacting MPG.
We have updated some of the underlying components of our 2020 guidance to reflect the impact and risks related to cobot 19, as well as some actions we're taking to October.
Hi, its cost.
Nuclear power group revenue is now expected to be down slightly or about 1% as the Canadian utility customer shift outage services and refurbishment activity to the right to help manage the impact of cobot 19.
We also now expect MPG operating margins of 11% versus our prior assumption of 13%.
In addition to lower volume from shift of utility work. There are two other major contributing factors that caused us to lower NPG income expectations first as foreign exchange rate fluctuations in volatility between the Canadian and US dollar and second is suppress demand for medical isotopes in size.
But those are prioritizing cobot 19 patients.
All three of these components have an equal weight of pushing the segment operating income down on the positive side, we continued to optimize our cost structure and we have updated the expectation for corporate unallocated costs, which we now anticipate to be about $15 million for the year versus the prior expectation of Approx.
Definitely $20 million.
Additionally, we now expect depreciation and amortization to be approximately $65 million for the year at the timing of asset procurements and their placement into service has shifted.
All other components of guidance remain consistent with our initial outlook and we have updated or 2020 guidance bridge on slide nine to reflect the aforementioned changes.
I will close my remarks, with a few comments about our debt and liquidity position.
In late March we amended our credit facility that increased the revolver by $250 million to a total of $750 million.
For the company and we appreciated our banks working wants us with us in a volatile debt market environment.
Having the ability to secure a debt amendment with more favorable pricing in the March rate environment speaks to the credibility other business and our long term outlet for cash generation.
This action also gives us increase balance sheet flexibility as we look to fund our capital investments and future growth opportunities and is underscored by the current environment related to coven 19.
Company gross debt total $934 million at the end of the first quarter with $404 million of remaining availability.
Under the amended credit facility and the company's debt leverage remained at a comfortable level at around two times.
B.W.X.T.S capital allocation strategy has not changed in light of the current environment. We continue to demonstrate a balance capital allocation overtime with a year to year emphasis uncertain priorities.
For 2020, we still expect capital expenditures to be a peak year at $270 million as we focus on investing in future organic growth.
Following 2020 capital expenditures are anticipated to start a downward trajectory with 2021 expected to be somewhat lower than the two <unk> $270 million, we anticipate for this year and we'll return to near maintenance levels in 2022.
We also continued to return capital to shareholders in in the first quarter allocated eight teen point $6 million and dividend payments and $20 million and share repurchases to offset dilution. Our overall share repurchase strategy. During these elevated capital expenditure years has not changed and we remain opportunists.
Stick beyond offsetting and annual dilution based on the cat backs and dividend commitments were 2020, we do not anticipate incremental repurchases for the remainder of the year.
From a cash standpoint, the company utilize $6.4 million a net cash in operating activities in the first quarter 2020 about $11 million less than the prior year period cash and short term investments net of restricted cash was $81.3 million at the end of the first quarter as remain well position.
I'm a cash prospective for the future.
And with that I'll turn the call back over to Rex with some closing remarks.
Thank you David Let me finish my prepared remarks for the brief update on or commercial Molly 99 efforts and some traction we are gaining with micro actors.
I said on the last call we were dealing with schedule issues on the Molly program within the radio isotope business line, leading us to a re baseline of the program. In addition to those challenges we have since suffered some component delays from European and Canadian suppliers and sub suppliers due to coven 19, we have now completed a comprehensive rebaselining the program.
I'm, considering the forgoing factors and other risks that could manifest and we now project to reach commercial readiness in mid year 2022.
Despite the delays.
Challenges, we remain very enthusiastic about the new product line, the business case, and our competitive position in the market.
Finally, we received several awards over the past couple of months related to micro reactors and try so fuel in March we were awarded a deal we contract for try so fuel to support the transformational challenge reactor at Oak Ridge National Laboratory. In addition to try so beat of U.X.T. was also awarded 14 million dollar Michael.
Reactor design contract from the D.O.D. strategic capabilities office.
These awards and others pending underscore increasing government interest in compact reactors inaction intolerant try so fuel to solve some of the most challenging national National security power and propulsion problems.
And we remain well positioned to lead the market in these new technologies and programs.
With that I'll ask the operator to open the line for questions.
Operator.
Oh.
We will now be again, the question and answer session. The house 'cause question him at a star them one on your touched on so.
If you're using a speaker phone please pick up your handset before pressing the cues.
All your question, please press or them too, but there's so little pause, but <unk>.
Mm.
[noise] [noise], our first question will come from Peter on lunch with their please.
Oh, yes, thanks, <unk> <unk> <unk> <unk>. Thanks for the details on the on the kind of your comments on the second Virginia class, but maybe could just give us your thoughts around if there is a continuing resolution in the fall what's that what that would do and and given given the a long lead nature of your.
You're contracts.
Well in a continuing real solutions and scenario normally the funding is year over year funding and content or similar so I think that would actually be a favorable situation for us theater.
Okay. So you wouldn't expect that in terms of any any slip and then just on the.
To speculate we'd stay on stay on the to Virginia tempo in a C.R.
Okay, well that's helpful. And then maybe just on a on the supply chain impact from Molly 99.
Could you give us a little more color exactly what what you're seeing there and why why we see such a a push out from just you know the latest impact.
Right. So most of that push out in the start date for for Molly program is is is related to programatic challenges that we outlined earlier, we saw about Peter about a quarter of impact let's call. It from a covert effects and that has to do with.
Most of our key suppliers for the for the Hot sale equipment are in Europe.
We have to Italian suppliers, we have a a German supplier and some of those factories slowed down or shut down during during the peak of the pandemic crisis, they are more or less back to normal now, but we factored in we factored those delays into the into the product launch date.
Okay, well thank you.
You're welcome.
Oh next question will come from Pete Skibitski with.
<unk> global whose god.
Good morning, guys nice quarter.
<unk>.
<unk> just a couple top level questions. Rex can you talk about the you know you guys named a cheap strategy officer I think was the title can you just talk about that your thoughts there and then I have one quick follow up.
Sure. So we we hired Roblin Masters, who as you would know came from Blue Harbor Blue Harbor had you know heavy position and B.W.X.T. at the time of the spin and had been an investor in Babcock and Wilcox prior <unk>, Rob came onto our board about five years ago and he.
Went with B.W.X.T. during the spin into that board.
It's been active there for over that period of time in our in our history has a pulled the company.
He stayed on the board after Blue Harbor still down its position and.
And the board was very happy to keep him. So was the executive team he's he's always been.
A useful and and sort of a bright star on that board.
He was going through a career transition was interested in I'm doing something with the public company. So we took an opportunity to make an offer to Rob the chief strategy officer. So his portfolio, we'll have strategy he'll have a investor relations and also the corporate development piece mergers and acquisitions.
And have oversight of those positions. The teams the team members will stay the same but Rob will have the oversight of that so he'll bring a very interesting perspective, he understands I think how investors react to to the business. He understands the down an n. aspects of the business and he works well with all members of our.
15, so it was a great add he's very talented and and I think it'd be good for our business in terms of what he brings and also to to expand our executive debt.
Great. Thanks for that color and it just last question for me is your thoughts on the White House I think looking to revitalize the domestic uranium industry does that impact you guys in any way I was just curious.
Yeah, not so much Pete we haven't been we haven't certainly haven't been and mining or enrichment.
Anytime in the past I mean, if if you know if the nation starts to need high essay low enriched uranium in that 5% to 20% enrichment category or above that into highly enriched uranium you know there's there's a role we could play because we supported you sick back in the days on the American Centrifuge <unk>.
Graham so their roles that we could play there, including priming a an effort like that.
But but generally speaking we're not too active in that <unk> that part of the supply chain that part of the value chain right now.
I appreciate it thanks guys.
Thank you see.
Oh next question will come from Bob Lubbock with C.J.S. Securities. Please go ahead.
Good morning, Thanks for taking the questions.
I I wanted to start with the long term guidance reiterated your long term guidance, you know that 2022 guidance and obviously the isotope contribution has shifted out since now you're starting expecting revenues and contribution to start made 2022 can you. Just you know give us a sense of you know <unk> somewhat but.
Puts and takes to maintain the longer term guidance and you know, perhaps how much isotope contribution is built into that if there's any other cushions in that in that gods.
Sure things, but for the question some pressure on that long term guides, obviously with isotope delays and.
And <unk> concerns over the we award timing and such but but we still feel confident about that we do have those are some of the some of the takes in terms of the puts that you ask about we do have this gathering momentum and micro reactors and fuel we'll see.
That Texas, and how and how quickly that can become a major component of the business.
We also I mean, we sort of <unk> one of the things in our tool kit is we have.
Such significant backlog in our nuclear operations business that we can pull on that backlog by working additional hours by pulling a manned by requiring mandatory overtime in sort of burn the backlog. So there's some leverage that we have in the business.
There's there's certainly admitted pressure on that long term guidance, but.
But we're but we remain committed to it.
Got it great and then maybe I mean, the pressure seemingly is again timing right. As things are are are pushed out a little bit as well as opposed to existing businesses. Maybe just talk about if we start thinking about just the end of 2022, you know a five year kind of you know growth drivers and outlook as well yeah, we've talked.
Past about space you just you know brought up micro reactors again, and you know maybe given market disruptions in your steady business any potential emanate can you think about or help us think about you know the next five years.
You know growth aspirations and opportunities.
Sure sure Bob So certainly certainly the space and depends reactors are very or a very interesting future component of growth. We our core business. The franchise platform does have obviously, the Columbia class submarines coming in and assuming we maintain the Virginia tempo and the <unk> and the slide.
Acceleration in the full word there's very good prospects for that business. So we like all that we certainly like the isotope business. That's a growing business and you know sort of a bit of a bright spot in the isotope picture right. Now is that pulmonary imaging, which is done with Mauling 99 is exploding in light of Coke 19, and so that's been <unk>, that's been driven by cardiac.
Elegy procedures in the past.
Oh, and I think you'll see you know as a whole class of people out there that may have permanent.
Lung damage from from covert 19, and we'll need periodic assessment through imaging. So there's interesting growth prospects around even that and then we certainly have balance she capacity and we can do we can drive earnings through.
Sherry purchases, but also through through acquisitions and so we have some interesting opportunities in our pipeline.
And and bouncing capacity for those and so I you know I.
I I think the long term you put it perfectly right that despite the sort of artificial window around 20 to 2022, the long term growth asked prospects for this business are quite strong.
In our reiterate Bob the if you look I'm pay 14 of the Investor briefing.
That's where we show the.
N O.G. business and the power unit production ramp if we look five years out on the Columbia, We've got four columbia's going through the shop, where today we have one.
So that gives you an indication we won't quantify that but that gives you an indication of the the gross between now and that.
Super Thank you very much.
[noise] again, if you'd like to ask a question it as star done one.
Start that a lot to ask a question.
Oh next question will come from Michael.
<unk> with some trust. Please go ahead.
Hey, good morning guides, thanks for chicken the question nice quarter <unk>.
<unk> Rex or David maybe on a on N.O.G., you know that the <unk> revenues for the remainder of the year looks looks fairly flat you obviously pulled in some work there on the long lead time, but can you give us the sense you know just as we think about the Virginia class <unk>. What does a decision has to be made you know before.
You would got before you guys would start to maybe see or feel some of that that headwind if if the Buddhist in added back into the budget.
Oh.
Yeah, Hey, Mike Michael Good morning.
Well, we say we sat on a protocol that it would start to impact of business and potentially and Q4 of this year and obviously would continue over the duration of the life of that project.
Which is about the six years old together and and you know the story on on the incremental effects on our business.
There are you know give or take at any one point time about 12, Virginia class.
Shipsets going for our factories in various stages of materiality from just starting to on the verge of delivery on top of that you had the the single Columbia going through and <unk> and generally speaking there are two to four Ford shifts Shipsets based on the.
Based on the order the the acquisition tempo and then the delivery schedule. Those so you know give or take 15, 16, 17 systems Shipsets moving through our factories anyone point in time and by Shipset I mean of course fuel course core barrels reactor vessels control, Rob drive mechanisms steam generator.
Pressurizer that whole thing at the various factories. So it has that kind of it would have that kind of incremental effect on the business starting in q. for 2020.
As Peter.
Questioned early or what would happen in a C.R. scenario I think with a C.R. scenario, we probably just carry on as normal doing to Virginia, Shipsets a year. So.
So I I, certainly dot will have an a full appropriation done by the beginning of government fiscal year 20, So I think that that decision will be hanging out there for some time.
Okay, but it's if you know it's distract out if they finally make a decision in November you know on on funding that Virginia class. What would you think there would be any impact at that point I mean, if it's just if we kind of stay in this purgatory environment, where receipt bipartisan support but you know affirmed decision isn't made I mean, yeah, I guess and trying to.
Her out at at what point does it become a head wins you know in in other words do you need to see the funding or that decision made now or can it be made as late as you know September October without impacted your to your current year.
I I think you know we're in normal operational tempo right now so it's not really <unk> <unk>, it's not really impacting how we think or how we plan I would just say that if it you know if it if it occurred the impact would be in Q. for if the appropriation got done by.
By beginning of the government fiscal year, it's a <unk>, it's a modest impact to begin with and obviously the later or the the the lesser of the impact. So I don't think it's a thing I'm, particularly concerned about right now for for fiscal year for our fiscal year 20, Michael.
Got it and then just on the D.M.P.G. The some of the delays you've seen related to a cat and the outages Refurbs have you guys seen or received any updated or new sort of baseline schedules or is this kind of still fluid depending on you know how cold it you know impact.
Social distancing just try not to get a sense of you know you have a a a refresh timeline errors, it's still sort of influx.
It's it's still in flux, we do have some indications from from our clients about when things will happen those outages that were in in the second quarter got pushed into the fourth quarter.
But I think it's a little bit of a wait and see but the the problem. The channels for the utilities of course is I don't want three 300 people crawling around the face of a reactor at the same time, when they're going through major component replacement.
Certainly try they'll certainly try to maintain tempo because they're a as much as possible because their business cases rely on timely completion. So I think there's certainly a lot of pressure to keep those projects going as quickly as possible, but but but but I think it's a bit of a wait and see from our perspective.
Got it helpful. Thanks, guys.
Yeah. Thank you Michael.
Oh <unk>. Please go ahead.
Hi, Thank you I'll fall <unk> earlier on the.
<unk> said some supply components delays was that for cold kits are reactor access equipment, if you can't specify.
It has to do <unk>. Good morning, it has to do with the.
There are there are as I said before there were three major components in the system. One is the is called the target delivery system. That's the equipment that goes onto the reactor to put the Molly into the reactor to have it irradiated to get it hot so that we can then subsequently process. It in our factory down and cannot in the factory in Canada. There is the radio chemicals.
System.
Which is to do the initial processing on that a radiated material and then there's a radio pharmaceutical system, which which packages it and Sterilizes and does all this a fully automated robotic system. So the suppliers I was referring to and that delay our our supplying a hot sales and various internal equipment for that hot sales like.
Autoclaves into like.
So a number of different complex components coming from a continental Europe and ultimately destined for our plant in Canada.
I <unk> I shouldn't, but if if I could take maybe add a little more color to this that's that's part of what is driven our schedule and we have accounted for that in this re baseline I would I wouldn't want to point out to all the listeners on the call that.
You know we've had some schedule challenges the second significant <unk> schedule challenge we've identified on this program and so the re baseline to mid 2022 has a number of let me call that components of conservatism in it. We have for example, you know months of some months of on income.
Bird schedule reserve in there we have extended the regulatory approval timeline from about six months to about nine months. So we can completely envelope.
What we perceive as any uncertainty and that timeline. We have also accounted for in cost it from a schedule and dollar perspective, any technical risk that relate to the conversion of design and into manufacturing and ultimately integration into our factories and so you know, we've we've laid out or for ourselves a pretty conservative timeline here and I think.
Appropriately so because we certainly are certainly need to have this one right as we rebaselining the program for.
For investors in for our board in for our team. So you know feel feel quite positive about about where we are with that schedule.
Okay. Thank you for that <unk> I feel is.
Orderly <unk> it seems more consistent previous years, but but economics.
Finished I look at it as similar to that manufacturing units.
Slots eight your production schedule <unk>.
<unk>.
Please you mean, the fuel manufacturing in the nuclear operations business date.
Yeah.
Yeah.
Yeah. So.
That's a very steady business, we of course manufacture the fuel for for all three classes of nuclear vessels, the Virginia, the Columbia and afford class carriers and you know generally the timing of those pricing agreement to somewhat similar to what we do and all the major component.
Agreements there they are separate contracts, but generally it follows the tempo in the scale of the.
Of the rest of the business and so we it's it's <unk>.
They're sort of know important distinction there in terms of volume and timing.
Okay.
Yeah. Thank you too.
This concludes our question answer session.
I would like to turn the call back to Mark Kratz frightening closing remarks.
Oh, Thank you for joining us. This morning that concludes our first quarter 2020 conference call. If you have further questions. Please call me at 980 365 4300. Thank you.
The calls and says well concluded thank you for a tightening today's presentation.
Disconnect.