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WIKI ANALYSIS
EnergySolutions (NYSE: IT) supports government and commercial power plant operations with a speciality in spent nuclear waste disposal. Since 2005, the company has rapidly grown in size and product offerings, with 8 acquisitions that have nearly tripled total revenues from $370.1 million in 2005 to $1.1 billion in 2007.[1][2] These acquisitions have also caused EnergySolutions' costs to increase a dramatic 280.8% from $235.9 million in 2006 to $662.4 million in 2007 -- $523.5 million from their UK operations, alone.[3]
The company's 2006 acquisition of Duratek is notable as it made the company eligible for higher value government contracts valued at $54.7 billion through 2010.[1][4] The Duratek acquisition also made EnergySolutions eligible to bid for RSMC, which they acquired in June 2007.[4] Revenues from the RSMC acquisition account for almost all of the company's International segment, or 49.5% of the company's revenues.[5] In November 2007, following these two acquisitions, EnergySolutions went public in an IPO.
Company Overview
EnergySolutions sells services that address the needs of the entire nuclear lifecycle. The company offers engineering, in-plant support operations, spent nuclear fuel management, decontamination and decomission (D&D), logistics, transportation, and disposal services.
Business and Financial Metrics
Since 2005, the company has grown revenue and diversified its business segments through acquisitions. From 2005 to 2007, the company grew total revenues by 195% from $370.1 million to $1.1 billion.[2] Over the same period, however, the company's costs have more than kept pace. The company's profit margin has plummeted from a high of 35.5% in 2005 to -.81% in 2007 thanks largely to its new acquisitions.[2]
Its predecessor company, Envirocare, maintained profit margins of approximately 50% for 2003 and 2004 with its LP&D, only, business.[2] With the addition of Duratek and RSMC, however, EnergySolutions now has a greater portion of its revenues coming from lower margin business. Cost of revenues from the company's non-LP&D segments was 89.4% in 2007, compared to 70.6% in 2006, and 59.5% for LP&D in 2007.[6] Its International Segment led this trend with 96.6% cost of revenues in its segment in 2007.[6]
For 2007, the company maintained assets worth $1.6 billion with $600 million in long term debt outstanding.[2]
Business Segments
EnergySolutions consists of four business segments -- Federal Services, Commercial Services, LP&D, and International. As far back as 2005, the company's LP&D segment accounted for 100% of its revenues; however, the company has used its acquisitions to diversify its revenue streams, and LP&D now accounts for only 24.1% of revenues.[7]
- Federal Services ($151.4 million in revenue) - The federal services segment derives most of its revenues from contracts with the Department of Energy (DOE). The company provides management, operations, and clean-up services for contaminated DOE facilities. Revenues from DOE contracts (though not all necessarily in the federal services segment) as a percentage of total income have decreased from a high of 63.1% in 2005 to 16.7% in 2007 as a result of the significant increase in total revenues brought on by the company's acquisitions.[1] That said, since the company started recognizing federal services as its own segment, revenues have increased from $79.9 million in 2006 to $151.4 million in 2007.[7] The 2007 revenue figures for federal services represent 13.9% of total revenues. [7]
- Commercial Services ($137.4 million in revenue) - The commercial services segment provides services to any type of facilitiy that generates radioactive materials such as power plants, pharmaceutical companies, research laboratories, universities, and industrial facilities. The commercial services segment covers the entire lifecycle of EnergySolutions offerings from D&D, project planning, and emergency response services. Since the company started recognizing commercial services as its own segment, the segment has grown revenues from $54.1 million in 2006 to $137.4 million in 2007, or 12.6% of total revenues. [7]
- Logistics, Processing, and Disposal (LP&D) ($262.8 million in revenue) - The LP&D segment sells radioactive disposal services and includes the company's Clive, Utah disposal site -- the largest low-level radioacive waste disposal site in the nation with over 95% of all commercial LLRW disposal in the United States [8]. The company recently announced a 5-year, $25 million contract with the Army Sustained Command to dispose of low-level radioactive wastes at this facility.[9] This segment also maintains four facilities in Tennessee and two facilities in Barnwell, South Carolina. The company's LP&D segment is the firm's traditional business segment dating back to Envirocare with 100% of the company's revenue in 2005. As of 2007, the segment represents only 24.1% of revenue with $262.8 million in revenue. [7]
- International ($541.1 million in revenue) - The international segment can largely be attributed to revenues from the U.K. due to the RSMC acquisition in June 2007. (The company reports revenues from Canada and Mexico in their commercial services or LP&D segments.) With their RSMC acquisition, Energysolutions inherited contracts with 10 nuclear sites in the U.K.[7] The company's Safeguard acquisition in 2006 opened up access to medical and industrial sites with radioactive wastes as well. The international segment earned $541.1 million, or 49.5% of the company's total revenue in 2007; however, the segment also contributed 82.4% of the company's cost of revenues.[7][6]
Acquisitions
The history of EnergySolutions is thus far one of acquisitions. EnergySolutions predecessor, Envirocare, was founded in 1988 to dispose of nuclear wastes at the company's Clive, Utah facilty.[10] In 2005, Envirocare was sold to the company's current owners and renamed EnergySolutions.[11] Since then, the company has acquired 8 more companies including:
| Acquisitions [10] | ||
| Name | Date Acquired | Purchase Price |
| D&D division of Scientech, LLC | October 2005 | - |
| British Nuclear Group of America [12] | February 2006 | $90 million |
| Duratek | June 2006 | $440.8 million |
| Safeguard International Solutions | December 2006 | $9.0 million |
| Parallax | January 2007 | - |
| RSMC | June 2007 | $184.8 million |
| NUKEM | July 2007 | - |
| Monserco Limited | December 2007 | - |
The Duratek and RSMC acquisitions were particularly important for EnergySolutions. At a purchase price of $440.8 million, Duratek gave the company the size and capability to qualify for Tier 1 government contracts (with an estimated $54.7 billion up for bidding through 2010[4]), provide highly specialized services to large commercial nuclear power reactors, and to pursue international D&D contracts.[10] The acquisition of Duratek also qualified EnergySolutions to participate in bidding for RSMC, which the company acquired for $184.8 million. Thanks to RSMC's previous contracts with British nuclear power plants, RSMC now represents nearly all of the company's international segment, which accounts for 49.5% of the company's total revenues.[10]
Key Trends and Forces
International segment sheds initial acquisition costs
In 2007, the International segment had an operating income of $2.9 million on $541.1 million in revenue, largely due to heavy costs associated with their RSMC acquisition.[7] As of the second quarter in 2008, however, the International segment already had operating income of $43.9 million on $117.1 million in revenue.[13] At 49.5% of the company's total revenues in 2007, increased profitability out of the International segment will help reverse the company's profit margin free fall over the past three years.[7]
Nuclear disposal contracts subject to regulatory scrutiny
In October 2007, the NRC delayed a decision on whether or not to allow EnergySolutions to take a contract to import 20,000 tons of low-leverl radioactive wastes from Italy to its Clive, Utah facility -- the largest ever contract of its kind.[14] In the midst of this, Utah representatives have introduced legislation to prohibit importing foreign radioactive wastes into the country.[14]
Decommission and disposal contracts rely on power plant closures
The U.S. Nuclear Regulatory Commission has never denied an application to extend a nuclear plant license, which has been requested 30 times[15]. With higher oil prices, extending the life of existing power plants becomes more likely and reduces the amount of available decomission and disposal contracts. Twenty-three applications for new nuclear power plants for 34 new facilites are pending with the Commission in 2008, which shows a renewed interest in investment in the sector. [16] The country last saw a completed new plant in 1996.[17]
Decrease in nuclear disposal funds in DOE 2008 budget
EngergySolutions' federal segment earns 13.9% of total revenues largely from DOE contracts. The 2008 budget request for the DOE had a decrease of $50 million for the total environmental and defense nuclear disposal budgets.[18] With their Duratek acquisition, the company is now eligible for higher value Tier 1 contracts with the government, but the company is a new entrant into this level of contracting without an established reputation.
Competitors
EnergySolutions is somewhat unique among its competitors with its focus entirely on the nuclear industry. Its competitors tend to be general services, operations, and engineering companies that operate in a variety of markets, including energy or power.
- Bechtel Group, Inc, - The Bechtel Group is a private engineering, construction and project management firm that operates in energy, aviation, transportation, and telecommunications. The company operates across 140 countries. [19] The company earned $27 billion in total revenues in 2007.[20]
- CH2M Hill, Inc. - CH2M Hill is also a private, professional engineering services firm that provides operations, engineering, and project management services. The company works with both the federal government as well as state and local governments.
- Fluor (FLR) - The Fluor Corporation is a holding company with segments that provide operations and construction services to clients in industries like energy, petrochemicals, and manufacturing. The company earned $16.7 billion in total revenues in 2007 with a 3.2% net profit margin. Their power segment earned $1.2 billion in revenues. [21][22] The company is a primary service provider to the federal government.
- Jacobs Engineering Group (JEC) - Jacobs Engineering earned $8.4 billion in total revenues in 2007 with a 3.4% net profit margin. [23] The company provides construction, engineering, and other project services to oil and gas companies as well as various national government programs, infrastructure, and consumer products. The company's National Government Programs segment earned $1.5 billion in revenues in 2007.[24]
- URS (URS) - URS is another professional services company that focuses on decommissioning and closure services as well as construction and engineering. The company generated $5.4 billion in total revenues in 2007 with a 2.6% net profit margin and provides nuclear disposal services across its business segments.[25]
References
- ↑ 1.0 1.1 1.2 ES, 2007, 10-K, page 2
- ↑ 2.0 2.1 2.2 2.3 2.4 2.5 ES, 2007, 10-K, page 41
- ↑ ES, 2007, 10-K, page 52
- ↑ 4.0 4.1 4.2 ES, 2007, 10-K, page 50
- ↑ ES, 2007, 10-K, page 48
- ↑ 6.0 6.1 6.2 ES, 2007, 10-K, page 53
- ↑ 7.0 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 7.9 ES, 2007, 10-K, page 51
- ↑ ES, 2007, 10-K, page 1
- ↑ "EnergySolutions Signs 5-Year Disposal Contract With the Army Sustainment Command", BNET, June, 2008
- ↑ 10.0 10.1 10.2 10.3 ES, 2007, 10-K, page 49-50
- ↑ Wikipedia EnergySolutions Article
- ↑ "Envirocare changes name to EnergySolutions, acquires BNG America", Boston.com, February 3, 2006
- ↑ ES, 2008Q2, 10-Q, page 17
- ↑ 14.0 14.1 "Gordon plans to close loophole on nuclear wastes", DNJ, October 7, 2008
- ↑ "Activists seek crackdown on aging nuclear plants", NPR, January 21, 2008
- ↑ "New Enthusiasm for Nuclear Power", Seeking Alpha, July 22, 2008
- ↑ Nuclear Energy
- ↑ U.S. DOE 2008 Budget Request (Appropriations PDF)
- ↑ Google Finance Bechtel Group Page
- ↑ The Bechtel Group 2007 Annual Report
- ↑ Google Finance FLR Page
- ↑ FLR, 2007, 10-K, page 31
- ↑ Google Finance JCE Page
- ↑ JEC, 2007, 10-K, Page 9
- ↑ Google Finance URS Page
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