8-K
Babcock & Wilcox Enterprises, Inc. (BW)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _____________________________________________________
FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 _____________________________________________________
Date of Report (Date of earliest event reported): March 31, 2020 _____________________________________________________
Babcock & Wilcox Enterprises, Inc. (Exact name of registrant as specified in its charter)
_____________________________________________________
| Delaware | 001-36876 | 47-2783641 |
|---|---|---|
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
| 1200 East Market Street<br><br>Akron, Ohio | 44305 | |
| (Address of principal executive offices) | (Zip Code) |
(330) 753-4511 Registrant’s Telephone Number, including Area Code
_____________________________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, par value $0.01 per share | BW | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
| Item 2.02 | Results of Operations and Financial Condition |
|---|
On March 31, 2020, Babcock & Wilcox Enterprises, Inc. (the “Company”) held a conference call to discuss the Company’s fourth quarter and fiscal year 2019 results. A transcript of the call is furnished as Exhibit 99.1.
The information furnished pursuant to this Item 2.02, including Exhibit 99.1, shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing
| Item 9.01. | Financial Statements and Exhibits |
|---|
(d) Exhibits
| Exhibit No. | Description |
|---|---|
| 99.1 | Transcript of March 31, 2020 conference call |
Forward-Looking Statements
The Company cautions that this Current Report on Form 8-K contains forward-looking statements. Differences between actual results and any future performance suggested in any forward-looking statements could result from a variety of factors, including the following: the Company’s ability to continue as a going concern; the risks of pandemics or other public health emergencies, including the continued spread and impact of, and the governmental and third party response to, the recent COVID-19 outbreak; the impact of social distancing, shelter-in-place, border closings, travel restrictions, remote work requirements and similar governmental and private measures taken to combat the spread of COVID-19; the Company’s recognition of any asset impairments as a result of any decline in the value of its assets or its efforts to dispose of any assets in the future; the Company’s ability to refinance the credit agreement governing its revolving credit facility and term loans in accordance with its terms on or prior to May 11, 2020; the Company’s ability to obtain and maintain sufficient financing to provide liquidity to meet its business objectives, surety bonds, letters of credit and similar financing; the Company’s ability to satisfy, or if required, obtain waivers of the requirements under the credit agreement governing its revolving credit facility and term loans; the Company’s ability to refinance its obligations under such credit agreement in a timely manner, if at all; the Company’s ability to obtain waivers of required pension contributions beginning with contributions for fiscal year 2019; the highly competitive nature of the Company’s businesses, and the Company’s ability to successfully compete with its current and future competitors; general economic and business conditions, including changes in interest rates and currency exchange rates; fluctuations and volatility in global financial markets, such as the recent substantial decline in oil prices; technological and regulatory developments in the energy industry and the Company’s ability to evolve with these trends; cancellations of and adjustments to backlog and the resulting impact from using backlog as an indicator of future earnings; the Company’s ability to perform contracts on time and on budget, in accordance with the schedules and terms established by the applicable contracts with customers; failure by third-party subcontractors, partners or suppliers to perform their obligations on time and as specified; the
Company’s ability to successfully resolve claims by vendors for goods and services provided and claims by customers for items under warranty; the Company’s ability to realize anticipated savings and operational benefits from its restructuring plans, and other cost-savings initiatives; the Company’s ability to successfully address productivity and schedule issues in the Vølund & Other Renewable segment, including the ability to complete the European EPC projects within the expected time frame and the estimated costs; the Company’s ability to successfully partner with third parties to win and execute contracts within the SPIG and Vølund & Other Renewable segments; changes in the Company’s effective tax rate and tax positions, including the limitation on the Company’s ability to use its net operating loss carryforwards and other tax assets as a result of its recent ownership change under Section 382 of the Internal Revenue Code; the Company’s ability to maintain operational support for its information systems against service outages and data corruption, as well as protection against cyber-based network security breaches and theft of data; the Company’s ability to protect its intellectual property and renew licenses to use intellectual property of third parties; the Company’s use of the percentage-of-completion method of accounting to recognize revenue over time; the Company’s ability to successfully manage research and development projects and costs, including its efforts to successfully develop and commercialize new technologies and products; the operating risks normally incident to the Company’s lines of business, including professional liability, product liability, warranty and other claims against us; changes in, or the Company’s failure or inability to comply with, laws and government regulations; actual or anticipated changes in governmental regulation, including trade and tariff policies; difficulties the Company may encounter in obtaining regulatory or other necessary permits or approvals; changes in, and liabilities relating to, existing or future environmental regulatory matters; changes in actuarial assumptions and market fluctuations that affect the Company’s net pension liabilities and income; potential violations of the Foreign Corrupt Practices Act; the loss of key personnel and the continued availability of qualified personnel; the timing and ability to obtain project related insurance recoveries against certain of the Company’s subcontractors and other counterparties; the Company’s ability to negotiate and maintain good relationships with labor unions; changes in pension and medical expenses associated with the Company’s retirement benefit programs; social, political, competitive and economic situations in foreign countries where the Company does business or seek new business; the possibilities of war, other armed conflicts or terrorist attacks; the willingness of customers and suppliers to continue to do business with us on reasonable terms and conditions; and the Company’s ability to successfully consummate strategic alternatives for non-core assets, if the Company decides to pursue them. 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 the Company’s filings with the Securities and Exchange Commission, including the Company’s most recent annual report on Form 10-K. The Company cautions not to place undue reliance on these forward-looking statements and undertakes no obligation to update or revise any forward-looking statement, except to the extent required by applicable law.
Non-GAAP Financial Measures
The Company uses non-GAAP financial measures internally to evaluate its performance and in making financial and operational decisions. When viewed in conjunction with GAAP results and the accompanying reconciliation, the Company believes that its presentation of these measures provides investors with greater transparency and a greater understanding of factors affecting the Company’s financial condition and results of operations than GAAP measures alone.
The transcript attached presents adjusted gross profit for each business segment and adjusted EBITDA, which are non-GAAP financial measures. Adjusted EBITDA on a consolidated basis is defined as the sum of the adjusted EBITDA for each of the segments, further adjusted for corporate allocations and research and development costs. At a segment level, the adjusted EBITDA presented is consistent with the way the Company's chief operating decision maker reviews the results of operations and makes strategic decisions about the business and is calculated as earnings before interest, tax, depreciation and amortization adjusted for items such as gains or losses on asset sales, mark to market pension adjustments, restructuring and spin costs, impairments, losses on debt extinguishment, costs related to financial consulting required under the U.S. Revolving Credit Facility and other costs that may not be directly controllable by segment management and are not allocated to the segment. The Company presented consolidated Adjusted EBITDA because it believes it is useful to investors to help facilitate comparisons of the ongoing, operating performance before corporate overhead and other expenses not attributable to the operating performance of the Company's revenue generating segments.
The transcript attached also presents adjusted gross profit by segment. The Company believes that adjusted gross profit by segment is useful to investors to help facilitate comparisons of the ongoing, operating performance of the segments by excluding expenses related to, among other things, activities related to the spin-off, activities related to various restructuring activities the Company has undertaken, corporate overhead (such as SG&A expenses and research and development costs) and certain non-cash expenses such as intangible amortization and goodwill impairments that are not allocated by segment.
Reconciliation of Adjusted EBITDA^(5)^
(In millions)
| Three months ended December 31, | Twelve months ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | |||||||||
| Adjusted EBITDA ^(1)^ | ||||||||||||
| Babcock & Wilcox segment ^(2)^ | $ | 19.1 | $ | 28.8 | $ | 66.6 | $ | 59.5 | ||||
| Vølund & Other Renewable segment | 2.0 | (110.0 | ) | (10.5 | ) | (275.9 | ) | |||||
| SPIG segment | (0.6 | ) | (28.7 | ) | (2.4 | ) | (53.3 | ) | ||||
| Corporate ^(3)^ | (0.6 | ) | (3.4 | ) | (17.6 | ) | (24.2 | ) | ||||
| Research and development costs | (0.6 | ) | (0.9 | ) | (2.9 | ) | (3.8 | ) | ||||
| 19.3 | (114.2 | ) | 33.3 | (297.7 | ) | |||||||
| Restructuring activities and spin-off transaction costs | (2.1 | ) | (3.2 | ) | (11.7 | ) | (16.8 | ) | ||||
| Financial advisory services | (0.7 | ) | (3.2 | ) | (9.1 | ) | (18.6 | ) | ||||
| Settlement cost to exit Vølund contract ^(4)^ | — | — | (6.6 | ) | — | |||||||
| Reserve for strategic change in China | — | (7.3 | ) | — | (7.3 | ) | ||||||
| Advisory fees for settlement costs and liquidity planning | (4.4 | ) | — | (11.8 | ) | — | ||||||
| Litigation settlement | — | — | (0.5 | ) | — | |||||||
| Stock compensation | (1.3 | ) | 0.1 | (3.4 | ) | (4.4 | ) | |||||
| Goodwill and other intangible asset impairment | — | (2.5 | ) | — | (40.0 | ) | ||||||
| Impairment of equity method investment in TBWES | — | — | — | (18.4 | ) | |||||||
| Gain on sale of equity method investment in BWBC | — | — | — | 6.5 | ||||||||
| Depreciation & amortization | (4.5 | ) | (7.5 | ) | (23.6 | ) | (28.5 | ) | ||||
| Gain (loss) on asset disposals, net | 3.7 | — | 3.9 | (1.5 | ) | |||||||
| Operating income (loss) | 10.0 | (137.7 | ) | (29.4 | ) | (426.6 | ) | |||||
| Interest expense, net | (27.4 | ) | (14.1 | ) | (94.0 | ) | (49.4 | ) | ||||
| Loss on debt extinguishment | — | — | (4.0 | ) | (49.2 | ) | ||||||
| (Loss) gain on sale of business | — | 0.1 | (3.6 | ) | 39.8 | |||||||
| Net pension benefit before MTM | 3.6 | 5.3 | 14.0 | 25.4 | ||||||||
| MTM gain (loss) from benefit plans | 10.1 | (72.2 | ) | 8.8 | (67.5 | ) | ||||||
| Foreign exchange | 10.8 | (5.9 | ) | (16.6 | ) | (28.5 | ) | |||||
| Other – net | 0.1 | — | 0.3 | 0.3 | ||||||||
| Income (loss) before income tax expense | $ | 7.2 | $ | (224.4 | ) | $ | (124.4 | ) | $ | (555.8 | ) |
^1)^Adjusted EBITDA, for the three and twelve months ended December 31, 2018, excludes stock compensation that was previously included in segment results and totals $(0.1) million and $1.3 million, respectively in the Babcock & Wilcox segment, $0.1 million and $0.4 million, respectively in the Vølund & Other Renewable segment, $0.0 million and $0.1 million, respectively in the SPIG segment, and $(0.2) million and $2.6 million, respectively in Corporate. Beginning in the third quarter of 2019, stock compensation is no longer considered in Adjusted EBITDA for purposes of managing the business, and prior periods have been adjusted to be presented on a comparable basis.
| ^(2)^ | The Babcock & Wilcox segment adjusted EBITDA, for the three and twelve months ended December 31, 2018, excludes $6.6 million and $25.4 million, respectively of net benefit from pension and other postretirement benefit plans, excluding MTM adjustments, that were previously included in the segment results. Beginning in 2019, net pension benefits are no longer allocated to the segments, and prior periods have been adjusted to be presented on a comparable basis. |
|---|---|
| ^(3)^ | Allocations are excluded from discontinued operations. Accordingly, allocations previously absorbed by the MEGTEC and Universal businesses in the SPIG segment have been included with other unallocated costs in Corporate, and total $2.9 million and $11.4 million, respectively for the three and twelve months ended December 31, 2018. |
| --- | --- |
| ^(4)^ | In March 2019, we entered into a settlement in connection with an additional European waste-to-energy EPC contract, for which notice to proceed was not given and the contract was not started. The settlement eliminates our obligations to act, and our risk related to acting, as the prime EPC should the project have moved forward. |
| --- | --- |
^(5)^ Figures may not be clerically accurate due to rounding.
Reconciliation of Adjusted Gross Profit (Loss)^(2)^
(In millions)
| Three months ended December 31, | Twelve months ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | |||||||||
| Adjusted gross profit (loss) ^(1)^ | ||||||||||||
| Operating income (loss) | $ | 10.0 | $ | (137.7 | ) | $ | (29.4 | ) | $ | (426.6 | ) | |
| Selling, general and administrative ("SG&A") expenses | 30.5 | 47.2 | 150.6 | 198.2 | ||||||||
| Advisory fees and settlement costs | 5.1 | 3.2 | 27.9 | 18.6 | ||||||||
| Inventory reserve in Cost of Operations for strategic change in China | — | 1.4 | — | 1.4 | ||||||||
| Trade receivable reserve in SG&A for Chinese operations | — | 5.8 | — | 5.8 | ||||||||
| Intangible amortization expense | 1.0 | 1.3 | 4.3 | 6.7 | ||||||||
| Goodwill impairment | — | 2.5 | — | 40.0 | ||||||||
| Restructuring activities and spin-off transaction costs | 2.1 | 3.2 | 11.7 | 16.8 | ||||||||
| Research and development costs | 0.6 | 0.9 | 2.9 | 3.8 | ||||||||
| (Gain) loss on asset disposals, net | (3.7 | ) | — | (3.9 | ) | 1.4 | ||||||
| Equity in income and impairment of investees | — | (0.2 | ) | — | 11.6 | |||||||
| Adjusted gross profit (loss) | 45.6 | (72.3 | ) | 164.0 | (122.2 | ) |
Adjusted gross profit by segment is as follows:
| Three months ended December 31, | Twelve months ended December 31, | |||||
|---|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | |||
| Adjusted gross profit (loss) ^(1)^ | ||||||
| Babcock & Wilcox segment | 39.0 | 45.9 | 148.9 | 141.1 | ||
| Vølund & Other Renewable segment | 5.6 | (101.2 | ) | 9.0 | (238.1 | ) |
| SPIG segment | 1.0 | (16.9 | ) | 6.1 | (25.1 | ) |
| Adjusted gross profit (loss) | 45.6 | (72.3 | ) | 164.0 | (122.2 | ) |
^(1)^ Intangible amortization is not allocated to the segments' adjusted gross profit, but depreciation is allocated to the segments' adjusted gross profit.
^(2)^ Figures may not be clerically accurate due to rounding.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Babcock & Wilcox Enterprises, Inc.
March 31, 2020 By: /s/ Louis Salamone Louis Salamone
Executive Vice President, Chief Financial Officer and
Chief Accounting Officer
Exhibit
| Exhibit 99.1 |
|---|
31-Mar-2020
Babcock & Wilcox Enterprises, Inc.(BW)
Q4 2019 Earnings Call
Babcock & Wilcox Enterprises, Inc. (BW)
Q4 2019 Earnings Call 31-Mar-2020
Total Pages: 11
CORPORATE PARTICIPANTS
Megan Wilson Louis Salamone
Vice President, Corporate Development & Investor Relations, Babcock Chief Financial Officer, Babcock & Wilcox Enterprises, Inc. & Wilcox Enterprises, Inc.
Kenneth M. Young
Chief Executive Officer, Babcock & Wilcox Enterprises, Inc.
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OTHER PARTICIPANTS
Max Williams Batzer
Portfolio Manager, Wynnefield Capital Management LLC
Robert Cathey
SCW Capital
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MANAGEMENT DISCUSSION SECTION
Operator: Ladies and gentlemen, thank you for standing by and welcome to the Babcock & Wilcox Enterprises Fourth Quarter and Full Year 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Megan Wilson, Vice President, Investor Relations. Thank you. Please go ahead.
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Megan Wilson
Vice President, Corporate Development & Investor Relations, Babcock & Wilcox Enterprises, Inc.
Thank you, Shantel, and good afternoon, everyone. Welcome to Babcock & Wilcox Enterprises fourth quarter and full year 2019 earnings conference call. I'm Megan Wilson, Vice President of Investor Relations at B&W. Joining me this afternoon are Kenny Young, B&W's Chief Executive Officer; and Lou Salamone, Chief Financial Officer, to discuss our fourth quarter and full year results.
During this call, certain statements we make will be forward-looking. These statements are subject to risks and uncertainties, including those set forth in our Safe Harbor provision for forward-looking statements that can be
Babcock & Wilcox Enterprises, Inc. (BW)
Q4 2019 Earnings Call 31-Mar-2020
found at the end of our earnings press release and also in our Annual Report on the Form 10-K that is on file with the SEC and provide further detail about the risks related to our business. Additionally, except as required by law, we undertake no obligation to update any forward-looking statements.
We also provide non-GAAP information regarding certain of our historical results to supplement the results provided in accordance with GAAP. This information should not be considered superior to or as a substitute for the comparable GAAP measures. A reconciliation of historical non-GAAP measures can be found in our fourth quarter and full year earnings release published yesterday afternoon.
With that, I will turn the call over to Kenny.
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Kenneth M. Young
Chief Executive Officer, Babcock & Wilcox Enterprises, Inc.
Thanks, Megan, and good afternoon, everyone, and thanks for taking the time to join us today.
Our 2019 results really demonstrate the effectiveness of our proven and experienced management team and implementation of our turnaround strategy. Our employees and technology are unsurpassed within the power industry, and we are executing on our operational and cost saving initiatives. We've achieved steadily increasing profitability for three consecutive quarters in 2019 on an adjusted EBITDA basis.
In the fourth quarter, we generated positive GAAP income from continuing operations for the first time since the third quarter of 2016. Our transformation has been accelerating, and we entered 2020 in our strongest position in years driving cost savings, improving operating margins, strengthening our balance sheet, growing profitable revenues and pursuing a robust pipeline of new opportunities worldwide. Our focus is bottom line results and strong cash management.
Like many companies around the world, we have been affected by the actions taken or being taken by various local and national governments worldwide due to the global COVID-19 pandemic and to control its spread. Several of our major offices and many of our projects are located in areas with restrictions that necessitate work from home arrangements and that force delays and deferrals in many of our projects. Like every company impacted by the pandemic, it's impossible for us to fully predict the extent or timing, including its influence on our liquidity and ongoing refinancing process.
However, in this time of crisis throughout the world, two key points encourage and drive us forward at Babcock & Wilcox. The first is that we are part of a critical industry. We provide products and services needed to ensure power and energy infrastructure in the US and around the world is available and ready to support our communities, and help deliver the products, technologies and services necessary to overcome this crisis. As such, we are deemed an essential business and we are able to continue operating and supporting our customers as requested.
We are in continual contact with our customers, suppliers, lenders and various government officials to work together on ways to deal with the challenges the pandemic presents, and we appreciate the support and collaboration we're seeing across the board. In addition, because of the critical nature of our business, we expect that a majority of revenues that are deferred due to the pandemic will eventually return in the fall of 2020 or the spring of 2021, depending on certain customer and project specific factors.
The second key point is that we have a talented and dedicated and experienced set of employees and management here at BW. This team has been honed and strengthened by the challenges that our businesses have faced in the past four years. As we grapple with the effects of the pandemic and related restrictions on our
Babcock & Wilcox Enterprises, Inc. (BW)
Q4 2019 Earnings Call 31-Mar-2020
day-to-day lives, our employees have continued to demonstrate their commitment to ensuring our work continues, recognizing how critical it is to our customers and the people and communities they serve.
As I said, we can't fully predict the future impact of COVID-19 on our business and it's causing significant challenges. However, taken together, the fact that we are a critical industry provider, that we have a strong base
and experienced and dedicated employees gives me the confidence that when the impacts of COVID-19 are better understood and managed globally and current restrictions are eased at the appropriate time, B&W will be well-positioned to continue executing our strategy to leverage our best-in-class core technologies, engineering and services to provide support – to support our customers around the globe. We will be able to drive forward with projects delayed or deferred because of the pandemic conditions, when the pandemic conditions allow, as we continue to pursue our strong pipeline of opportunities around the world.
I'll now turn the call over to Lou to discuss the fourth quarter 2019 in detail as we – as well as our full year results. Lou?
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Louis Salamone
Chief Financial Officer, Babcock & Wilcox Enterprises, Inc.
Thank you, Kenny. I'll review our fourth quarter 2019 consolidated and segment results in detail, and then I'll turn to our full year 2019 consolidated results. Further detail on our full year results can be found in the 10-K which we filed with the SEC.
Our fourth quarter consolidated revenues were $180.4 million. This was a decrease of about 19% compared to our fourth quarter 2018. This decrease was expected due to our focus on our core technologies and profitability, as well as some lower volume of periodic large construction new build projects in the B&W segment, which were completed prior in the year.
Our GAAP operating income for the fourth quarter was $10 million, inclusive of restructuring and settlement costs and advisory fees of approximately $7.2 million, compared to an operating loss of $137.7 million in the fourth quarter of 2018. The improvement in operating income was primarily due to improved gross margins in the Babcock & Wilcox segment, the absence of losses on our six European EPC loss contracts and the change in the strategy in the SPIG segment to improve its profitability by focusing on more selective bidding in core geographies and products. Our consolidated adjusted EBITDA also improved to a positive $19.3 million compared to a negative $114.2 million in the fourth quarter of 2018.
I'll now move and cover the fourth quarter segment results. The revenues in the Babcock & Wilcox segment were $137 million in the fourth quarter of 2019, a decrease of approximately 33.7% compared to the $206 million in the prior year period. This was primarily attributable to lower volume of large construction new builds in the fourth quarter as was expected based on the timing of the completion of some of our construction projects.
Adjusted EBITDA in the fourth quarter of 2019 was $19.1 million. This is a decrease of 33.6% compared to the $28.8 million in last year's quarter and was primarily due to the effects of lower volume. The segment adjusted EBITDA margin was 13.9% in the quarter at aboutthe same as the period for last year.
Fourth quarter adjusted gross profit in the segment was $39 million, a 15% decrease compared to the prior year period, primarily due to the decreased volume, which was partially offset by the benefits of our cost reduction processes. Gross profit margin improved to 28.4% as compared to 22.2% in the same prior period last year, primarily due to an improved revenue mix and increased proportion of higher margin parts sales and cost savings benefits.
Babcock & Wilcox Enterprises, Inc. (BW)
Q4 2019 Earnings Call 31-Mar-2020
Moving on to the SPIG segment, as expected, due to our change in strategy, revenues decreased 48.1% to $18.7 million in the fourth quarter of 2019 compared to $36 million in the fourth quarter of 2018. This anticipated decrease was mainly due to lower volume of new build cooling systems projects following a shift to more selectively bid and focus on core geographies and products to improve our profitability.
Adjusted EBITDA was a negative $600,000, an improvement of $28.1 million over the prior year which was a negative $28.7 million. This was driven by our new strategy and the benefits of restructuring, SG&A cost savings and operating cost reductions. Adjusted gross profit margin improved to a positive $1 million in the fourth quarter of 2019 as compared to a negative $16.9 million in the prior year period primarily due to the effects of our new strategy.
Revenues in the Vølund & Other Renewable segment were $26.3 million for the fourth quarter of 2019 compared to a negative $10.3 million in the fourth quarter of 2018. Our fourth quarter revenues in this segment were higher compared to the prior year due to the impact of previously disclosed settlement related to certain EPC loss projects on 2018 revenues as well as increased volume in the segment's operations and maintenance, licensing and environmental lines, and partially offset by the sale of Loibl, which generated revenues of approximately $7.6 million in the prior year quarter.
Adjusted EBITDA in the quarter improved to a positive $2 million as compared to a negative $110 million in the fourth quarter of last year, returning the segment to profitability on an adjusted EBITDA basis. This was primarily due to the absence of losses in the European EPC loss contracts and the impact of the settlement in the fourth quarter 2018 results.
In the fourth quarter 2019, the segment recorded a gain of $1.2 million on the European EPC loss contracts as compared to $104 million of equivalent losses recorded in the fourth quarter of 2018, and this is inclusive of warranty expense. The segment had one remaining extended scope contract, which turned into a small loss in the fourth quarter of 2019 due to an increase in the estimate to complete this contract. This contract was, however, turned over to the customer in October of 2019.
Beyond the effect of the settlement on 2018 results and the absence of losses on the EPC loss contracts, fourth quarter 2019 adjusted EBITDA included lower levels of direct overhead support and lower SG&A, partially offset by the absence of the gross profit from Loibl due to its sale.
The segment adjusted gross profit was a positive $5.6 million in the fourth quarter of 2019, an improvement of $106.8 million compared to the negative $101.2 million reported in the fourth quarter of 2018.
I'll now turn to our full year results for 2019. For 2019 full year, the consolidated revenues were $859.1 million, an expected decrease of approximately 19% compared to 2018 and this was driven by the company's focus on our core technologies and on profitable – bidding on profitable contracts across all segments, as well as the completion of the European EPC loss contracts.
GAAP operating loss for 2019 was $29.4 million. That's inclusive of restructuring and settlement costs and advisory fees of $39.7 million compared to an operating loss of $426.6 million in 2018. The improvement in operating income was primarily due to improved gross margins in the Babcock & Wilcox segment, significantly lower level of losses on the European EPC loss contracts and a shift in our strategy in the SPIG segment to improve its profitability. The full year 2019 was profitable on an adjusted EBITDA basis with adjusted EBITDA of $33.3 million compared to a negative $297.7 million adjusted EBITDA in 2018.
I'll now turn to highlight our cash flow, balance sheet and liquidity. Cash flow from operations in the fourth quarter of 2019 generated $24.8 million. We ended the quarter with unrestricted cash and cash equivalents of $43.8
Babcock & Wilcox Enterprises, Inc. (BW)
Q4 2019 Earnings Call 31-Mar-2020
million and our revolving debt as of December 31 was $179 million. Interest expense in the quarter was $27.5 million as compared to $13.9 million in the prior year quarter, and this increase was primarily driven by increases in amortization or accretion of deferred or contingencies related to our revolving credit facility and our last-out term loans.
We are continuing to pursue cost recoveries under various insurance policies and from subcontractors for the European EPC loss contracts. We've nearly completed the implementation of our cost saving initiatives that were targeted to be $119 million on an annualized basis. As of the end of the fourth quarter, roughly 97% of these
savings measures have been implemented with the balance to be implemented in the first half of 2020. We will continue to look for additional opportunities to increase our efficiencies and we are also continuing to evaluate potential dispositions as appropriate.
As Kenny mentioned, before we began to feel the effects of COVID-19, the business was progressing as planned for the first quarter of 2020. We are an essential business. We support critical US and international energy and industrial infrastructure. We have a proven and experienced management team and an employee team that engineered the turnaround of our business last year. They are even more determined this year as we plan and implement changes throughout our operations in response to the unprecedented impacts of COVID-19.
Our business has been significantly affected by COVID-19 and the pandemic has caused uncertainty in the global financial markets. It's impossible to predict the impact, the uncertainty that has been created by this pandemic and what it will have on our business, liquidity and our other financial resources. However, we're focused on managing our costs and our cash flows through this crisis, while we are continually evaluating the effects of the financial market disruption on our business, and most importantly, to support our customers in the long term.
I'll now turn it back over to Kenny. Kenny?
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Kenneth M. Young
Chief Executive Officer, Babcock & Wilcox Enterprises, Inc.
Thanks, Lou. Yes. Can you hear me?
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Louis Salamone
Chief Financial Officer, Babcock & Wilcox Enterprises, Inc.
Yes.
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Kenneth M. Young
Chief Executive Officer, Babcock & Wilcox Enterprises, Inc.
There we go.
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Louis Salamone
Chief Financial Officer, Babcock & Wilcox Enterprises, Inc.
We can hear you.
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Babcock & Wilcox Enterprises, Inc. (BW)
Q4 2019 Earnings Call 31-Mar-2020
Kenneth M. Young
Chief Executive Officer, Babcock & Wilcox Enterprises, Inc.
Thanks, Lou. Our performance in the fourth quarter of 2019 shows we've turned the corner on improving our profitability, following our recent strategic actions and cost saving efforts, entering 2020 in a position of strength, our demonstrated track record and working through significant challenges, while continuing to execute to provide confidence to our customers, lenders and shareholders, and our ability to successfully lead the business through this unprecedented period in recent global history.
We are communicating daily with each business segment and profit and loss leader in the company around the world to understand the impact of the pandemic as well as the related cash flows and contingencies on a project by project basis. We have strength in knowing the majority of our revenues that are deferred due to COVID-19 are expected to return in the fall of 2020 or spring of 2021, depending on the customers and various stages of each project.
We are working daily with our customers to support them throughout this period as well as continuing certain projects while planning the remobilization of delayed projects. We are also focusing on supporting our customers in our energy infrastructure, taking care of our employees and managing our cash flow and liquidity through this crisis to protect our fundamentally strong core business for the long term.
I will now turn the call back over to Shantel who will assist us in taking your questions.
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QUESTION AND ANSWER SECTION
Operator: [Operator Instructions] Your first question comes from Max Batzer with Wynnefield Capital. Your line is open.
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Max Williams Batzer Q
Portfolio Manager, Wynnefield Capital Management LLC
Hi, good afternoon. And I'd like to start by saying you guys have done a lot of heavy lifting last year, and it's certainly as in many companies that as you pointed out in your remarks Kenny, it is very tough after you've done all this work to be faced with the great unknown that we are looking at. And so, first of all, congratulations on good work on the heavy lifting that you've done and much to come.
Second of all, and now some questions, you're considered an essential business, does that apply in all jurisdictions that you're doing business here and other countries? Is there an essential business designation that [indiscernible] (21:26) all over the place?
Babcock & Wilcox Enterprises, Inc. (BW)
Q4 2019 Earnings Call 31-Mar-2020
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Kenneth M. Young A
Chief Executive Officer, Babcock & Wilcox Enterprises, Inc.
Yeah. Can you hear me, okay? Sorry, we're doing this remotely.
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Max Williams Batzer Q
Portfolio Manager, Wynnefield Capital Management LLC
Yeah. [indiscernible] (21:30). Thank you. Don't worry about it. I got you.
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Kenneth M. Young A
Chief Executive Officer, Babcock & Wilcox Enterprises, Inc.
No, no, it's fine. We are an essential business and filed around the world in each of our operations and providing the services where local jurisdictions deem and support essential businesses in that filing from that standpoint, clearly because of our position, and supporting not only the energy sector both in the US but around the world and waste-to-energy sector around the world. But we do provide essential technologies to hospitals, communities and other institutions, as well as the paper and pulp industry that is still a vital function occurring today. And so again doing best we can and where we can, we are providing a lot of assistance and support effectively to those businesses as well too. But we are deemed essential and again jurisdictionally around the world, they call it different names where we are--we're deemed that way.
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Max Williams Batzer Q
Portfolio Manager, Wynnefield Capital Management LLC
Got it. A rose by any of the names is still a rose. Are you finding any difficulty in keeping the people healthy and keeping your operation staffed? Is it [indiscernible] (22:42)?
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Kenneth M. Young A
Chief Executive Officer, Babcock & Wilcox Enterprises, Inc.
No. Good question. From a company perspective, as of right now, we're not directly aware of any of our employees that have been tested positive for the virus. We clearly are taking significant steps, like most companies today around the world, both from a proactive standpoint, from a company perspective, also following closely not only here in the US with CDC and local guidelines and regulations with state local officials, but
Babcock & Wilcox Enterprises, Inc. (BW)
Q4 2019 Earnings Call 31-Mar-2020
internationally as well too working with the foreign governments and following those guidelines as well, and doing our best to keep our employees safe.
Clearly, like many companies, we established a strong work at home presence. There are a few cases and if you ask aspects where we do have employees that need to go into the office you know obviously from an engineering perspective need to access certain technologies that would not be appropriate from a work at home, but we are taking those proactive measures. Our customers are supportive and working, and we're working with them to follow any of the compliance standards that they may be implementing as it relates to on-site activities when and where possible, and we're following their lead as well too on those employees and so far, we're very thrilled with the fact that we've not had any direct impact by our employees on a worldwide basis from a test-positive standpoint any of the virus.
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Max Williams Batzer Q
Portfolio Manager, Wynnefield Capital Management LLC
Well, may it remain so and you know the work that you do requires people out on the line as well as on the computer, so that's good news. I've got two more short ones. One, how does this impact the refi that you were thinking of doing, I mean are you still active on that, are you still – are given your results in the fourth quarter, are institutions being supportive and is there chance moving ahead there?
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Kenneth M. Young A
Chief Executive Officer, Babcock & Wilcox Enterprises, Inc.
Yeah, Max, good question. We're – you know obviously the impacts of this virus on the business as we talked about in deferring a lot of revenues and projects, it obviously presents challenges as it relates to the refinancing effort and process at this point in time, and we're working closely with all lenders in discussions. At this point, I wouldn't want to go too much further than that, but you know we're in talks with the lenders as well as others around working and managing through all of this process at this point. But clearly, the COVID impact is felt, and it will be felt in the business and as well as in the refinancing, how far, we don't know and we're working through that real-time as we speak.
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Max Williams Batzer Q
Portfolio Manager, Wynnefield Capital Management LLC
Well, that I'm glad to hear that at least you're still active on it and where there is like yourself and we've got to get through this and after the work you guys have done, I'm sure that there is some acknowledgment in the lending community and let's see how it plays out, last question and thank you very much for giving me this time. What's your cash burn [indiscernible] (26:00)?
Babcock & Wilcox Enterprises, Inc. (BW)
Q4 2019 Earnings Call 31-Mar-2020
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Kenneth M. Young A
Chief Executive Officer, Babcock & Wilcox Enterprises, Inc.
Lou, do you want to take that, go ahead?
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Max Williams Batzer Q
Portfolio Manager, Wynnefield Capital Management LLC [indiscernible] (26:06).
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Louis Salamone A
Chief Financial Officer, Babcock & Wilcox Enterprises, Inc.
Yeah. Operationally, cash right now is positive. Obviously, we can't really judge the future impacts, although we've been working closely on the COVID-19 pandemic. But right now, we have been utilizing our revolver and so far, we've been able to generate cash flow through borrowings and through the operations of our company.
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Max Williams Batzer Q
Portfolio Manager, Wynnefield Capital Management LLC
Well, let's hope that the operations continue. So, you don't have to impact revolver too hard, and I guess that we'll just have to see once again how that plays out. Thank you very much for taking my questions.
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Kenneth M. Young A
Chief Executive Officer, Babcock & Wilcox Enterprises, Inc.
Thank you, Max.
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Max Williams Batzer Q
Portfolio Manager, Wynnefield Capital Management LLC
Good luck, guys.
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Babcock & Wilcox Enterprises, Inc. (BW)
Q4 2019 Earnings Call 31-Mar-2020
Kenneth M. Young A
Chief Executive Officer, Babcock & Wilcox Enterprises, Inc.
Thank you.
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Operator: [Operator Instructions] Your next question comes from Robert Cathey with SCW Capital. Your line is open.
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^^Q
Hey, guys. Yeah, I'd like to reiterate...
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Kenneth M. Young A
Chief Executive Officer, Babcock & Wilcox Enterprises, Inc.
Hey, Robert.
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^^Q
...thanks so much for the hard work here. We appreciate it. I know you guys have been through a lot. I was just curious on, I know you can't comment on the specifics of likelihood of financing, but what is that, what do you need and perhaps what do you want in the form of the facility that would – I mean what would work and then what would be your ideal wish list?
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Kenneth M. Young A
Chief Executive Officer, Babcock & Wilcox Enterprises, Inc.
Well, I think from our – Robert, the best way I can answer that I think and Lou feel free to chime in, but I think the best way I can answer that is clearly right now like every other company around the world, we're, first and
Babcock & Wilcox Enterprises, Inc. (BW)
Q4 2019 Earnings Call 31-Mar-2020
foremost, trying to protect our customers and employees and making sure that we have capital sufficient to work through this particular period where projects are delayed or deferred. So, we're working as I mentioned in the briefing here, we're working 24/7 literally. I mean, it literally is probably 18 hour days right now, we are around the world working project by project on a day in, day out basis to really ascertain the impact of the cash flows in the projects either by cases where we have to defer a project, delay a project where the client has chosen to take initiatives to limit the number of personnel on site, and therefore certain projects have been delayed or deferred.
I think our standpoint and what we're trying to identify, I wouldn't want to go into details here, but what we're trying to identify is what is the gap, if you will, in working through this period, so it's obviously questions we all have as it relates to how long will this period last and when will globally the various government actions allow us to get back to work and some normality in the business. Some of that will happen in phases, some of that will hopefully start shortly here this summer and again in certain parts of the world it is where some of these lockdowns and shutdowns and quarantines will start to be lifted possibly, others will be deferred to the fall yet. Others right now are still being – we're working through with the customers to determine whether or not that would occur in the fall, that occurs in spring or if they shifted out a full year, and these are all in various stages right now, and we are
working to identify that. It depends on obviously how long this lasts and when we can get back to work and obviously start recognizing revenue.
At the same time, we're working through that. We're also working with various government officials and various government programs that all of you are following, trying to ascertain which of those programs or grants or loans or deferment of taxes and otherwise that we can leverage as a company and implement within our cash flow strategies. We're watching that very closely. We have a number of professional resources assisting with that. We are obviously doing that from a company standpoint as well. And we're just a little bit early as it relates to what are those opportunities. You know we can – we've all I'm sure stayed on top of the news and we have ideas and concepts that we think. We'll be able to support the company but not to the point that we can 100% plan on those. And we're working through that real time and then working with our lenders real-time as it relates to how much cash will need to support.
So it's all in a real-time aspect. And obviously, as we announce programs that were cost containments or other programs to defer some cash flows, some of that we will have to publicly announce and we'll do so and others we will do as it just relates to good prudence on managing the business at this point, but it's too early to really tell the full impact and we'll – we're obviously working on that real-time with everyone, our stakeholders, shareholders and board to determine that and work through how best we can manage through this period.
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^^Q
Okay. Well, that's helpful. I appreciate. And again, good luck, guys, and thanks for the hard work.
Babcock & Wilcox Enterprises, Inc. (BW)
Q4 2019 Earnings Call 31-Mar-2020
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Kenneth M. Young A
Chief Executive Officer, Babcock & Wilcox Enterprises, Inc.
Yeah. No problem. Thanks for the support. We appreciate that.
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Operator: There are no further questions at this time. I'll now turn the call back over to the presenters for closing remarks.
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Megan Wilson
Vice President, Corporate Development & Investor Relations, Babcock & Wilcox Enterprises, Inc.
Thank you for joining us. That concludes our conference call. A replay will be available for a limited time on our website later today.
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Operator: This concludes today's conference call. You may now disconnect.