Babcock & Wilcox Enterprises, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. B&W supplies renewable, environmental and thermal energy technologies, equipment and services. Comparisons are with Q1 2020 unless noted.
Financial results and position
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Revenue | $168.2 million | $148.6 million |
| Operating loss | $6.5 million | $10.3 million |
| Net loss attributable to stockholders | $15.5 million; $0.22 per share | $31.5 million; $0.68 per share |
| Adjusted EBITDA (non-GAAP) | $8.5 million | $1.0 million |
| Operating cash flow | $(54.0) million | $(35.5) million |
| Cash and restricted cash | $58.4 million, including $53.8 million unrestricted | $67.4 million at Dec. 31, 2020 |
| Total debt | $228.8 million | $347.6 million at Dec. 31, 2020 |
| Total assets / liabilities | $582.4 million / $777.8 million | $591.8 million / $930.1 million at Dec. 31, 2020 |
Revenue increased 13%, mainly from higher construction activity. Operating margin improved to approximately (3.8)% from (6.9)%. Adjusted gross profit was $38.2 million, about 22.7% of revenue, versus $35.4 million, about 23.8%; the filing presents adjusted gross profit as a non-GAAP measure. Interest expense fell to $14.2 million from $22.1 million. The 2021 net loss includes $2.8 million income tax expense; results also include a $9.1 million net pension benefit.
Segments, backlog and period-over-period changes
- Renewable: Revenue fell 20% to $28.8 million, reflecting COVID-related delays and lower activity. Adjusted EBITDA improved to $0.2 million from a $1.4 million loss.
- Environmental: Revenue rose 20% to $31.2 million; adjusted EBITDA increased to $1.1 million from $0.3 million.
- Thermal: Revenue rose 25% to $108.3 million on higher construction activity; adjusted EBITDA increased to $10.4 million from $7.6 million. Adjusted gross profit margin declined to 23.4% from 26.7%.
- Backlog was $535 million at March 31, 2021, versus $501 million a year earlier; bookings were $169 million versus $209 million. Management expects to recognize about 51% of remaining performance obligations during the rest of 2021, 18.7% in 2022 and 30.3% thereafter.
- Common shares outstanding increased to 85.7 million at March 31 from 54.5 million at year-end, primarily following the February stock offering.
Liquidity, financing and outlook
Q1 operating cash use was driven in part by pension and employee-benefit payments and working-capital movements. Financing included a February public common-stock offering that generated approximately $163 million net proceeds and a $125 million public offering of 8.125% senior notes due 2026, plus $35 million of notes issued to B. Riley in exchange for term debt. Proceeds and other cash were used to repay revolving borrowings and term loans and reduce secured-credit commitments. The remaining Last Out Term Loan balance was $73.3 million; its rate was reduced from 12% to 6.625%. The company reported no revolving loans available under its amended credit agreement, although the $130 million facility supported letters of credit; approximately $25.9 million of capacity remained for letter-of-credit requirements.
At quarter-end, $25.2 million of unrestricted cash was held by foreign entities and generally was not available to fund U.S. operations without repatriation or repayment of intercompany loans. Outstanding surety bonds supporting contracts totaled approximately $266.4 million. Subsequent to quarter-end, B&W sold $10.6 million principal of additional senior notes and completed a $100 million gross preferred-stock offering, with approximately $95.7 million net proceeds before expenses. The preferred stock carries a cumulative 7.75% dividend when declared. Management cited continued cost reductions, potential non-core asset sales and growth opportunities, but gave no specific earnings or revenue guidance.
Risks, contingencies and unusual items
- COVID-19 continued to delay projects, restrict travel and impair forecasting visibility; management said the full operational and financial impact remained uncertain.
- Liquidity and contract execution remain important risks: the company cannot draw revolving loans, depends on capacity for letters of credit and surety bonds, and is subject to tightening interest-coverage and leverage covenants.
- Six European Renewable EPC loss contracts were approximately 100% complete; associated liquidated damages totaled $92.5 million. Two significant U.S. Environmental loss contracts were approximately 99%–100% complete. The company reported no additional charges on these contracts in Q1.
- The SEC is conducting a formal investigation into accounting charges and related matters in the Renewable segment for 2015–2019. The company is cooperating but cannot estimate any potential loss; material impact cannot be ruled out. A separate customer lawsuit alleges damages above $58.9 million, with the company asserting a counterclaim above $2.9 million.
- Other notable items: $24.0 million of pension and postretirement contributions in Q1; $20.9 million of estimated 2021 pension contributions deferred under ARPA relief; and sale-leaseback of Copley, Ohio fixed assets, producing $3.3 million net proceeds and a $1.9 million gain.
Key investor checks
- Track operating cash burn, working capital and required pension contributions against available liquidity, including cash held overseas.
- Review compliance with credit-agreement covenants and the adequacy of letter-of-credit and surety capacity as contract needs evolve.
- Assess whether backlog converts to revenue on schedule and whether delayed or loss-making projects require additional costs, warranty accruals or damages.
- Follow the SEC investigation and litigation, including any changes to the company’s assessment of potential exposure.
- Evaluate dilution and financing costs from the common-stock, senior-note and preferred-stock offerings, including related-party transactions with B. Riley.