Babcock & Wilcox Enterprises, Inc. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing. Financial comparisons are with fiscal 2019; subsequent financing events through March 2021 are noted separately. B&W provides renewable energy, emissions-control, steam-generation equipment, and related services through Renewable, Environmental, and Thermal segments.
Financial performance and liquidity
| Metric | FY 2020 | FY 2019 |
|---|
| Revenue | $566.3 million | $859.1 million |
| Operating loss | $1.7 million | $29.4 million |
| Net loss attributable to stockholders | $10.3 million | $122.0 million |
| Adjusted EBITDA (non-GAAP) | $45.1 million | $45.0 million |
| Cash used in operating activities | $40.8 million | $176.3 million |
| Unrestricted cash at year-end | $57.3 million | $43.8 million |
| Total debt at year-end | $347.6 million | Debt was reclassified between current and non-current following amendments |
- Revenue fell 34% year over year. The decline reflected COVID-19-related project delays and lower activity, as well as prior-year completion of large construction projects and the 2019 Loibl divestiture.
- The reported operating loss improved by $27.6 million. Adjusted EBITDA was essentially unchanged, but FY 2020 included a $26.0 million insurance recovery tied to historical Renewable EPC losses; it is therefore an important non-recurring factor when assessing underlying performance.
- Net loss narrowed substantially. Other material items included a $58.8 million foreign-exchange gain in 2020 versus a $16.6 million loss in 2019, and a $23.2 million pension/postretirement mark-to-market loss versus an $8.8 million gain. Interest expense was $59.8 million, down from $94.9 million.
- Operating cash outflow improved from $176.3 million to $40.8 million, but remained negative. Management attributed 2020 operating cash use primarily to the change in accounts payable.
- At year-end, current assets were $388.8 million and current liabilities were $270.8 million; the balance sheet also showed a $338.3 million stockholders’ deficit. Cash included $38.7 million held by foreign entities, which management said was generally not available for U.S. operations without repatriation or repayment of intercompany loans.
- At December 31, 2020, the company reported $164.3 million drawn on its revolving facility and $183.3 million of Last Out Term Loans, with approximately $33.7 million available for borrowing and letter-of-credit needs. Revolving-facility commitments were $306.2 million at year-end, but subsequent amendments materially changed the facility.
Segments and material changes
| Segment | 2020 revenue | Change vs. 2019 | 2020 adjusted EBITDA |
|---|
| Renewable | $156.2 million | Down $49.4 million | $25.0 million |
| Environmental | $108.0 million | Down $167.7 million | $3.5 million |
| Thermal | $305.0 million | Down $104.8 million | $35.4 million |
- Renewable adjusted EBITDA improved from $1.6 million, primarily reflecting the $26.0 million insurance settlement and lower costs to complete legacy loss contracts; segment revenue declined 24%.
- Environmental revenue fell 61%, mainly after large projects completed and customers deferred new work. Adjusted EBITDA declined to $3.5 million.
- Thermal revenue fell 26% and adjusted EBITDA fell 31%, reflecting lower project activity; favorable product mix and restructuring savings helped keep adjusted gross profit approximately flat.
- Bookings increased to $645 million from $516 million, and year-end backlog rose to $535 million from $441 million. The filing cautions that backlog can be delayed, changed, or cancelled; $164.1 million of Renewable backlog relates to long-term operations and maintenance contracts extending as far as 2034.
- Coal-related work represented an estimated 43% of 2020 revenue, versus 45% in 2019. International customers accounted for approximately 45% of revenue.
Outlook, financing, risks, and unusual items
- Management said it expected continued improvement in 2021 compared with 2020, supported by cost reductions and opportunities in core technologies and services, while warning of typical quarterly variability and cyclicality. It did not provide quantified financial guidance.
- COVID-19 delayed projects into 2021 and beyond, constrained travel and field work, and increased employee-protection costs. Management said the full operational and financial impact remained uncertain.
- After year-end, the company completed a common-stock offering that issued 29.5 million shares and generated approximately $163 million net proceeds before expenses, and issued $125 million principal amount of 8.125% senior notes, generating approximately $120 million net proceeds before expenses. It also issued $35 million of notes to related party B. Riley in exchange for a deemed term-loan prepayment.
- In February and March 2021, the company applied offering proceeds to reduce secured borrowings; it reported a $167.1 million revolving-facility prepayment and, on March 4, a $75 million payment on Last Out Term Loans plus $21.8 million of fees. Amendment No. 3 reduced revolving commitments to $130 million and removed the ability to obtain revolving loans. These transactions improved the debt position but changed available liquidity and letter-of-credit capacity.
- At year-end, the revolving facility matured June 30, 2022 and the Last Out Term Loans December 30, 2022. The company warned that refinancing might not be available on acceptable terms or at all; failure could materially harm liquidity and could require a reorganization. Its customer contracts also require substantial bonding and letters of credit.
- Legacy Renewable EPC loss contracts remained a source of cost and execution risk. The company recorded $3.7 million of net losses on the six European contracts in 2020 and reported $95.6 million of total anticipated liquidated damages for those contracts. Structural-steel issues across three projects had generated approximately $36 million of estimated costs; recovery from responsible subcontractors remained uncertain.
- Defined-benefit pension and postretirement plans were underfunded by approximately $248.2 million at year-end. COVID-era contribution deferrals included $23.7 million for the 2019 plan year to be funded over five years; the filing also reports substantial expected 2021 plan contributions.
- Contingencies include an SEC formal investigation into Renewable-segment accounting charges and related matters from 2015–2019; the company said potential losses could not be estimated. In Glatfelter litigation, the complaint sought more than $58.9 million; the court dismissed fraud and negligent-misrepresentation claims and found that, if the contract is valid, damages are subject to a contractual cap based on the $11.7 million purchase price, subject to adjustments. B&W filed a counterclaim seeking more than $2.9 million.
- Other risks include fixed-price contract cost overruns, customer and supplier credit risk, sensitivity to energy-sector spending and emissions policy, foreign-exchange exposure without hedging, pension-market volatility, environmental liabilities, and significant influence by B. Riley and Vintage. The auditor issued an unqualified opinion on the financial statements; management reported effective disclosure controls and internal control over financial reporting.
Investor verification priorities
- Reconcile post-year-end offering proceeds, debt repayments, fees, and the amended $130 million facility terms to current cash, borrowing availability, and letter-of-credit capacity.
- Assess operating cash conversion and segment profitability excluding the $26.0 million insurance recovery and other significant non-recurring or non-cash items.
- Track project execution, remaining warranty and liquidated-damages exposure, and any subcontractor or insurer recoveries on legacy loss contracts.
- Review the refinancing and covenant position, pension contribution schedule, and the liquidity impact of deferred obligations.
- Monitor the SEC investigation, Glatfelter litigation, and related-party transactions and governance given B. Riley’s lending, ownership, and underwriting roles.
