Babcock & Wilcox Enterprises, Inc. — Q1 2020 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2020, compared with Q1 2019. The company operates in power-generation and industrial equipment and services, renewable energy, and engineered cooling systems. COVID-19 restrictions disrupted customer and project-site access, travel, and operations during the quarter.
Financial performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $148.6 million | $231.9 million |
| Operating loss | $10.3 million | $32.0 million |
| Loss from continuing operations | $33.5 million | $49.9 million |
| Net loss attributable to stockholders | $31.5 million | $49.8 million |
| Basic and diluted loss per share | $0.68 | $2.71 |
| Adjusted EBITDA | $0.7 million | $(4.4) million |
| Cash used in operating activities | $35.5 million | $37.7 million |
- Segment results: Babcock & Wilcox revenue was $122.0 million and adjusted EBITDA was $10.7 million, versus $188.6 million and $9.1 million. Vølund & Other Renewable revenue was $15.3 million and adjusted EBITDA was $(3.3) million, versus $29.5 million and $(8.8) million. SPIG revenue was $11.3 million and adjusted EBITDA was $(1.2) million, versus $28.9 million and $0.7 million.
- Cash and liquidity at March 31: Cash and cash equivalents were $35.4 million; restricted cash was $11.0 million. The company reported $321.1 million of debt: $185.0 million drawn on its revolving facility and $136.1 million of last-out term loans. Approximately $20.0 million was available for additional revolver borrowings. Cash used in investing activities was $4.5 million and financing activities provided $30.8 million; cash, cash equivalents and restricted cash decreased by $10.6 million to $46.4 million.
- Balance sheet: Total assets were $596.1 million, total liabilities $919.8 million, and stockholders’ deficit $323.7 million at March 31, 2020.
- Backlog and bookings: Backlog was $501 million, down from $766 million a year earlier; bookings were $209 million versus $216 million. Management expected to recognize $178 million of backlog revenue during the remainder of 2020, $141 million in 2021, and $182 million thereafter.
Material changes versus Q1 2019
- Revenue fell $83.4 million, mainly because several large Babcock & Wilcox construction projects were completed, Vølund activity declined, and SPIG pursued more selective bidding. Vølund revenue also reflected the Loibl divestiture.
- Operating loss improved by $21.7 million. Management cited stronger Babcock & Wilcox parts margins and restructuring savings, and lower Vølund losses on legacy European EPC contracts. Lower revenue and weaker mix weighed on SPIG.
- Net loss narrowed, but interest expense nearly doubled to $22.1 million from $11.1 million, reflecting financing and fee costs. Foreign-exchange losses remained significant at $9.3 million, versus $10.2 million.
- The share count used for EPS was 46.4 million versus 18.4 million; prior-period share and per-share data reflect the 2019 rights offering and reverse split.
Outlook, liquidity, risks and unusual items
- Refinancing after quarter-end: On May 14, 2020, the company amended and restated its credit agreement. Revolver maturity was extended to June 30, 2022 and term-loan maturity to December 30, 2022. B. Riley committed up to $70 million of additional term loans, including $30 million funded at signing; further funding is subject to stated conditions. The agreement provides for a $30 million minimum liquidity condition and suspends certain financial covenant testing through September 30, 2020, with covenant levels to be renegotiated by October 31, 2020. Revolver interest was reduced to LIBOR plus 7% or base rate plus 6%, while term loans carry a 12% rate.
- Before the refinancing, liquidity uncertainty and the approaching debt maturity had raised substantial doubt about the company’s ability to continue as a going concern. Following the refinancing and cost-saving actions, management said it projected sufficient liquidity for at least one year after issuance of the statements and concluded substantial doubt was alleviated. This depends on financing commitments, covenant renegotiation, operations, and other assumptions.
- COVID-19 response measures included payroll reductions and furloughs, executive compensation deferrals, suspension of the U.S. 401(k) match for the rest of 2020, and rent deferrals. The company also deferred a $5.5 million pension contribution under the CARES Act. A separate pension-waiver request, if granted, could reduce 2020 cash funding needs by about $25 million; approval was not assured.
- Management expected continued cost savings and opportunities in core technologies and services, but gave no quantified revenue or earnings guidance. It warned that COVID-19, project delays, customer activity, financing availability, and economic conditions could materially affect results and liquidity.
- Contract execution remains a risk: the company had six legacy Vølund European EPC loss contracts and two significant SPIG loss contracts. Estimated liquidated damages on the six Vølund contracts totaled $86.5 million; most were turned over, with punch-list, remediation, or testing work remaining. The company was pursuing insurance and subcontractor recoveries for structural-steel-related costs estimated at approximately $36 million.
- Other significant exposures include a Glatfelter lawsuit alleging damages above $58.9 million, for which the company said the outcome could not yet be assessed, and an SEC investigation into Vølund accounting and related matters from 2015–2019, with potential claims and no estimable loss range. A stockholder derivative and class action was filed in April 2020.
- The company recorded no goodwill or long-lived-asset impairment in Q1 despite a significant share-price decline and COVID-19-related impairment reviews. Such assessments rely on forecasts and other assumptions. The quarter also included $4.2 million of advisory and settlement costs and a $0.9 million net gain on asset disposals.
Important facts for investors to verify
- Whether B. Riley’s remaining committed financing is funded as scheduled and whether the company meets liquidity, letter-of-credit, and covenant requirements after the refinancing.
- Actual cash burn, access to cash held outside the United States, and the outcome of pension contribution waiver requests and deferred contributions.
- COVID-19 effects on project access, completion timing, customer demand, revenue, and backlog conversion.
- Final costs, liquidated damages, warranty obligations, and potential recoveries on Vølund and SPIG contracts.
- Developments in the SEC investigation, Glatfelter litigation, and stockholder litigation, including any material change in potential exposure.
- Whether improvement in operating results and segment profitability persists despite lower revenue and elevated debt-related costs.