Q3 2020 Babcock & Wilcox Enterprises Inc Earnings Call

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Ladies and gentlemen, thank you for standing by welcome to the Babcock and Wilcox third quarter Twentytwenty 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 to ask a question. During the session you will need to press star one on your.

Telephone keypad, if you require any further assistance. Please press star zero I would now like to turn the call over to begin Wilson Vice President of Investor Relations. Please go ahead.

Thank you Natalia and good morning, everyone welcome to Babcock and Wilcox Enterprises' third quarter 2020 earnings conference.

This call I am Megan Wilson, Vice President of Investor Relations at BMW.

Joining me. This morning are Kenny Young Bmws, Chairman and Chief Executive Officer, and lose Salamone, Chief Financial officer to discuss our third quarter results.

During this call certain statements, we make will be forward looking.

Events are subject to risks and uncertainties, including those set forth in our safe Harbor provision for forward looking statements that can be found at the end of our earnings press release and also in our form 10-Q that will be followed by tomorrow evening and our form 10-K 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 statement.

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 measure.

There's a.

A reconciliation of historical non-GAAP measures can be found in our third quarter earnings release published this morning and in our company overview presentation filed on form 8-K. This morning and posted on the Investor Relations section of our website at Babcock Dotcom.

With that I will turn the call over to Kenny.

Thank you me again and good.

Good morning, everyone and thanks for joining our call Arthur.

Our third quarter results were stronger primarily due to a loss recovery related to our historical European APC lost projects, but also reflecting the ongoing execution of our turnaround strategy did.

Despite the challenges presented by COVID-19.

And its impact on revenues across all of our segments. Adjusted EBITDA was roughly breakeven for the quarter before the benefit of the loss recovery really demonstrating the effectiveness of our cost saving initiatives, while we continue to feel the impacts of the pandemic.

A number of projects that were previously delayed or deferred due to.

To the pandemic or now restarting.

Bookings improved significantly in the quarter, reflecting both the momentum of project restarts and the effects of our recent strategic actions, specifically, we booked a $177 million of new work in the third quarter, which is a 106% increase over the third quarter in two.

2019, and 111% sequential increase compared to the second quarter of 2020.

This improvement was driven by our rebranding and reorganization initiatives are ongoing international expansion, our extended financing agreement and the value of the technology solutions, we provide to our customers to support.

They clean sustainable energy and industrial infrastructure. This.

This includes our broad suite of advanced renewable and environmental and thermal technologies, such as high performance waste to energy systems innovative submerged grind conveyor systems and flexible natural gas fired package boilers as well as through strategic.

Our ships to accelerate advanced energy storage solutions.

Looking forward our pipeline of over $5 billion of identified opportunities that we expect to bid through 2023, which by the way does not include parts and services continues to strengthen.

And the expansion of our international presence.

Is progressing as planned.

Similar to other companies impacted by the pandemic, it's really impossible for us to fully predict the extent or timing of further COVID-19 effects how.

However, we continue to see significant opportunities to grow our business profitably benefiting from our improved.

Our project execution and operational efficiency, our focus is on the bottom line results and strong cash management, we continue to target between 70 million and $80 million of adjusted EBITDA in 2021 based on the visibility we have today.

As I say, all the time two key points drivers of Babcock and.

And Wilcox, we provide a critical and essential infrastructure products and services and our managers and employees are experienced dedicated and stronger than ever our team continues to work with commitment and scale through the pandemic and I want to recognize and thank all of our employees for all of their critical efforts.

As we announced last.

Last quarter, we have aligned our market facing segments and our financial reporting under three new segments.

NW renewable BMW environmental and BMW thermal.

These segments directly reflect our core markets technologies, and strategic pursuits, and aligned with BMW customer needs by providing technology.

These solutions to help them achieve a clean sustainable energy and industrial infrastructure.

We are working closely with various governmental agencies and NGL goes through funded projects to design and build new technologies to support environmental conditions, while reducing the carbon footprint and developing low emission.

Led technology to create energy from waste, we have the technologies expertise and qualified opportunities to expand our renewable and environmental platform significantly over the next few years, while steadily growing our traditional thermal business through our vast installed base around the world.

BW renewal.

Doable is a leader in developing ecological sound waves to use resources like biomass and waste to create clean renewable energy.

Under this brand we offer best in class highly efficient and cost effective technologies for environmentally sustainable power and heat generation and gasification, including.

Waste to energy biomass energy and black liquor systems for the pulp and paper industry. As you know waste in landfills generates large amounts of methane, which is a greenhouse gas which has a greenhouse gases is significantly more harmful on a per ton basis than carbon dioxide. We expect this segment to growth.

Most significantly worldwide as the demand for renewable waste to energy technologies and biomass systems continues to play a key role in global carbon reduction targets.

BMW environmental supports a clean energy infrastructure by providing a full suite of best in class emission controls and.

Our middle solutions for utility and industrial steam generation applications around the world. We expect our environmental segment to grow worldwide as environmental regulations continue to drive us toward a cleaner energy future. We are seeing this today and our increased bookings and strong pipeline.

And BMW thermo.

Provides proven steam generation products that are efficient safe and reliable, including steam generation equipment aftermarket parts and construction maintenance and field services for plants in the power generation oil and gas and industrial sectors. We.

We expect it to grow steadily as we expand our aftermarket services and parts.

Coal business to serve both our own vast installed base as well as our competitors units, while increasing our service capabilities worldwide.

We are also gaining momentum through upgrades complex boiler replacements and various new builds as the global energy sector looks to improve efficiency and longevity within their current fleets.

With our new organizational alignment and branding combined with our effort to broaden our global sales service and business development presence geographically, particularly in the Middle East Africa, and Asia Pac regions, we expect growth from our expanding global pipeline and improved operational execution to drive significant earnings growth.

Through 2021 and beyond.

I'll now turn the call over to Lou and he'll talk about some of the key points of our financial performance in the third quarter of 2020 loop.

Thank you Kenny beginning with the third quarter of 2020 were reporting our financial results under three new reportable segments aligned with the strategic.

Dick end market focused organizational and rebranding initiative that we announced last quarter. This.

The segment results for prior periods have been restated for comparative purposes in our earnings release, and our 10-Q, which will be filed by tomorrow evening.

Our third quarter consolidated revenue.

Earnings were $132.5 million.

Our focus on core technologies and profitability combined with the adverse impacts of posted 19 impacted the revenues across all segments as compared to the third quarter of 2019.

Our GAAP consolidated operating income.

Com was $14.1 million, including the impact of the nonrecurring loss recovery of 26 million recognized in the BMW renewable segment under an October 10, 2020 settlement agreement within ensure in connection with five of the six historical European loss.

Yes contracts this was partially offset by lower volume and the impacts of COVID-19, and all of our segments.

As well as restructuring and settlement costs and advisory fees of $6.2 million.

GAAP net income was 34.7.

<unk>, a 91.7 million improvement compared to the third quarter of 2019, primarily driven by the nonrecurring loss recovery.

Favorable foreign exchange, which were partially offset by lower interest expense.

Our consolidated adjusted EBITDA was 20.

$5.6 million with an adjusted EBITDA margins of approximately 19.3%.

While the positive impacts of our cost savings efforts have been temporarily reduced by the adverse impacts of Cove at 19, we continue to see the increasing benefits of cost saving initiatives that we.

Obviously implemented which affect both cost of operations and our as CNN.

These cost savings initiatives helped drive a 12.5 million reduction in consolidated SGN a expense in the nine months ended September 32020. This is a 10.4% improvement come.

Prepared to the first nine months of 2019 and is inclusive of legal expenses in 2020 related to loss recovery and other matters.

These initiatives also helped drive adjusted gross profit in the third thermal segment to 29.5% this quarter as.

Compared to 23.7% in the same period last year we.

We expect to continue to see the benefits of our cost savings initiatives and the remainder of 2020 and into 2021 as the savings from the changes that were implemented in 2019 are fully realized overtime.

Turning to our cash flow balance sheet and liquidity, our cash flow from operations in the third quarter of 2020 was a use of cash of approximately $18 million, which was primarily for working capital needs. We ended the quarter with unrestricted cash and cash equivalents of $38.9 million as well.

Pills, approximately $23.1 million available for borrowings under our us revolving credit facility.

Our total debt at September Thirtyth was $355.2 million with $181.9 million related to the revolver and $173.3 million.

And our last out term loans.

Interest expense in the quarter was $12.2 million compared to $29.5 million in the prior year quarter the.

The decrease was primarily driven by reduced deferred financing commitment and contingent consent fees related to our us revolving credit.

Lilly.

On October 20, Threerd 2020, we received 20 received $26 million from uninsured through a loss recovery settlement as described earlier as required by our us revolving credit facility, 50% of the net proceeds or approx.

Additionally, $8 million of the proceeds have been applied to a permanent reduction of the credit facility.

Further detail recording regarding our third quarter results, including comparisons with the third quarter of 2019 can be found in our related earnings release and our 10-Q.

So be filed by Tomorrow evening.

Today, we're focused on supporting our customers and driving our growth strategy, while continuing to manage our costs and cash flow through this global pandemic.

As part of our efforts to manage costs through this crisis, we've taken a number of measures.

Including temporary unpaid furloughs for certain of our employees temporary deferrals of 50% of the service fees or salaries for certain of our senior management and 50% of the cash compensation payable to our board of directors. We've also suspended our four one k. match.

US employees for the rest of the year and temporarily had rent payment deferrals for certain of our facilities.

We also deferred in accordance with the cares Act 22020 plan year pension contribution payments of $5.5 million each in April July and October.

As well as contribution payments of $1.1 million for the 2018 plan year and 23.7 for the 2019 plan year that were due in September as well as other cost saving measures to conserve our cash during the pandemic.

Looking forward.

As we execute our growth strategy, we're continually pursuing further cost efficiencies and we are continuing to pursue cost recoveries from subcontractors for the European EGPC lost contracts with that I'd now like to turn it back over to Ken.

Thanks Lou.

While we cant fully predict how kobin will affect the timing.

Bookings in project progress in the near term, we are seeing a renewed or re we're seeing renewed opportunities emerging as many of our customers restart paused projects or undertake new projects and upgrades leveraging our technology.

Combined with our.

Recent strategic actions. This momentum is now driving significantly improved bookings and a confident outlook based on our current visibility on COVID-19 impacts and our customer plans, we expect strong bookings through the end of 2020 and into the next year with significant earnings growth in 2021.

Today, our focus is on winning and executing quality projects as well as aftermarket services to serve our customers' needs for renewable energy environmental solutions and efficient operations.

We believe strongly we have the technology expertise and opportunities to expand our renewable environmental platform significantly over the next.

Our review years.

Finally, as we have said before we are keenly focused on reaching our EBITDA targets for 2021 in 2022, we recently announced the extension of contracts for various senior management, including myself, which reflects our confidence and commitment going forward.

Since day, one we have been fighting for all.

Next our stakeholders and we look forward to accelerating the significant progress we have made to strengthen our core business as we continue to unlock the potential of our global brands BMW renewable BMW environmental and BMW thermal.

With that I will turn the call back over to Italia, we will assist us in taking your questions.

Right.

Ladies and gentlemen at this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad again that is star one to ask a question we will pause for just a moment to compile acuity roster.

All over again to ask a question. Please press Star then the number one.

And we have a question from the line of Richard Dearnley with along point partner.

Good morning, Chris.

Could you.

The furloughs salary cuts deferrals.

And whatnot.

Could you size those and then.

Perhaps comment on how long they might go on or or to what extent.

Permanent.

Yes.

Yeah, I'll start and we could fill in I mean, we talk to them.

That's right Luke good well I, just that from a quantification standpoint.

Well, we're looking at about five to 6 million a quarter some of that gets offset by government programs that we get reimbursed for and and.

How long that will though I'll, let Ken answer that because I don't know that any of us know when it will stop.

Yeah, I mean were you know as as work resumed and other aspects of the impacts of Covance.

Start either to diminish or as customers begin to renew the project obviously, we'll we'll begin bring.

Yes people back from the furlough standpoint, but sitting here today, it's impossible to predict precisely how that impact is going to occur over the next three or four months.

I understand that.

And then the deferred financing.

You said <unk> or the.

The loss recovery was a $26 million.

And.

Half of that would be 13 million, but your.

Debt repayment of the net was 8 million whats the $5 million difference.

No mainly mainly.

Mainly in fees and costs to <unk> legal fees and other costs associated with recovering that.

Cash flow the that a recovery process has been going on for many many years right now so it's net of all the seat I see okay. Thank you.

Thank you.

Again that start wine.

There are no further questions are there any closing remarks.

Thank you for joining us that concludes our conference call a replay will be available for a limited time on our website.

Later today.

Thank you. This concludes the Babcock and Wilcox third quarter Twentytwenty earnings Conference call. Thank you for your participation you may now disconnect.

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