Q4 2020 Babcock & Wilcox Enterprises Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Babcock and Wilcox Enterprises, Q4, and full year 2020 earnings conference call.
At this time all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session.
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I would now like to hand, the conference over to your Speaker today begin Wilcox Vice President of Investor Relations at Babcock and Wilcox. Thank you you.
You may begin.
Thank you April and good morning, everyone welcome to Babcock <unk> Wilcox Enterprises' fourth quarter and full year 2020 earnings Conference call I'm, Megan Wilson, Vice President of Investor Relations at BMW joining.
Joining me. This morning are Kenny Young Bmw's, Chairman and 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 found at the end of our earnings press release and in our annual report on form 10-K is on file with the SEC and provide further detail about the <unk>.
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 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 Dot com.
With that I will turn the call over to Kenny.
Thanks, Megan and good morning, everyone and thanks for joining our call.
Our results for the fourth quarter and full year 2020 really reflect the ongoing positive impact of our strategic plan.
Despite the adverse effects of COVID-19 across all of our segments, our strategic actions in 2020, including the rebranding of our segments ongoing international expansion and continued focus on cost saving initiatives provide a strong foundation for growth as we pursue our robust global pipeline.
I will discuss in more detail with the recent closing of our common stock and senior note offerings, we have dramatically improved our capital structure as a result of the offerings, we have reduced our secured debt by 274 million and our future cash interest payments by approximately $16 million annually.
Bind with a reduction in our required pension contributions we expect to save more than 40 million annually in cash expenses on a pro forma basis.
Based on 2020, adjusted EBITDA and net debt as of December 31, 2020, the offerings resulted in a net leverage ratio reduction from 6.4 down to three six times pro forma for the effects of our offerings and related debt pay downs and certain fees.
The proceeds from our offerings not only significantly reduce our cash expenses, but also provide capital to support the expansion of our clean energy technology portfolio as we continue to execute our growth strategy.
Now COVID-19 caused delays and deferrals on several of our projects in 2020, we continued implementing our strategic growth initiatives and global expansion, we're gaining momentum with our new branding continuing to expand our sales and service presence internationally, especially in Europe, Asia, and the middle East and pursuing more than five.
And of identified project opportunities on our pipeline through 2023 at the same time, we continue focusing on cost reductions project execution clean energy and carbon free environmental technology research and development and Bottomline profitability, notably we book roughly 604.
<unk> 5 million of new work in 2020, including 167 million of bookings in the fourth quarter and ended the year with about $535 million in backlog as of December 31, 2020, which is a 21, 3% increase compared to the end of 2019 and.
And keep in mind, our pipeline and backlog do not include shorter lead time parts and services, which in 2020, representing 56% of our revenues.
Looking forward, we continue to target $70 million to $80 million of adjusted EBITDA in 2021, and $95 million to $105 million in 2022 based on our current visibility taking into account the seasonal impacts of cold weather on customers reduce maintenance outages on first quarter performance, which is typically an historical pro.
Formats for us are normal cyclical performance increase from Q1 to Q4 each year.
Our global expansion to support the increasing demand for renewable in environmental technologies through both innovation and acquisition is progressing as planned we see significant opportunities to grow our business profitably benefiting from our improved project execution and operational efficiency and focusing on bottom line result.
And strong cash management.
Our strategic actions in 2020 combined with our recent comprehensive refinancing have positioned us well to achieve our targets and continue to create shareholder value.
So how do we get there.
Well as we announced last year, we have aligned our market facing segments in financial reporting under three new segments. We're now focused on leveraging our three brands being W. Renewable BMW environmental and BMW thermal around the world.
Across these three brands, we are a technology innovator, providing a comprehensive suite of waste energy and biomass systems emission controls ash handling systems cooling systems steam generation technologies on exhilarate equipment, as well as our ever expanding aftermarket parts and services to optimize and upgrade existing.
On equipment and operate and maintain plants.
These segments directly reflect our core markets technologies, and strategic pursuits, and align with our customer needs by providing technology solutions to help them achieve a clean sustainable energy and industrial infrastructure.
Our technologies and our branding are aligned with the major trends driving our industry. Today that includes the demand for power and critical infrastructure as it continues to grow globally and hand in hand with this growth is a drive towards more renewable energy sources like waste energy and biomass.
Our increasing environmental regulations globally, including restrictions on landfilling or stringent emission standards and water use regulation and the fossil fuel installed base and aging driving the need for more aftermarket services and upgrades and the potential for carbon legislation and regulation is growing.
Our technologies help our customers meet these needs and requirements and we are continuing our innovation to further develop technologies to support production of biofuels or syngas and hydrogen and combustion and other emerging markets. We also believe that global climate change efforts will include significant steps forward in the apps.
Occasion of carbon capture technology, and as a power generator leader generation leader BMW anticipated this need and it has been working with universities.
Governments agencies on our own technical experts to develop carbon capture technology for several years, we have proven the efficacy of multiple carbon capture technologies through pilot and field testing and they are now ready for commercial demonstration.
Okay.
So as we think about our growth strategy. We are focused on meeting the global need for renewable solutions and environmental technologies, reducing methane from waste, which carry significant environmental impacts supporting our large installed base and leveraging.
Increasing opportunities to grow up to provide parts and services on our competitors equipment focusing on cash flow on profitability across the board and expanding our sales service and business development presence around the world to serve high growth markets and the global energy transformation.
As a part of this we recently announced new regional managers for Europe, The Middle East Africa, and Asia Pacific Region, and we're opening a regional headquarters in Dubai, Australia, and Dubai in Australia, where our European headquarters are in the U K and we're hiring sales and service team members around the world more than doubling our presence outside the Americas.
We have already realized success in each region through incremental parts and service sales, while positioning for larger upgrades and renewable environmental and thermal opportunities.
This expansion is aligned with the roughly 27 billion an addressable market, we see globally over the next three years.
Today, we are poised to deploy our cutting edge technologies globally to help address critical climate and environmental needs.
I'll now turn the call over to Luke to discuss the key points of our financial performance for the fourth quarter 2020, as well as our full year results Blue.
Thanks Kenny.
First review, our full year 'twenty 'twenty results, and then I'll turn to our fourth quarter 2020 results in detail further detail on the first on our full year results can be found in our 10-K, that's on file with the SEC.
Consolidated revenues in 2020 were $566 3 million a decrease as expected of 34% compared to 2019.
Revenues in all segments were adversely impact impacted by COVID-19, including the postponement and delay of several projects the.
The GAAP operating loss in 2020 was $1 7 million, including the impact of the nonrecurring loss recovery of $26 million, which was offset by restructuring and settlement costs and advisory fees of $24 7 million.
Compared to an operating loss of $29 4 million in 2019.
The improvement in operating income was primarily due to the insurance true loss recovery.
The positive impact of cost savings initiatives, and a lower level of losses on the EPC contracts, which was partially offset by the divestiture of loibl and the impacts of COVID-19 on revenue in all three of our segments and.
Adjusted EBITDA improved to $45 1 million compared to $45 million in 2019.
We continue to see strong momentum within our bookings and backlog with total bookings in 2020 and $645 million and our backlog at the end of the year of 535 million, a 21, 3% increase compared to the prior year.
I'll now turn to our fourth quarter results.
Fourth quarter consolidated revenues were 149.9 billion down 17% as compared to the fourth quarter of 2019, as we said before revenues in all segments were adversely impacted by COVID-19, as customers delayed projects and travel restrictions limit at the <unk>.
<unk> of our company's workforce to be on site.
The completion of large projects in all three of our segments in the prior year and the prior year quarter also contributed to this decline.
Our GAAP consolidated operating income was $2 2 million inclusive inclusive of restructuring and settlement costs and advisory fees of 7.9 million.
Per to an operating income of $10 million in the fourth quarter of 2019.
The decline in operating income was primarily due to lower volume as a result of impacts from COVID-19. This was partially offset by the effects of improved gross margin and the BMW thermal segment adjusted.
Adjusted EBITDA was $16 1 million compared to $22 8 million in the fourth quarter of 2019.
Turning to cash flow balance sheet and liquidity, our cash flow from operations in the fourth quarter of 2020 generated $26.5 million of cash flow.
We ended the quarter with unrestricted cash and cash equivalents of $57 3 million as well as approximately 33.7 million available for borrowings under our U S revolving credit facility.
Total debt at December 31 was 347.6 million with $164 3 million related to the revolver and $183 3 million in last out term loans.
Interest expense in the quarter was $10 million compared to $27 5 million in the prior year quarter. The decrease primarily driven by reduced deferred financing commitment and contingent consent fees related to our U S revolving credit facility.
As previously announced on February 12, 2021, we successfully closed the public common stock and senior notes offering.
The offering included $29 5 million shares of common stock sold at a price of $5.85 per share for gross proceeds of approximately $173 million.
We also closed and senior notes offering of 125 million and an interest rate of 8.125%, which is due in 2026.
Two offerings resulted in net proceeds of approximately 283 million after deducting underwriting discounts and commissions, but before expenses.
In addition to the public offerings B Riley financial exchange $35 million of its existing last out term loan for $35 million of the senior notes and a concurrent private offering.
The interest rate on the remaining last out term loan balance was also reduced to $6, 65% compared to its prior rate of 12%.
On February 16th 2021, with prepaid 167.1 billion, so on our outstanding revolving credit facility, reducing the outstanding borrowing balance to zero.
On March four 2021, we amended our credit agreement to among other things reduced its revolving borrowing availability to zero and its letter of credit availability to $130 million.
Concurrently, we also paid $21.8 million of approved and deferred bank fees and $75 million toward our existing tranche a last out term loan.
Taking into account the effects of these strategic actions, including the net proceeds of the public offerings and after underwriting discounts and commissions, but before expenses prepay.
Prepayment of the revolving credit facility.
Payment of the bank fees and partial pay down of the tranche a term loan as well as the deferred interest and amendment fees and estimated advisory fees pro forma total debt and unrestricted cash at December 31, 'twenty 'twenty, what it would've been two $233 3 million.
And 72.5 million respectively.
Based on current information, we're confident that our liquidity is sufficient to support our ongoing operations working capital and growth forecast.
Looking forward the 'twenty 'twenty, one we expect our interest expense to be significantly lower driven by a reduction of total debt the reduction of the rate on our last out term loans and the rate secured on our senior notes.
Let's turn to our cost initiatives. In addition to the $119 million of cost savings initiatives. We've previously disclosed we implemented approximately $8 billion of additional cost savings initiatives in 2020 for a total of $127 million.
We've also identified another $11 million of cost savings actions expected to be implemented beginning in the first quarter of 2021.
While the positive impacts of our cost savings efforts had been temporarily reduced by the adverse impact from COVID-19, we continue to see the increasing benefits of cost saving initiatives that we previously implemented which affect both cost of operations and SG&A. These initiatives.
Is helped drive adjusted gross profit in the thermal segment. The 33, 8% this quarter as compared to 27, 2% in the same period last year.
We expect to continue to see benefits of our cost savings initiatives into 2021 and savings from changes implemented in 2019, and 2020 are fully realized over time.
In addition, based on the performance of our domestic qualified pension plan.
The minimum required funding contributions through 'twenty twenty-six had been reduced by 75% as previously disclosed the.
The current total minimum funding contribution for the period 2021 through 2026 is $35 million, which is to be contributed in the next two years. This is 107 million less compared to the company's previous expectation for the period 2021 to 'twenty 'twenty six.
It is important to note that these numbers are subject to change with the performance of the pension fund investments.
Looking forward, we're continuing to pursue further cost efficiencies and recoveries related to the EPC cost contracts with a significant reduction in our secured debt and future interest payments due to the recently executed offerings. We are now on an improved position to take advantage of opportunities to expand our clean energy.
<unk> portfolio and pursue our pipeline of over 5 billion of identified opportunities over the next three years.
I'll now turn it back over to Kenny.
Luke Thanks, well in closing and in the near term while we can.
Can't fully predict how COVID-19 will affect the timing of bookings and project progress we are seeing renewed opportunities emerging as many of our customers have restarted pause projects or undertaking new projects and upgrades leveraging our technology and capabilities.
Combined with our recent strategic actions. This momentum is now driving significantly improved bookings at a confident outlook today, our focus is on winning and executing quality opportunities as well as aftermarket services to serve our customers' needs for renewable energy environmental solutions and efficient operations.
And based on current visibility and our customer plans, we expect continued strong bookings and significant earnings growth in 2021.
With a return to quarterly trends more typical of our industry, including the seasonal impacts of cold weather and customers reduced maintenance outages on first quarter performance, which is a which is typical and historical performance.
With our recent public offerings, we significantly reduced our leverage and future cash interest payments Derisked, our balance sheet and provided a strong foundation to support our portfolio expansion around clean energy technologies and pursue our more than 5 billion three year pipeline of identified opportunities on top of our strong high margin parts.
In services business.
Looking forward, we remain focused on growing our renewable and environmental segments, including deploying our waste energy and carbon capture technologies to help meet critical climate goals as the next generation BMW.
As the global energy and environmental transformation.
That concludes our remarks, and I'll turn the call back over to our operator to assist with taking your questions.
As a reminder, if you would like to ask a question. Please press Star then the number one on your telephone keypad again. It is star then the number one.
On your first question comes from Alex <unk> with B Riley.
Good morning, Kenyan Lou congratulations busy first quarter here.
Thanks, Alex. Thank you couple of quick questions here first on it it sounds like new order activity is continuing to be very strong in January and February maybe you could comment on that.
Comment on where youre seeing the strength.
Either geographically around the world or in which division and then.
Maybe you could address.
The carbon capture technologies to speak to sort of the timeline of demonstration and then commercialization.
Sure Yeah, no more than happy to do so and Louis chime in and provide some color here, but on the on the bookings in the quarter were obviously seeing.
Clearly you know what.
Based on the announcements we've talked about in the thermal segment.
Some of the packaged boilers and some of the other upgrades.
We've done obviously theres the youre seeing the businesses begin to issue.
New purchase order for upgrades and enhancements, which we like we like that does that business area and we're starting to see that.
Come back more in some of that is in the planning phases, where they need to issue a P. O now in order to lineup with perhaps a spring outage or or more importantly, a fall outage from.
For the company business. So we're seeing some of that come in and.
We're seeing also in around the world than if we net the some sizable.
Environmental opportunities as well those are in waste to energy, but capturing emissions out of those particular facilities and we're just we're seeing that evolution I think globally start to come back there are clearly projects that we thought.
We would have book by now, but due to COVID-19.
Country by country around the world there are various delays at the same time, we're seeing.
Other opportunities coming a little faster than we anticipated as well.
And obviously, taking advantage of those but they're the environmental piece, it's been strong thermal right now is as strong as everyone.
Is gearing more or back in focusing on the upgrades enhancements and some of the outages that normally occur.
That didn't occur last year, so we're seeing that positioning come in as well too. So all positive from that and as things settle down obviously around the world a little bit more country by country.
There are a number of other opportunities that we've been involved in and we're obviously anxious to to announce those as soon as possible, but those are underway and we're starting to gain momentum on activities in other aspects. It's COVID-19 as we talked about obviously, it's difficult to get again, if you go country by country Youre in Australia for example has.
Kept their borders completely closed.
During the entire pandemic. So so a lot of new opportunities there were deferred or delayed just because you couldnt get the engineering teams and so on so forth. So.
As that changes we're seeing the activities are people plan for example in those areas as well.
Starting to move forward on new opportunities wanting to quickly start preparing budgets and worked through the planning phases. So you got a sense globally that.
Well at least within our industry that a lot of the companies and you know whether it be industrial or utility are making their launch on preparations you're emerging back to begin.
Abating enhancing looking at these proposals and opportunities and to continue moving forward. So excited about that.
On the on the carbon capture aspect right now so you know we have basically three.
The technologies that were directly involved in and have jointly developed.
One being you know chemical looping the other being oxy combustion and third being our sat which is <unk>.
Our general agent that will absorb the cotwo.
So all three of those have moved through.
Cycles in that regard and they are.
With the exception of chemical Lubric chemical looping still needs one more round.
Smaller megawatt proof of concept that we're we're hopefully going to.
Do here soon under that regard and then that would move into commercial phase. The other two technologies are now deemed ready for commercial deployment and.
Discussions have begun with a few customers in and around those technologies.
As well so.
There's a there's a drive and a mandate, which is publicly known out there Canada, obviously has taken a strong.
Tax approach to that and so we're seeing opportunities in Canada start to emerge obviously the U S. Right now is is with or.
Without a doubt with the new administration is driving more around this although official.
Official policy and other legislation hasn't come out yet there's clearly a direction. There. So we are seeing.
Few customers lineup in the U S that want to move forward or understand how to capture carbon coming out of there in either industrial or utility facility.
And in Europe is the same we're actually especially on waste to energy facilities were in talks with a few clients around.
Carbon capture technology, there as well too so.
It feels like the commercial side of this will unfold.
Of course of the summer as we move forward on that.
And in the chemical looping, we hope to move past that final stage on that so it is ready for commercial deployment.
Sometime later this year, but.
It might take a little bit longer on that particular, one that is.
A.
Our unique technology that we jointly work with how state University.
For as well too. So we're very excited about what that represents obviously and it's a technology that has been gone undergone lab concepts and other other trials over the past six seven years, so it's ready to move into the field and in a more robust way so we'll be.
Be happy to discuss that obviously once we get that out, but we're pretty excited about that technology.
Very helpful and now you have $72 million of cash on your balance sheet I suspect some of that might be needed for working capital as your revenue position starts to outgrow very nicely over the next couple of quarters, but how are you thinking about using that cash for M&A.
What does your M&A pipeline look like.
There are a lot of opportunities out from an M&A perspective, Alex Great question. There are a number of opportunities out there and we're looking at.
Anywhere from.
A little bit larger adjacent.
<unk> companies or industries that.
Especially and if you look at some of the cleanup work in environmental work that has to be done inside some of these areas. We think there are some interesting opportunities there.
Especially even on some of the older plants in fossil fuel plants, where you've got significant items there but.
We also are looking at younger or let's say emerging technologies that is also complementary to what we're doing that could be anywhere from a looking at biofuels and syngas technology in particular around hydrogen.
<unk>.
Other aspects could be an ethanol it could be in the renewable fuels and the creation of those either by waste or biomass and those are typically a little bit smaller technologies.
<unk> technologies, and a little bit unique in that area and there are a number of companies out there that have some interesting.
Technology pieces that need a little bit of a platform I E a global.
Company, where they can they can actually grow inside of and so we think those are there are interesting opportunities as well and we'll continue looking at those but our main focus is on environmental services carbon.
Capital services around that.
And augmenting what technologies, we have as well as.
In biomass waste to energy and some of the again going back to some of the syngas.
Capabilities and.
Around that and we think that's some interesting areas as well too. So we'll look at all of those.
Aspects.
And.
We determined that based on a number of factors.
On the technology itself, how well we can bring into the marketplace.
From an effectiveness standpoint, and obviously moved through.
Accretion as soon as possible some of the emerging technologies or <unk>.
Smaller revenue stage at this point, where some of the more mature.
Other areas, we're looking at obviously would create.
Synergies and be accretive almost immediately so we will balance that from looking at both sides of that but those are the areas we're focused on.
Lou I don't know of any other comment on that.
No I think the one thing to point out is just since the beginning of the quarter we've announced.
Seven large projects, usually in the $10 million to $15 million range and and over half of those projects were in the renewables.
And the environmental segment and I think that continues to be a proof statement of where were taking where we're taking the company with with Kenny says strategy of emphasizing renewable and environmental.
While we are still having some thermal.
From a profitability but.
Well I think that's a good a good indication of where the where we're taking the company.
That's very helpful and Lou you mentioned.
And in your.
Prepared remarks, the expectation that there is sort of a step up from <unk> <unk> to <unk> and financial performance.
Most likely both in revenue and EBITDA.
So we're all sort of aligned on just sort of short term expectations can you help us to sort of maybe think about the first quarter on how it might compare to previous quarters or how it might contribute into sort of the full year for 2021.
Well, we don't really give guidance, we've set a target for 2021 of.
$75 million to $80 million of EBITDA, we're confident on that target.
If you go back in history first quarter.
As always.
Lower quarter, we expect that will continue.
And obviously there were getting away from the impacts from Covid, but they were they're still here in the first quarter.
We would expect that as COVID-19 lessons and bats vaccinations rise.
And then the following quarters as really follows the historical trends of the company.
Will will increase.
We will hit the <unk>.
75 million to 80 million target that we talked about.
Perfect. Thank you.
And again, if you would like to ask a question. Please press Star then the number one.
There are no further questions at this time I will now turn it back over for 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.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.