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spk01: Ladies and gentlemen, thank you for standing by. Welcome to the Babcock and Wilcox Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. If you require any further assistance, please press star 0. I would now like to turn the call over to Megan Wilson, Vice President of Investor Relations. Please go ahead.
spk00: Megan Wilson Thank you, Natalia, and good morning, everyone. Welcome to Babcock & Wilcox Enterprises' third quarter 2020 earnings conference call. I'm Megan Wilson, Vice President of Investor Relations at B&W. Joining me this morning are Kenny Young, B&W's Chairman and Chief Executive Officer, and Lou Salamone, Chief Financial Officer, to discuss our third quarter 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 also in our Form 10-Q that will be filed by tomorrow evening and our Form 10-K that 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 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 third quarter earnings release published this morning and in our company overview presentation filed on Form 8K this morning and posted on the investor relations section of our website at babcock.com. With that, I will turn the call over to Kenny.
spk04: Thanks, Megan, and good morning, everyone, and thanks for joining our call. Our third quarter results were stronger, primarily due to a loss recovery related to our historical European EPC loss projects, but also reflecting the ongoing execution of our turnaround strategy. Despite the challenges presented by COVID-19 and its impact on revenues across all of our segments, adjusted EBITDA was roughly break-even 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 the pandemic are 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 177 million of new work in the third quarter, which is 106% increase over the third quarter in 2019 and 111% sequential increase compared to the second quarter of 2020. this improvement was driven by our rebranding and reorganization initiatives our ongoing international expansion our extended financing agreement and the value of the technology solutions we provide to our customers to support a clean sustainable energy and industrial infrastructure this includes our broad suite of advanced renewable and environmental and thermal technologies such as high performance waste energy systems innovative submerged grind conveyor systems and flexible natural gas-fired package boilers, as well as strategic partnerships 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. However, we continue to see significant opportunities to grow our business profitably, benefiting from our improved 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 drive us at Babcock & 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 skill through the pandemic, and I want to recognize and thank all of our employees for all of their critical efforts. As we announced last quarter, we have aligned our market-facing segments and our financial reporting under three new segments, B&W Renewable, B&W Environmental, and B&W Thermal. These segments directly reflect our core markets, technologies, and strategic pursuits and align with B&W's customer needs by providing technology solutions to help them achieve a clean, sustainable energy and industrial infrastructure. We're working closely with various governmental agencies and NGOs through funded projects to design and build new technologies to support environmental conditions while reducing the carbon footprint and developing low emission technology to create energy from waste. We have the technologies, expertise, and qualified opportunities to expand our renewable and environmental platforms significantly over the next few years, while steadily growing our traditional thermal business through our vast install base around the world. B&W Renewable is the leader in developing ecological sound ways 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 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 as a greenhouse gas is significantly more harmful on a per-ton basis than carbon dioxide. We expect this segment to grow significantly worldwide as the demand for renewable waste energy technologies and biomass systems continues to play a key role in global carbon reduction targets. B&W Environmental supports a clean energy infrastructure by providing a full suite of best-in-class emission controls and environmental 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 in our increased bookings and strong pipeline. B&W Thermal 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 expect it to grow steadily as we expand our aftermarket services and parts business to serve both our own vast install 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. Lou?
spk02: Thank you, Kenny. Beginning with the third quarter of 2020, we're reporting our financial results under three new reportable segments aligned with the strategic and market-focused organizational and rebranding initiative that we announced last quarter. 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 revenues were $132.5 million. Our focus on core technologies and profitability combined with the adverse impacts of COVID-19 impacted the revenues across all segments as compared to the third quarter of 2019. Our GAAP consolidated operating income was $14.1 million, including the impact of the non-recurring loss recovery of $26 million recognized in the BMW renewable segment under an October 10, 2020 settlement agreement with an insurer in connection with five of the six historical European loss contracts. This was partially offsetted by lower volume and the impacts of COVID-19 in all of our segments, as well as restructuring and settlement costs and advisory fees of 6.2 million. GAAP net income was 34.7 million, a 91.7 million improvement compared to the third quarter of 2019, primarily driven by the non-recurring loss recovery, favorable foreign exchange, which were partially offset by lower interest expense. Our consolidated adjusted EBITDA was $25.6 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 COVID-19, we continue to see the increasing benefits of cost-saving initiatives that we previously implemented, which affect both costs of operations and our SG&A. These cost savings initiatives helped drive a $12.5 million reduction in consolidated SG&A expense in the nine months ended September 30, 2020. This is a 10.4% improvement compared to the first nine months of 2019, and it includes the legal expenses in 2020 related to loss recovery and other matters. These initiatives also help drive adjusted gross profit in the thermal segment to 29.5% this quarter as compared to 23.7% in the same period last year. We expect to continue to see the benefits of our cost savings initiatives in the remainder of 2020 and into 2021 as the savings from the changes that were implemented in 2019 are fully realized over time. Turning to our cash flow balance sheet 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 as approximately $23.1 million available for borrowings under our U.S. revolving credit facility. Our total debt at September 30th was $355.2 million, with $181.9 million related to the revolver and $173.3 million in 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 decrease was primarily driven by reduced deferred financing, commitment, and contingent consent fees related to our U.S. revolving credit facility. On October 23, 2020, we received $26 million from an insurer through a lost recovery settlement as described earlier. As required by our U.S. revolving credit facility, 50% of the net proceeds, or approximately $8 million of the proceeds, have been applied to a permanent reduction of the credit facility. Further detail 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 to 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 401 match for U.S. 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 2020 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 we're 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 EPC loss contracts. With that, I'd now like to turn it back over to Kenny.
spk04: Thanks, Lou. While we can't fully predict how COVID will affect the timing of bookings and project progress in the near term, we are 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 technologies, expertise, and opportunities to expand our renewable and environmental platforms significantly over the next few years. Finally, as we have said before, we are keenly focused on reaching our EBITDA targets for 2021 and 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 of 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, B&W Renewable, B&W Environmental, and B&W Thermal. With that, I will turn the call back over to Natalia, who will assist us in taking your questions. Natalia?
spk01: 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 the Q&A roster. Again, to ask a question, please press star, then the number 1. And we have a question from the line of Richard O'Dournally with the Longport Partners.
spk03: Good morning. 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, you know, to what extent they're permanent?
spk04: Yeah, I'll start and Luke can fill in. I mean, we talked about... Go ahead. Sorry, Luke. Go ahead.
spk02: Well, I just, from a quantification standpoint, we're looking at about $5 to $6 million a quarter. Some of that gets offset by government programs that we get reimbursed for. and how long it'll go. I can't answer that because I don't know that any of us know when it will stop.
spk04: Yeah, I mean, as work resumes and other aspects of the impacts of COVID-19, start either to diminish or as customers begin to renew the project, obviously we'll begin bringing people back from the furlough standpoint. But, you know, sitting here today, it's impossible to predict precisely how all that impact is going to occur over the next three or four months.
spk03: I understand that. And then the deferred financing, you said, or the loss recovery was $26 million. Right. And, you know, half of that would be $13 million, but your debt repayment of the net was $8 million. What's the $5 million difference?
spk04: Mainly in fees and costs to, you know, legal fees and other costs associated with recovering that cash flow. That recovery process has been going on for many, many years right now. So it's net of all the receipts.
spk03: I see. OK. Thank you. Thank you.
spk01: Again, that's star 1. There are no further questions. Are there any closing remarks?
spk00: Thank you for joining us. That concludes our conference call. A replay will be available for a limited time on our website later today.
spk01: Thank you. This concludes the Babcock and Wilcox Third Quarter 2020 Earnings Conference Call. Thank you for your participation. You may now disconnect.
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