Babcock & Wilcox Announces Second Quarter 2017 Results

Announced Date :  Aug 09, 2017


Babcock & Wilcox Enterprises, Inc. announced second quarter 2017 revenues of $349.8 million, a decrease of $33.4 million, or 8.7%, compared to the second quarter of 2016.
GAAP earnings per share in second quarter 2017 were a loss of $3.09 compared to a loss per share of $1.25 in second quarter 2016. Adjusted earnings per share were a loss of $2.56 for the three months ended June 30, 2017 compared to an adjusted loss per share of $0.18 in the prior year period. A reconciliation of non-GAAP results is provided in Exhibit 1.

"Our second quarter financial results reflect a $115.2 million charge arising from unexpected cost and schedule issues in the Renewable segment,” said E. James Ferland, Chairman and Chief Executive Officer. “We have revamped our go-forward business model for this segment and have also entered into new financing arrangements. These arrangements provide us the financial flexibility to focus on completing our U.K. Renewable projects while executing our three prong business strategy to optimize our Power business, pursue profitable growth under our new execution model in Renewable, and grow our Industrial segment."

“As we advanced engineering, and re-estimated overall productivity levels on six new-build projects in the Renewable segment, late in the quarter we concluded we would not hit our cost and schedule targets," Mr. Ferland said. "We are diligently working with all parties involved to complete these projects within the revised time lines. Today, construction on the two projects in Denmark is essentially complete, and we expect construction on the other four projects, which are located in the U.K., to be largely complete by mid-2018."

"Within our Industrial segment, bookings improved significantly in the quarter, driven by our enhanced sales focus, more effective cross selling throughout the business, and improving end-markets. In Power, despite tough conditions in the global new-build coal-fired power market, the proactive actions we initiated in mid-2016 to control costs, combined with good execution, are driving continued solid margin performance."

Results of Operations

Consolidated revenues in second quarter 2017 were $349.8 million, a decrease of $33.4 million compared to $383.2 million in second quarter 2016, as higher revenue in the Industrial segment was offset by lower volumes in the Power segment, and lower revenue on new-build projects in the Renewable segment. The GAAP operating loss in second quarter 2017 was $144.6 million compared to an operating loss of $72.6 million in second quarter 2016. The adjusted operating loss in second quarter 2017 was $119.0 million, compared to an adjusted operating loss of $7.5 million in second quarter 2016, due mainly to changes in estimated costs to complete Renewable projects; see Exhibit 1 for a reconciliation of non-GAAP results.

Second quarter 2017 revenues for the Power segment decreased 18.4% to $213.8 million compared to $261.8 million in the prior year period. Revenues decreased as a result of lower construction activities associated with retrofit and new build utility and environmental projects. Gross profit in the Power segment in second quarter 2017 was $49.1 million, compared to $62.5 million in the prior year period. Gross profit margin was 23.0% in second quarter 2017, compared to 23.9% in second quarter 2016, as benefits from the proactive restructuring plan introduced in mid-2016 and good execution mitigated the impact of lower revenues.

Industrial segment revenues increased 137.4% to $90.2 million in second quarter 2017 compared to $38.0 million in second quarter 2016, due to the addition of B&W SPIG, which the Company acquired on July 1, 2016, and Universal Acoustic & Emission Technologies, Inc. (B&W Universal), which was acquired on January 11, 2017. The expansion of the Industrial segment's business portfolio is generating increased cross-selling opportunities and improving the company's position in non-power related industrial markets. Gross profit in the Industrial segment was $9.5 million in second quarter 2017, compared to $11.1 million in the prior year period. Gross profit margin was 10.5%, compared to 29.3% last year, as higher volume was offset by overall business mix and lower profitability on certain cooling systems projects. During the quarter, the company announced the realignment of its Industrial Steam Generation business line from the Power segment to the Industrial segment, effective July 1, 2017, and Leslie Kass was appointed Senior Vice President, Industrial to lead the segment.

Revenues in the Renewable segment were $48.1 million for the second quarter of 2017, versus $85.5 million in the corresponding period in 2016, a decrease of $37.4 million. The Renewable segment gross loss was $110.9 million in second quarter 2017, compared to a gross loss of $17.5 million reported in second quarter 2016, due to the recognition of a $115.2 million, or $2.36 per share, charge for increased estimated costs to complete six projects in backlog, as the result of lower-than-forecasted productivity and schedule delays.

"We believe there is a robust market opportunity for our core boiler, grate, and environmental equipment technologies in the global Renewable market," said Mr. Ferland, "Going forward, under a revised business model, we will focus on our core technologies with balance of plant and civil construction scope being executed by a partner. We believe this execution model is more consistent with the company-wide strategy of being an industrial technology solutions provider, and improves our overall risk profile. Under this new model, we expect to begin bidding as opportunities allow in the third quarter."

Liquidity

The Company’s cash and cash equivalents balance, net of restricted cash, was $67.9 million at June 30, 2017. The outstanding balances under revolving credit facilities totaled $131.4 million as of June 30, 2017. The increase in borrowings under revolving credit facilities was due mainly to increased costs on projects in the Renewable segment.

On August 9, 2017, the Company entered into a second-lien term loan agreement with Lightship Capital LLC, an affiliate of American Industrial Partners, and amended the terms under its existing revolving credit facility. Under the second-lien term loan, which matures on December 30, 2020, the Company borrowed $176 million. The second-lien term loan also provides for an additional $20 million of borrowing capacity subject to conditions in the agreement.

The Company will use the proceeds to reduce borrowings under its existing revolving credit facilities, and as a condition of the second-lien loan agreement, it will repurchase Lightship Capital's 4.8 million share equity stake in the Company. The purchase of these shares will reduce the Company's shares outstanding correspondingly. "We appreciate the support of all of our lenders and are pleased to have American Industrial Partners, a well-established firm with a history of operating in industrial markets, as a financial partner," said Jenny L. Apker, Senior Vice President and Chief Financial Officer.

Revising 2017 Outlook

The company is providing revenue and gross margin guidance by segment as follows:

Power: full year 2017 revenue in the range of $825 million to $875 million with gross margin in the low 20% range

Renewable: full year 2017 revenue of approximately $350 million with positive gross margins returning in second half 2017

Industrial: full year 2017 revenue in the range of $400 million to $450 million with gross margin in the mid-teens

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