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Babcock & Wilcox Enterprises (BW)

Participants
Chase Jacobson Vice President-Investor Relations
Leslie Kass President and Chief Executive Officer
Jenny Apker Senior Vice President and Chief Financial Officer
Tahira Afzal KeyBanc Capital Markets
Bob Labick CJS Securities
Jamie Cook Credit Suisse
Call transcript
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Operator

My name is Chantal, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Babcock & Wilcox Q4 2017 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. of you President conference. begin Vice Jacobson, Investor may Relations, your Chase

Chase Jacobson

I'm President you, everyone. quarter Enterprise's call. afternoon, and XXXX Jacobson, to conference Thank good Wilcox Welcome Chantal, at Investor of Relations Babcock & earnings Chase B&W. Vice fourth

afternoon discuss this B&W's Kass, results outlook. our and fourth Leslie Executive and Chief President Vice Apker, quarter Senior are President Chief Financial Officer; me Joining and Jenny Officer, to and

and at certain related the the call, for of earnings our are we to make including with detail SEC, on forward-looking. report in also be press forth release further statements risks can end forward-looking be provision business. our annual statements will in subject file found These our our to XX-K During which risks uncertainties, that harbor on the Form provides set and about those this safe statements

by except any statement. update as undertake Additionally, to required no obligation forward-looking law, we

one non-GAAP as to, GAAP. GAAP provide should reconciliation also a accordance A information with be in earnings the that historical This of found outlook limit our the for, release substitute results presentation as in of measures. the overview superior I considered measures forward up. you ask We of to supplement babcock.com. not our historical fourth as follow provided certain well or would Relations non-GAAP afternoon our information and regarding yourself can question section comparable results in on our to our Investor published be quarter perhaps and company this posted website one at

Leslie. turn back queue. the to over I get that, the will to corresponsive in You’re call With

Leslie Kass

Chase, good you, afternoon Thank everyone.

company. been and sites provide XXXX taking with few fixed and equipment, quality aftermarket proud engineered projects In heavily to customers the project solutions its of I've beyond. my We action has had meeting many done? There's UK. commitments to first B&W I've successes Over in the income renewable And improved high with our employees years, customers be around last our engaged been across in results partners, and company, of role, new-build work from with be stakeholders our the including end-customers our services. other new drive the been and and to to weeks of we’re built XXX on

performance As cost see aimed reduced we benefits to in we and SG&A structure. quarter. announced specific as third the and with in our beginning November, in strong a are program quarter overall to the implemented tower of reduction the improving margin results evidenced in Maybe cost efficiency the at fourth efforts this action complete are by

and making We're alternatives throughout organization. of reduce expenditures businesses. announced limiting capital strategic more As our our improved company and end-markets segment intensely allow evolve, We’ve improve realigned efficiencies Universal and throughout organization number evaluating Also and cash drive also focused positions. faster decision senior and instilling focused a for on our discipline in to culture the goal profitability executive we the to flow. the we and businesses began within remain cost Power November, ongoing MEGTEC for as bottom-line to

backlog. financial these market lithium XXXX, expect a new interest businesses for inbound and and revenue the positioned and lower We growth and robust Despite potential and to battery have They improvements. they’re focused will in solid hiring received spend drive we allow To commercial and will businesses, efforts efficiently to time both be revenue generated me high-level such efforts structure more mid and strategic and in team. margins of good margin for from a and in transaction pipelines on ion profitability, improved close have Officer, slightly XXXX. our robust our sponsors operational improvement and senior our into who to will our management alongside Implementation Chief XXXX cost serve and more the customers our beyond. lead as This

good Moving equipment and and of in capabilities margin ongoing project strong execution segment’s our QX strong with two QX structure, performance U.S. well expected million. revenue start than expectations. years remains over within despite the existing market a in the discipline. cost XXXX, gross its onto the taken lower to an plant to power good cost We our had success the was booking replace had of variablize performance in to booking $XX for In and last actions our This coal-fired over operations. tower, shows boiler the at

projects, in continued a and drive except line good And site year margin revenue the is new to have mix these we Industrial With story. performance XXXX. strong for will that of into similar our

director and MEGTEC further action well derisk will going SPIG management project for additional pursue our takes the and poised margin later while resources Universal expansion likely headwinds and over SPIG Italy, last will we solid in an XXXX executed below at and XXXX. forward. remain portfolio, growth average revenue We’ve XXXX, to in profit are several a business have in refined headquarters work managing new take in hired approach in recently While new we months QX, dedicated to to and designed the how margin until

weeks direction. projects quarter. a to on expected is close with portfolio. two operations right the the Overall, are trial we to One turned in have amount turning of the pleased fully half first UK, although are last three customers, XXXX had to Denmark of projects the am projects be commissioning phases. before some projects, final those in both is and second stages month in delays in construction renewable In the currently moving and focused say the over spend run the to our expected projects this the to of on our in the in time the be Turning complete project last of over startup I incremental I considerable few complete. are In project other the over renewable

higher issue, These provide relief expected. partially in partial to liquidated in increase costs agreements to we million identified power be estimated beam bonuses late steel than September $XX previously now the were approximate are output. to $X damage offset with higher related to related cost related customers XXXX, However, million and revenue by to

We our to customers expect costs is recovery XXXX. due a additional cost than able expected estimated in restart-up with able the largely construction further corrective the as in longer former for to our delayed partner to to be increased agreements implement The reach delay work. being action

plan on still next in for work few is there have and well the good risk repairs to that While to the a complete start sited team expected weeks. we a and is project, this the

no sites work expected. as discovered, are similar projects two the start-up physical used, earlier. has date commissioning largely are as is resumed were As engineering mentioned issue well The and progressing but in I was currently

this which launching release, press commitment our coming you we received read largest As be our backstop afternoon, day. from we a shareholder, Vintage will Capital rights correctly to a million in have in $XXX offering, Management, published for the

lender significantly to arrangement flexibility grateful to and provide we save serve ensuring second-lien interest confidence drive balance are company flexibility. million the without this to the strategic will our to the ability in We our cooperation significantly financial right highlights future our to financial annual facility, clearly and of of we alternative to credit increased used which forward. our $XX the our deleveraging group second-lien have of expense revolving will to Vintage our us This that have offering repay and B&W sheet facility results and the need loans Proceeds improved be our and continue going customers term from the interruption. approximately

to with I Management, directors new turn Directors. and call now the Steve transactions X overall the weeks. to company Ferland, financing of from in detail financial board Hanks several in we two greatly We support size to down will on step more our our to Ferraioli, them to Working Board board their from Capital last Jim future. Vintage members. This the best part of that With results. Jenny and Larry over the B&W provide the reduce Brian our wish to very the appreciate will the and have decided As over Weyers appoint coming years will service the XX

Jenny Apker

afternoon Good Leslie. Thanks, everyone.

interest operating our an operating related Reform of $XX.X consolidated was XXXX, $X cost for was to the of of and build segment, build costs the we $X.XX. a Act. million loss projects quarter of good lower a revenue recently partially by share mainly higher revaluation million which deferred were per savings by on was On loss GAAP environmental a In control. beam renewable $XX.X and lower EBITDA company, were SG&A year, assets which SPIG as million, the of share, expectations, of the were to revenues had acquisitions basis the loss last steel year a the incremental growth in the a and tax to loss charge level contracts fourth Tax per in as and $X.XX $XXX organic from of of a offset million. million, $XX.X we and by of quarter X% $X.XX. due progress revenue from profitability was Compared GAAP new reflecting loss per share and on $XX on which GAAP of driven compared and or our offsets in new to operating partially borrowings. issue, quarter expense lower the segment industrial quarter, had passed in or Adjusted the across result loss of fourth Our the cost million lower adjusted Also Included up prior earnings our higher an tower.

as in good year especially a prior modestly due in environmental Turning – the offsets and benefits projects to In Steam Generation robust from build service cost segment lower $XXX execution new Industrial savings was lower this and the down to same contracts. volume. an was margin revenue tower, partially Gross mitigated increase XX.X%, the our that systems on quarter modestly activities impact year-over-year quarter as steam of by and million and results. retrofit mainly

to forward, income renewable, projects. requires standard in periodic net new reported gross cost of The at were company of Power increased While will net XXXX. costs non-service benefit that the cost consolidated we quarter in with partially offset EBITDA. heightened segment we close going and in provided on A level work to expected margin In income our and $XX expect XXXX reconciliation to be of mainly due pension to our liquidated million rather is which million this for margins results costs comparable change quarter. this in components operating pension not not of relief our than structural This margin and In our in website. the of to other year-over-year be we've level we new issue. $XX as related of levels, to segment in revenue gross a a million expect than XX-K XXXX, affect or margin operations. UK would build will do profit the affect consolidated a the in and it will on is presentation, adopt costs categorized the accounting due the gross impact of but our accounting had mainly damage These agreements the in by of $X loss customers steel higher approximately overview of

or are recoveries mitigating working other We with in identify opportunities XXXX. our to customers cost

at following quarter the down by Universal projects MEGTEC SPIG. contribution revenue revenue of have $XXX XXXX. driven of solid organic restructuring benefits new by in just to lower with XX% fourth The previously business of in in projects of was was in on profitability SPIG. segment gross from following result combined opportunities was – and bookings, up multiple mix than greater the margin and XXXX. completions the growth within year should in We lower completed margin I costs over nearly to mentioned lower drive segment Industrial quarter the the XX.X% this which Industrial the on the Gross of and X% the several announced progress XXXX, offsets a the compared segment the toward was increase overall at quarter our and in million, a quarters build prior which systems segment see X.X% renewable expect cooling as XX% in the partially

to expect XX% should allow We improve XXXX, for XXXX. margins gross the SPIG segment margin to to to closer throughout in which recover

$XX at by facilities $XXX was Turning liquidity. utilized balances million million afternoon, Total XXXX, cash under costs primarily increased generally new-build restricted delayed of our $XX with number our the revolving XX over and line year and December sheet quarter driven cash flow, full the $XXX quarter capital million the international use cash. in This flow was second-lien and loan $XX drop our value by of complete projects. to the balance use to to year a Renewable We million important of our term end driven net a million and we with expectations in including ended cash of in equivalent U.S. the at a Free book were the and credit in December. a million, announced structure. $XXX of we changes –

As Leslie will used order we our loan. raise intend offering which be to rights to term mentioned, next our million to $XX in week second-lien launch approximately repay

revolver materially to with We use significantly more sales expect the amendment together with offering adjusted and leverage, us credit Beginning to with with complete reporting to company consolidated This loan. proceeds financial second – adjusted able for small this we which today, XXXX a the signed results. to quarter. the to facility term in and and reduce both will authorizes transaction flexibility savings quarter, during second-lien provide amount with the cost our the potential covenant initiatives this an sheet rights recapitalize revolving asset the both our EBITDA of levels be coupled balance U.S. provided which the we of will repay Also beyond. opportunity our

reporting the the XXXX, providing performance Going a more by providing our of investors million of B&W. metric for we items and than starting in our adjusted of be believe forward, power the out operational the will this segment, rather given into are to profitability first businesses. volatility in we adjusted earnings of year XXXX, is quarter of consolidated In on visibility including with EBITDA conversations line EBITDA forecasting improved we EBITDA the each of based the below $XX EPS. on of million. the adjusted be we will $XX rate, tax number Also our reflective full and

the year projects expectation turn year. half now back on pattern that and over the is call the our EBITDA will heavily in business, second Given of full be of timing more the and EBITDA the normal backlog our weighted Leslie. to I'll

Leslie Kass

Jenny. Thanks,

in year the flexibility the financial develop provides customers With financing or portfolio XXXX. we and coal-fired agreements in and our our with XXXX. they revenue in expected us of services Power, quarters we we and the improved arrangements and solid have up bookings XXXX revenue providing they the better B&W are working need beyond. of alliance services business in traditional to our with run new and significantly This ensure competitive while for a existing stream. with In nearly increased power has three us project make start visibility company had advantage in the ended extend QX and most to that for products business place, our results comprehensive an of we've into booked our important strong rate to The combination the with market. backlog,

international In market the in on and Renewable, our backlog; medium Importantly the utility currently remainder energy priority any is it's completing for mainly dependent has of and projects large not technologies of comprised is in small customers top for build demand. the new industrial waste robust our and sized and our forecast contracts projects.

the bottom new in focus under have SPIG line We’re opportunities being we'll capturing contracts, have Within of selective O&M to strong. highly portfolio our while focus in model execution relative our on share pursuing near-term. continue derisked growth we after-market increased industrial, to on remains and and revenue and significantly equipment-only our the performance

our business better going and back with support shareholders around will I who Our I'm in in overall assist the to MEGTEC turn to outlooks will and in action us sustained leading growth and this Universal which much history and be XXXX will performance and future financial that a a to improvement progress over lead we now a improving We your foundation have businesses more with taking company are for building Overall call With we organization that for lenders, Chantal, our there's taking solid position and and to that time. of improve forward. expect for such at made our profile, financial done the strong questions. our XXXX. good rich pivotal exciting poised be on the we're is optimistic both

Operator

[Operator of line from Capital Tahira first Instructions] KeyBanc comes with Markets. Your the Afzal

open. is line Your

Tahira Afzal

and call. Leslie, to welcome Hi, the

Leslie Kass

Thanks, to see. was Tahira. Chase That and easier

Tahira Afzal

obviously you the to the the guess, in thing all in taking mentioned with alongside work or the example, terms off at juncture, divestments, I company for you critical a side elements trying are can first MEGTEC tell of how that out priority, bridge you of terms of story. the quantified cash me Well, starting you've really prioritized the over you very the different about have

Leslie Kass

MEGTEC process had we the have and a that. that's we've divestment, Again, Well, strong Universal certainly, underway. interest right, to that

as they’re of those projects, and I that concurrently build. well opportunities in number we the year, in more And in we one the overall those other a and so laser-focused hand Power, don't get going reliance that then in making call, competitive time. and help And revenue a getting completing our this is have think whole last team done. than too, the we've a on priorities, you in right, down on to as because think at And this partly that, heard But we is one, of Renewable the costs have different obviously, – number improvement just year, organization got very better terms place number large good is new we're place. cash international on streamline flow.

Tahira Afzal

within MEGTEC had that? you was be and looking the similar your discussed from on terms Got I mix touch was year just something of that portion size Industrial the breaking the time of at business, And down we purchase go it. if of to time I to the XX-K. you really each EBITDA last in haven’t business. the Leslie, can the through things And know should also of scope one

Leslie Kass

am I the EBITDA going question. give Jenny to

Jenny Apker

Yes.

That we quarterly both here, provide we'll provide the EBITDA XXXX will begin reporting So for we EBITDA with the QX. XXXX can segment and comparable segment, number. quarterly way, each

not quarterly will but we – way have presented begin the XXXX. XXXX manner, information for we gathered it in So this in or that reporting in

Tahira Afzal

it. And to MEGTEC same as Jenny, it be? around EBITDA, the the Got used

Jenny Apker

business. of we're MEGTEC that I We’re report inside Industrial reporting expect the going specifically. MEGTEC wouldn't to

Tahira Afzal

lot Got folks. a it. Thanks

Operator

Thank you.

Your of line Labick Bob CJS next with from question comes Securities. the

Your line open. is

Bob Labick

congratulations wanted Thank role. on you. Leslie new And I to also to your just first say

Leslie Kass

Bob. Thanks

Bob Labick

this. after – what the haven't to and were for of the synthesize wanted look a successful time all. as rights offering, what of like many us potential before but I and terms all structure of time, would with you debt had you offering to – fully it obviously, today, of level I how thank information so lots divestitures Can Universal, the help planning? be the MEGTEC rights that outstanding at you're shares assuming capital in

Jenny Apker

we $XXX we’ve number to sheet today development $XXX loan, today of on it Okay, at – those projects. unaccreted outflows new-build note – to the amount so, has value of is rights notional that has million have is of that to because second-lien company, – the that's have what capital million. base got decreased Bob, par have those line on the of – OID, amount the got a but that about that the balance a is the – a of We Renewable which offering, of primarily credit, support specifically which fund needs our necessary the revolving been prior we using the structure cash been

million, in of move rights will of a plus our borrowing revolver from and be use the As the the to that the rights which offering, loan. we refinance expect term we amount $XXX we recapitalization offering, second-lien neighborhood small under the to will proceeds

the it in replacement It’s equity. financial you'll So essentially, by second-lien a see support we're and and improves replaced shareholders leverage flood our the will rights second-lien the revolver that the, debt move to will way where otherwise efforts be of of or from significant very our very, subordinated our a is not appreciative dramatically ratios of and offering. flexibility, of

Bob Labick

then than from And Chinese Thank that. helpful. a the in in I of previously previous you. actually company update like cash came good. or half were continued terms half? use flow, free use little flow flow you to the size something any half cash XXXX you expected, us XXXX. the That’s maybe Can back dividend or you better But was that even and the of quarter in in had positive from first of it think anyway, the and cash expectations Okay, give first the kind returning of in either of

Jenny Apker

the hesitate In kind to last for is the the over – expense of And light with portion been like project. will we've K, interest beam of absolute cash be. has – change just was since slightly given understand the – in course that as been cash that That you'll to would the better issue of update one our it work a the we and that the that recapitalization we a because the the project big had said, project year had free not underway, progress of we forecast that able flow, flow delays steel quite year. timing read a the that few expected extra you when expectation of I'm did than

have that the outflows We had project. not of

likely of consistent in for these of with other quarter they on ready projects come We be heavy, over and other to handover work get the near relatively the significant the as So these expect cash amount will outflows to completion completion – the balance of do first the customer. XXXX. a those

after see cash the of half as impact we flow the was I of So remains, recapitalization for the in significantly ready the improves positive, say get the what to net into does. it's solidly or we not neutral whether it the am it back year, wait Again, of and evaluate QX. where to going we're half. that back off

Bob Labick

Thanks around exact with giving number now I and certainly everything. Okay, difficulty that. an thank the for you. the right parameters understand

you. thank So,

Operator

from question Credit comes Your the line Jamie next Cook of from Suisse.

line Your now is open.

Jamie Cook

Hi, good evening.

and you Universal – reasonable? of thinking know of mean, give wondering, EBITDA in, and color to And can the multiples more how talk you put how First, terms I interest pressure on much just a you you on color. selling we're think of potential just that situation but think assumption… about margin given level guess, in sort Xx. will a don't you the the buyers, can X little I MEGTEC paid are whether are just about little I it, I just guys I'm

Jenny Apker

You so combination I interest, know participation we're really specific It's sure, it's financial And we've had to that anything and Jamie, this with robust. a good in process. very can comment much a come conclusion. of won't on but strategic Again, been folks. confident that we good

Jamie Cook

what Leslie good trying we're how and of the given still thinking to then construction still not And the think about a thinking in technology is And side term. to are more sort thinking about it how the getting focus to the as about that business you're mean, in Just business longer side? just you strategy seeing? longer how about talk term? to just well, business be is – can that Okay. you you're Renewables I

Leslie Kass

if we're is we you believe did going not O&M business well. technology at boiler environmental about successful side, on delivery The the And technology, business, aftermarket there I very never that's the scope of business right, better for – if you that Oh, And strong. island years. look over think talk focusing construction. we equipment structural very into hadn't was very where we the gotten and construction

right works, past it's it's returning technology a B&W. – and so a we're and you mean, even to fully we very will able It's the U.S. believe, And execution in resources in I is wheelhouse So of business us. the process. that environmental, and the for good combustion just construction to be business trade opportunities. these strictly good from is very get strong once the

Jamie Cook

Okay, thanks.

will in We get queue. back

Operator

line with the Afzal Markets. Capital from comes KeyBanc Tahira question next Your of

Your line now open. is

Tahira Afzal

and Just your I on a up this back a you expect growth a – well, call, clearly, on. backlog, few guess, trended industrial I side but into the had Leslie, so that's one because the the I'm visibility question, glad that's where of questions more what’s know bond high And revenue is I business. XXXX. you on obviously, lot am right

even And you going the run year? business of be So forward any this help there? think provide should can business you this rate on of a what outside

Leslie Kass

sales, has with we obviously as it little the about yeah, backlog. year Universal solid think strong is for bit really up differently. But Well, gearing is MEGTEC a

So we're both for going transitional cautious There's with They business, how continue will in of resources of down and be it's very we're as new-build applied our good as kind to to opportunity. SPIG, ton a aftermarket them. have are to good to older appropriately jobs of are a shape. a our work portfolio we build our we businesses these selective execution be strong that mentioned, a we our this that year and new on sure make – treat new projects. where

there, it. is guidance the we good think I feel and So about

Jenny Apker

I would also comment, Tahira.

is contract Just project in a the as we the to a have segment short. signing Industrial said relatively before, life know cycle you completing from

through to you got as for be a in XXXX backlog business so to our building And XXXX, very healthy that backlog multiyear numbers. at point any in the backlog expect would XXXX. We've not – be support to working we'll see And time. we're

Tahira Afzal

a X% a whole, feel for you per provide part you. of have entity? high know need you now rates business bigger you lot you of off, once to some sold that growth And And those the will with MEGTEC this a you what's Leslie at and of sort Jenny, derisked point be down taking decline a the endgame it coal that I because even assume step annum. if opportunities with continuing had potentially to could Do backlog as Okay. see

Leslie Kass

footing able transaction, I that for businesses think with opportunity I be, that have will as And we've profitable significantly as future. solid arrangement, think got financing the of new do even gives us give a we'll get a us to operationally our more, lot and we through they choose MEGTEC our and be delevers the the sharp business and the that then fast-forward. can to to

be So more our can our functioning high Renewable then the in are projects businesses us, focus control. in now again is have making getting choose and path and we those we behind forward sure legacy

Jenny Apker

of tremendous Tahira, being way with is sheet do the We've businesses developing more we And together. comment. efficiencies development business approach SPIG is effective synergies, some – sales we've balance a cleaner on can amount worked some the business. the if of in would among the a the this good further focus Renewable people. and And a got and or tremendous There we and synergy well way and outstanding market, very the got I markets I incremental think Power, operating They we and technology.

of We have a care good customers. passion take our to really

a we're that we've and our is just and this this bright forward future. opportunities trying our I part we're we I lenders, investors, and customers, our company to got good and mean, excited that the shareholders XXXX about looking this our and are story, being make really a of very optimizing for sure think And

Operator

A our on This concludes replay be the call. for will website call. time today’s conference limited after available a

You disconnect. know now