Babcock & Wilcox(BW) - 2020 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and related management discussion Item 1. Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements and detailed notes for Q3 and YTD September 2020 and 2019 Condensed Consolidated Statements of Operations Net income significantly improved in Q3 2020 due to an insurance recovery, and the nine-month net loss also decreased Condensed Consolidated Statements of Operations (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenues | $132,513 | $198,644 | $416,464 | $678,695 | | Operating income (loss) | $14,074 | $(3,177) | $(3,927) | $(39,397) | | Net income (loss) | $34,555 | $(56,990) | $(15,313) | $(134,497) | | Net income (loss) attributable to stockholders | $34,724 | $(56,955) | $(14,906) | $(134,360) | | Basic EPS | $0.70 | $(1.39) | $(0.31) | $(5.18) | | Diluted EPS | $0.69 | $(1.39) | $(0.31) | $(5.18) | Condensed Consolidated Statements of Comprehensive Income (Loss) Total comprehensive loss significantly improved for both periods ended September 30, 2020, despite negative currency translation adjustments Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) | $34,555 | $(56,990) | $(15,313) | $(134,497) | | Currency translation adjustments | $(22,916) | $21,433 | $(24,631) | $23,714 | | Other comprehensive (loss) income | $(23,162) | $20,721 | $(25,369) | $24,143 | | Total comprehensive loss | $11,393 | $(36,269) | $(40,682) | $(110,354) | Condensed Consolidated Balance Sheets Total assets decreased, liabilities shifted, and stockholders' deficit increased as of September 30, 2020 Condensed Consolidated Balance Sheets (in thousands) | Metric (in thousands) | Sep 30, 2020 | Dec 31, 2019 | | :-------------------- | :----------- | :----------- | | Total current assets | $393,565 | $412,220 | | Total assets | $605,754 | $626,519 | | Total current liabilities | $276,714 | $602,494 | | Total liabilities | $926,532 | $921,458 | | Total stockholders' deficit | $(320,778) | $(294,939) | Condensed Consolidated Statement of Stockholders' (Deficit) Equity Stockholders' deficit increased from December 2019 to September 2020 due to net losses and currency translation adjustments Condensed Consolidated Statement of Stockholders' (Deficit) Equity (in thousands) | Metric (in thousands) | Dec 31, 2019 | Sep 30, 2020 | | :-------------------- | :----------- | :----------- | | Total Stockholders' Deficit | $(294,939) | $(320,778) | | Net loss (9 months) | N/A | $(15,313) | | Currency translation adjustments (9 months) | N/A | $(24,631) | | Stock-based compensation charges (9 months) | N/A | $3,327 | | Equitized Last Out Term Loan interest payment (9 months) | N/A | $8,031 | Condensed Consolidated Statements of Cash Flows Cash used in operating activities decreased significantly, while financing activities provided net cash, reducing the overall cash decrease Condensed Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(67,296) | $(201,117) | | Net cash from investing activities | $1,958 | $7,092 | | Net cash from financing activities | $52,377 | $181,042 | | Net decrease in cash, cash equivalents and restricted cash | $(8,572) | $(16,934) | | Cash, cash equivalents and restricted cash, end of period | $48,369 | $43,345 | Notes to Condensed Consolidated Financial Statements This section details financial statement disclosures, covering accounting policies, segments, debt, and contingencies NOTE 1 – BASIS OF PRESENTATION GAAP-compliant financial statements addressed going concern doubts via debt refinancing and cash conservation - The Company refinanced and extended its U.S. Revolving Credit Facility to June 30, 2022, and Last Out Term Loans to December 30, 2022, on May 14, 2020, alleviating substantial doubt about its ability to continue as a going concern[29][31][38] - The company implemented cash conservation and cost reduction measures, including temporary unpaid furloughs, deferring executive salaries, suspending 401(k) company match, deferring director cash compensation, and temporary rent payment deferrals[35] - Pension Plan contribution payments totaling $46.0 million for 2018, 2019, and 2020 Plan years were deferred, with the 2019 Plan year amount to be funded over five years following IRS waiver approval[37][112] NOTE 2 – EARNINGS PER SHARE EPS calculations show improved Q3 2020 performance and a reduced loss for the nine-month period Earnings Per Share (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :---------------------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic earnings (loss) per share - continuing operations | $0.70 | $(1.39) | $(0.35) | $(5.21) | | Basic earnings (loss) per share | $0.70 | $(1.39) | $(0.31) | $(5.18) | | Diluted earnings (loss) per share - continuing operations | $0.69 | $(1.39) | $(0.35) | $(5.21) | | Diluted earnings (loss) per share | $0.69 | $(1.39) | $(0.31) | $(5.18) | | Weighted average shares used to calculate basic EPS (in thousands) | 49,478 | 40,879 | 47,585 | 25,950 | | Weighted average shares used to calculate diluted EPS (in thousands) | 50,056 | 40,879 | 47,585 | 25,950 | - Due to net losses in the nine months ended September 30, 2020, and in the three and nine months ended September 30, 2019, basic and diluted shares were the same for those periods[40] NOTE 3 – SEGMENT REPORTING The company reorganized into B&W Renewable, B&W Environmental, and B&W Thermal segments, with restated comparative results - The company's operations are now assessed based on three reportable segments: B&W Renewable, B&W Environmental, and B&W Thermal, following a strategic re-branding initiative in 2020[44][45] Segment Revenues (in thousands) | Segment (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :--------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | B&W Renewable Revenues | $39,062 | $51,292 | $118,570 | $158,901 | | B&W Environmental Revenues | $25,262 | $45,036 | $76,354 | $234,485 | | B&W Thermal Revenues | $70,025 | $108,157 | $223,920 | $315,587 | | Total Revenues | $132,513 | $198,644 | $416,464 | $678,695 | Segment Adjusted EBITDA (in thousands) | Segment (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :--------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | B&W Renewable Adjusted EBITDA | $23,575 | $(615) | $22,003 | $(4,185) | | B&W Environmental Adjusted EBITDA | $1,078 | $1,771 | $(137) | $2,453 | | B&W Thermal Adjusted EBITDA | $7,255 | $12,871 | $22,676 | $34,994 | NOTE 4 – REVENUE RECOGNITION AND CONTRACTS Revenue is recognized over time and at a point in time, with progress on loss contracts and a significant insurance recovery - Revenue recognized over time, primarily from customized engineered solutions and construction services, accounted for 66% and 68% of total revenue for the three and nine months ended September 30, 2020, respectively[55] - A non-recurring insurance loss recovery of $26.0 million was recognized in the third quarter of 2020 as a reduction of Cost of operations, related to five of the six European B&W Renewable EPC loss contracts[63][80] Contract Balances (in thousands) | Contract Balance (in thousands) | Sep 30, 2020 | Dec 31, 2019 | $ Change | % Change | | :------------------------------ | :----------- | :----------- | :------- | :------- | | Contracts in progress | $73,882 | $91,579 | $(17,697) | (19)% | | Advance billings on contracts | $54,046 | $75,287 | $(21,241) | (28)% | | Net contract balance | $19,836 | $16,292 | $3,544 | 22% | | Accrued contract losses | $845 | $6,193 | $(5,348) | (86)% | - As of September 30, 2020, five of the six European B&W Renewable EPC loss contracts had been turned over to customers, with remaining punch list items and performance testing[68] NOTE 5 – INVENTORIES Total inventories increased slightly from December 2019 to September 2020, driven by raw materials and supplies Inventory Components (in thousands) | Inventory Component (in thousands) | Sep 30, 2020 | Dec 31, 2019 | | :--------------------------------- | :----------- | :----------- | | Raw materials and supplies | $44,150 | $42,685 | | Work in progress | $9,900 | $7,502 | | Finished goods | $12,916 | $12,916 | | Total inventories | $66,966 | $63,103 | NOTE 6 – PROPERTY, PLANT & EQUIPMENT, & FINANCE LEASE Net property, plant, and equipment, and finance lease assets decreased due to accumulated depreciation Property, Plant and Equipment, and Finance Lease (in thousands) | Asset Category (in thousands) | Sep 30, 2020 | Dec 31, 2019 | | :---------------------------- | :----------- | :----------- | | Net property, plant and equipment | $59,653 | $66,661 | | Net property, plant and equipment, and finance lease | $88,645 | $97,053 | NOTE 7 - GOODWILL Goodwill was reallocated across segments, and no impairment was indicated despite a significant decline in share price - Goodwill was reallocated across B&W Renewable, B&W Environmental, and B&W Thermal segments due to a Q3 2020 organizational and re-branding initiative[89][90] - No goodwill impairment was indicated as of September 30, 2020, or March 31, 2020, despite a significant decline in share price attributed to macroeconomic conditions and COVID-19 impacts[91][93] Goodwill by Segment (in thousands) | Segment (in thousands) | Dec 31, 2019 | Sep 30, 2020 | | :--------------------- | :----------- | :----------- | | B&W Renewable | $10,169 | $10,164 | | B&W Environmental | $5,652 | $5,649 | | B&W Thermal | $31,339 | $31,323 | | Total Goodwill | $47,160 | $47,136 | NOTE 8 – INTANGIBLE ASSETS Net definite-lived intangible assets decreased due to amortization, with no impairment indicated for long-lived assets Intangible Assets, Net (in thousands) | Intangible Asset (in thousands) | Sep 30, 2020 | Dec 31, 2019 | | :------------------------------ | :----------- | :----------- | | Net definite-lived intangible assets | $22,386 | $23,995 | | Indefinite-lived intangible assets | $1,305 | $1,305 | | Total intangible assets, net | $23,691 | $25,300 | Amortization Expense (in thousands) | Amortization Expense (in thousands) | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :---------------------------------- | :-------------------------- | :-------------------------- | | Amortization expense | $(2,564) | $(3,301) | - No impairment was indicated for long-lived assets in the B&W Renewable and B&W Environmental asset groups during the first quarter of 2020, following an evaluation triggered by COVID-19 conditions[96] NOTE 9 – LEASES Total lease costs increased, driven by finance lease expenses, and the company received temporary rent payment deferrals Lease Expense (in thousands) | Lease Expense (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :--------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total operating lease expense | $2,924 | $2,883 | $6,694 | $11,902 | | Total finance lease expense | $1,129 | $0 | $3,389 | $0 | | Net lease cost | $4,031 | $2,861 | $10,018 | $11,856 | - The company received temporary rent payment deferrals for leased facilities in the U.S., Canada, Italy, and Denmark due to the COVID-19 pandemic[101] Lease Liabilities (in thousands) | Lease Liability (in thousands) | Sep 30, 2020 | Dec 31, 2019 | | :----------------------------- | :----------- | :----------- | | Total lease liabilities | $41,118 | $43,127 | NOTE 10 – ACCRUED WARRANTY EXPENSE Accrued warranty expense decreased due to payments and expirations, partially offset by additions Warranty Activity (in thousands) | Warranty Activity (in thousands) | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------- | :-------------------------- | :-------------------------- | | Balance at beginning of period | $33,376 | $45,117 | | Additions | $4,508 | $4,793 | | Payments | $(8,410) | $(7,848) | | Balance at end of period | $26,803 | $35,598 | - Warranty expense for the nine months ended September 30, 2019, included a $3.9 million reversal related to the March 29, 2019 settlement agreement for B&W Renewable EPC loss contracts[102] NOTE 11 – RESTRUCTURING ACTIVITIES Restructuring expenses decreased, primarily related to employee termination benefits, with payments expected through 2020 Restructuring Expense (in thousands) | Restructuring Expense (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Restructuring Expense | $2,396 | $2,556 | $6,739 | $9,571 | - Restructuring liabilities primarily relate to employee termination benefits, with severance payments expected to extend through the end of 2020[105] NOTE 12 – PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS The company reported net periodic pension and other postretirement benefit income, deferring significant contributions in 2020 Net Periodic Benefit Cost (Benefit) (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net periodic benefit cost (benefit) - Pension | $(6,933) | $(2,824) | $(21,101) | $(7,186) | | Net periodic benefit cost (benefit) - Other Benefits | $(178) | $(397) | $(567) | $(1,228) | - The company deferred approximately $46.0 million in total funding contributions for pension and other postretirement benefit plans in 2020, utilizing provisions of the CARES Act and IRS waivers[111][112] NOTE 13 – REVOLVING DEBT The company refinanced and extended its U.S. Revolving Credit Facility and Last Out Term Loans, securing additional B. Riley funding - The A&R Credit Agreement, effective May 14, 2020, extended the maturity of the U.S. Revolving Credit Facility to June 30, 2022, and Last Out Term Loans to December 30, 2022[116][119] - B. Riley committed to provide up to $70.0 million in additional Last Out Term Loans and provided a limited guaranty for the U.S. Revolving Credit Facility[117][126] - The company issued 1.7 million, 1.2 million, and 2.3 million unregistered shares of Common Stock to B. Riley in Q2 and Q3 2020 to settle the B. Riley Guaranty Fee and quarterly interest payments on Last Out Term Loans[128][132][190] U.S. Revolving Credit Facility (in thousands) | Metric (in thousands) | Sep 30, 2020 | Dec 31, 2019 | | :-------------------- | :----------- | :----------- | | U.S. Revolving Credit Facility borrowings | $181,900 | $179,000 | | Weighted average interest rate | 7.63% | N/A | | Available for additional borrowings under Sublimit | $23,100 | N/A | NOTE 14 – LAST OUT TERM LOANS Last Out Term Loans were refinanced and extended, resulting in a debt extinguishment loss and equitized interest payments Last Out Term Loans (in thousands) | Tranche (in thousands) | Proceeds | Discount and fees | Paid-in-kind interest | Net debt balance | | :--------------------- | :------- | :---------------- | :-------------------- | :--------------- | | A-3 | $101,660 | $8,650 | $3,020 | $113,330 | | A-4 | $30,000 | $0 | $0 | $30,000 | | A-6 | $30,000 | $0 | $0 | $30,000 | | Total | $161,660 | $8,650 | $3,020 | $173,330 | - A loss on debt extinguishment of $6.2 million was recognized in Q2 2020 due to the refinancing and extension of Last Out Term Loans under the A&R Credit Agreement[145] - The total effective interest rate for Tranche A-3, A-4, and A-6 was 12.0% as of September 30, 2020, with interest payments for certain periods equitized into common stock[147] NOTE 15 –INTEREST EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION Total interest expense decreased due to lower amortization and equitized interest, with cash flow details provided Interest Expense (in thousands) | Interest Expense (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | U.S. Revolving Credit Facility | $3,382 | $4,292 | $10,830 | $11,644 | | Last Out Term Loans - equitized interest | $5,315 | $0 | $8,031 | $0 | | Total interest expense | $12,203 | $29,463 | $49,776 | $67,434 | Cash & Restricted Cash (in thousands) | Cash & Restricted Cash (in thousands) | Sep 30, 2020 | Dec 31, 2019 | | :------------------------------------ | :----------- | :----------- | | Cash and cash equivalents of continuing operations | $38,934 | $43,772 | | Restricted cash and cash equivalents | $9,435 | $13,169 | | Total cash, cash equivalents and restricted cash | $48,369 | $56,941 | NOTE 16 – PROVISION FOR INCOME TAXES An income tax benefit was reported, with effective tax rates impacted by valuation allowances and jurisdictional income mix Income Tax (Benefit) Expense (in thousands, except percentages) | Metric (in thousands, except percentages) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :---------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income tax (benefit) expense | $(502) | $1,043 | $(467) | $3,560 | | Effective tax rate | (1.5)% | (1.9)% | 2.7% | (2.7)% | - The effective tax rate is not reflective of the U.S. statutory rate primarily due to valuation allowances against net deferred tax assets in certain jurisdictions[164][165][168] - Management concluded that the CARES Act will not have a material impact on the company's tax attributes[169] NOTE 17 – CONTINGENCIES The company faces various legal proceedings, including a breach of contract lawsuit, an SEC investigation, and stockholder litigation - A complaint was filed by P.H. Glatfelter Company against Babcock & Wilcox alleging breach of contract, fraud, and other claims, seeking damages in excess of $58.9 million[170] - The U.S. SEC is conducting a formal investigation into the company, focusing on accounting charges and related matters in the B&W Renewable segment from 2015-2019[171] - A stockholder derivative and class action complaint was filed alleging that certain directors, executives, and significant stockholders did not properly discharge their fiduciary duties in connection with the 2019 rights offering[172] NOTE 18 – COMPREHENSIVE INCOME Accumulated other comprehensive income shifted to a significant deficit due to negative currency translation adjustments Accumulated Other Comprehensive Income (Loss) (in thousands) | AOCI Component (in thousands) | Dec 31, 2019 | Sep 30, 2020 | | :---------------------------- | :----------- | :----------- | | Currency translation (loss) gain | $5,743 | $(18,888) | | Net related unrecognized loss to benefit plans (net of tax) | $(3,817) | $(4,555) | | Total AOCI | $1,926 | $(23,443) | - The significant decrease in AOCI was driven by currency translation adjustments, which moved from a gain of $2,380 thousand in Q1 2020 to a loss of $(22,916) thousand in Q3 2020[175] NOTE 19 – FAIR VALUE MEASUREMENTS Financial assets are valued using Level 1 and 2 inputs, with no derivative assets or liabilities held as of September 30, 2020 Available-for-Sale Securities (in thousands) | Available-for-sale securities (in thousands) | Sep 30, 2020 | Dec 31, 2019 | | :------------------------------------------- | :----------- | :----------- | | Corporate notes and bonds | $10,612 | $8,310 | | Mutual funds | $577 | $587 | | United States Government and agency securities | $6,132 | $3,868 | | Total fair value | $17,321 | $12,765 | - As of September 30, 2020, the company does not hold any derivative assets or liabilities, having sold the last of its derivative contracts in Q1 2019[182] - Fair value measurements for goodwill impairment tests and long-lived asset impairment reviews utilize unobservable inputs, based on discounted cash flow analysis and market approaches[186][187] NOTE 20 – RELATED PARTY TRANSACTIONS Significant related party transactions with B. Riley and Vintage Capital Management include debt, equity, and executive services - B. Riley beneficially owns 29.5% of the company's outstanding common stock as of September 30, 2020, and Vintage Capital Management, LLC owns 20.6%[189][197] - B. Riley provided a limited guaranty for the U.S. Revolving Credit Facility and received unregistered shares of common stock in settlement of the B. Riley Guaranty Fee and certain interest payments on Last Out Term Loans[189][190] Related Party Fees (in thousands) | Related Party Fees (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total fees associated with B. Riley | $100 | $400 | $7,600 | $11,900 | NOTE 21 – ASSETS HELD FOR SALE, DIVESTITURES AND DISCONTINUED OPERATIONS A small business was classified as held for sale, and remaining escrows from previous divestitures were settled - A small business in the B&W Thermal segment was classified as held for sale in December 2019, with its carrying value of $12.359 million approximating fair value less costs to sell as of September 30, 2020[198][200] - The company fully settled remaining escrows from the sale of Palm Beach Resource Recovery Corporation (PBRRC) for $4.5 million in March 2020 and from the sale of MEGTEC and Universal businesses for $3.5 million in April 2020[201][203] NOTE 22 – NEW ACCOUNTING STANDARDS ASU 2018-15 adoption had an immaterial impact, and other new accounting standards are currently under evaluation - ASU 2018-15, related to implementation costs for cloud computing arrangements, was adopted in Q1 2020 with an immaterial impact[204][205] - The company is evaluating ASU 2020-06 (simplifying accounting for convertible instruments), ASU 2020-04 (reference rate reform), ASU 2019-12 (simplifying income taxes), and ASU 2018-19 (credit losses) for future impact on its financial statements[206][207][208][209] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation Management discusses financial performance, condition, and results, highlighting COVID-19 impacts, segment results, and liquidity OVERVIEW OF RESULTS Q3 and YTD September 2020 results were negatively impacted by COVID-19, but Q3 operating income improved from an insurance recovery - Operating income for the three months ended September 30, 2020, was $14.1 million, a significant improvement from a $3.2 million loss in the prior year, primarily due to a $26.0 million non-recurring insurance loss recovery in the B&W Renewable segment[217][218][228] - The COVID-19 pandemic negatively impacted operating results, causing delays in new business, project deferrals, and reduced product volumes due to customer concerns, travel restrictions, and site closures[215][216] - The B&W Renewable segment's Adjusted EBITDA improved to $23.6 million in Q3 2020 from $(0.6) million in Q3 2019, largely driven by the insurance settlement[218] Condensed Consolidated Results of Operations Consolidated revenues decreased across all segments, while operating income improved in Q3 2020 due to an insurance recovery Consolidated Financial Performance (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Revenues | $132,513 | $198,644 | $416,464 | $678,695 | | Total Adjusted EBITDA | $25,637 | $10,140 | $27,751 | $14,008 | - Revenues decreased by $66.1 million (33.3%) in Q3 2020 and $262.2 million (38.6%) in the nine months ended September 30, 2020, compared to the prior year, primarily due to COVID-19 impacts and project completions[232][234] - Operating income increased by $17.3 million to $14.1 million in Q3 2020, mainly driven by a $26.0 million non-recurring insurance loss recovery in the B&W Renewable segment[233] Three Months Ended September 30, 2020 and 2019 Revenues decreased across all segments in Q3 2020, but operating income significantly improved due to an insurance recovery - Revenues decreased by $66.1 million to $132.5 million in Q3 2020, with B&W Renewable down $12.2 million, B&W Environmental down $19.8 million, and B&W Thermal down $38.1 million[232] - Operating income increased $17.3 million to $14.1 million in Q3 2020, primarily due to a $26.0 million non-recurring insurance loss recovery in the B&W Renewable segment[233] Nine Months Ended September 30, 2020 and 2019 Revenues decreased across all segments for the nine months, while operating losses improved from an insurance recovery and lower EPC contract losses - Revenues decreased by $262.2 million to $416.5 million for the nine months ended September 30, 2020, with B&W Renewable down $40.3 million, B&W Environmental down $158.1 million, and B&W Thermal down $91.7 million[234][235] - Operating losses improved $35.5 million to $(3.9) million for the nine months ended September 30, 2020, driven by the $26.0 million insurance loss recovery and reduced losses on EPC contracts[236] Non-GAAP Financial Measures Adjusted gross profit, a non-GAAP measure, increased for both periods ended September 30, 2020, from an insurance recovery Adjusted Gross Profit (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Adjusted gross profit (loss) | $58,644 | $41,215 | $127,654 | $118,440 | - Adjusted gross profit increased by $17.4 million in Q3 2020 and $9.2 million for the nine months ended September 30, 2020, compared to the prior year, primarily due to the non-recurring insurance loss recovery[238] B&W Renewable Segment Results Revenue decreased, but Adjusted EBITDA and adjusted gross profit significantly increased from an insurance recovery and lower EPC costs B&W Renewable Segment Performance (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenues | $39,062 | $51,292 | $118,570 | $158,901 | | Adjusted EBITDA | $23,575 | $(615) | $22,003 | $(4,185) | | Adjusted gross profit | $32,092 | $6,571 | $48,401 | $19,297 | - Adjusted EBITDA in the B&W Renewable segment increased by $24.2 million (3,933%) in Q3 2020 and $26.2 million (626%) for the nine months, primarily due to a $26.0 million non-recurring insurance loss recovery[241][244] - Revenue decreased due to higher activity in the prior year related to EPC loss contract turnover and new anticipated activities deferred due to COVID-19, partially offset by increased activity on operations and maintenance contracts[240][243] B&W Environmental Segment Results This segment experienced significant revenue and Adjusted EBITDA declines from project completions and COVID-19 postponements B&W Environmental Segment Performance (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenues | $25,262 | $45,036 | $76,354 | $234,485 | | Adjusted EBITDA | $1,078 | $1,771 | $(137) | $2,453 | | Adjusted gross profit | $5,929 | $9,030 | $15,465 | $33,613 | - Revenues decreased by $19.8 million (44%) in Q3 2020 and $158.1 million (67%) for the nine months, mainly due to the completion of large construction projects in the prior year and new project postponements due to COVID-19[248][251] - Adjusted EBITDA decreased by $0.7 million in Q3 2020 and $2.6 million for the nine months, primarily due to lower volume, partially offset by cost savings and restructuring initiatives[249][252] B&W Thermal Segment Results This segment experienced revenue and Adjusted EBITDA declines from COVID-19 impacts, leading to customer delays and reduced orders B&W Thermal Segment Performance (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenues | $70,025 | $108,157 | $223,920 | $315,587 | | Adjusted EBITDA | $7,255 | $12,871 | $22,676 | $34,994 | | Adjusted gross profit | $20,623 | $25,614 | $63,788 | $65,530 | - Revenues decreased by $38.1 million (35%) in Q3 2020 and $91.7 million (29%) for the nine months, primarily due to COVID-19 impacts, leading to customer delays and reduced orders[256][259] - Adjusted EBITDA decreased by $5.6 million in Q3 2020 and $12.3 million for the nine months, mainly due to lower volume, partially offset by cost savings and restructuring initiatives[257][260] Bookings and Backlog Total bookings and backlog increased for both periods ended September 30, 2020, with significant backlog expected as revenue Bookings (in approximate millions) | Metric (in approximate millions) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Bookings | $177 | $86 | $478 | $369 | Backlog (in approximate millions) | Metric (in approximate millions) | Sep 30, 2020 | Sep 30, 2019 | | :------------------------------- | :----------- | :----------- | | Backlog | $509 | $473 | - The company expects to recognize approximately 18.3% of its remaining performance obligations as revenue in the remainder of 2020, 34.6% in 2021, and 47.1% thereafter[62] Corporate Corporate costs increased in Q3 2020 due to management bonuses but decreased for the nine-month period from restructuring - Corporate costs increased by $1.9 million to $4.9 million in Q3 2020, primarily due to the accrual of management bonuses, partially offset by restructuring benefits[267] - Corporate costs decreased by $4.1 million to $12.9 million for the nine months ended September 30, 2020, primarily due to restructuring and discretionary spend reductions[267] Advisory Fees and Settlement Costs Advisory fees and settlement costs decreased from lower financial advisory fees and the absence of a prior year settlement - Advisory fees and settlement costs decreased by $0.6 million to $3.8 million in Q3 2020 and by $12.8 million to $10.1 million for the nine months, mainly due to lower financial advisory fees[269][270] - The nine-month decrease was also attributed to a $6.6 million settlement cost to exit an EPC contract in Q1 2019, which did not recur in 2020[270] Research and Development Research and development costs increased for both periods ended September 30, 2020, due to specific R&D effort timing Research and Development Costs (in thousands) | R&D Costs (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :----------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Research and development costs | $1,400 | $800 | $3,900 | $2,300 | - The increase in R&D costs was primarily due to the timing of specific research and development efforts[271] Restructuring Restructuring expenses decreased for both periods ended September 30, 2020, with actions primarily related to executive severances Restructuring Expense (in thousands) | Restructuring Expense (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Restructuring expense | $2,400 | $2,600 | $6,700 | $9,600 | - Restructuring actions primarily involved executive severances, and no additional severance expense is expected to be recognized based on actions taken through September 30, 2020[272] Goodwill Impairment Goodwill was reallocated, and no impairment was indicated after tests, despite a significant share price decline from COVID-19 - The company reevaluated its operating segments and reporting units in Q3 2020 as part of a re-branding initiative, leading to goodwill reallocation[273][274] - No goodwill impairment was indicated as of September 30, 2020, or March 31, 2020, despite a significant decline in share price attributed to macroeconomic conditions and COVID-19 impacts[275][276] - An analysis of long-lived asset recoverability in the B&W Renewable and B&W Environmental asset groups also indicated no impairment during Q1 2020[277][278] Depreciation and Amortization Depreciation and amortization expenses decreased for both periods ended September 30, 2020, with prior year including accelerated depreciation Depreciation and Amortization Expense (in thousands) | Expense (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :--------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Depreciation expense | $2,700 | $4,300 | $8,200 | $15,800 | | Amortization expense | $1,400 | $1,000 | $4,100 | $3,300 | - Depreciation expense in Q3 and YTD September 2019 included $0.7 million and $4.7 million, respectively, of accelerated depreciation from the prior corporate facility relocation[279] Pension and Other Postretirement Benefit Plans The company recognized pension benefits, with no mark-to-market adjustments in 2020, and funding obligations sensitive to market performance Pension Benefits (in millions) | Pension Benefits (in millions) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :----------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Pension benefits | $7.3 | $3.6 | $22.3 | $10.4 | - No MTM adjustments were made for pension and other postretirement benefit plans in Q3 or YTD September 2020, but MTM adjustment losses of $1.3 million were incurred in the nine months ended September 30, 2019[281] - Funding obligations for pension plans are impacted by financial market performance and interest rates, with potential for larger contributions if expected returns are not met or discount rates increase[284] Foreign Exchange Significant foreign exchange gains were reported, reversing prior year losses, primarily from unhedged intercompany loans Foreign Exchange (in millions) | Foreign Exchange (in millions) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :----------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Foreign exchange | $25.0 | $(26.7) | $22.7 | $(27.4) | - Foreign exchange gains and losses are primarily related to unhedged intercompany loans denominated in European currencies used to fund foreign operations[286] Income Taxes An income tax benefit was recorded, with effective tax rates influenced by valuation allowances against deferred tax assets Income Tax (Benefit) Expense (in thousands, except percentages) | Metric (in thousands, except percentages) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :---------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income tax (benefit) expense | $(502) | $1,043 | $(467) | $3,560 | | Effective tax rate | (1.5)% | (1.9)% | 2.7% | (2.7)% | - The effective tax rate is not reflective of the U.S. statutory rate primarily due to a full valuation allowance against net deferred tax assets, except in Mexico, Canada, the United Kingdom, and Sweden[288][289] Liquidity and Capital Resources Liquidity improved through debt refinancing, additional funding, and cash conservation, alleviating going concern doubts Liquidity Going concern doubts were addressed by refinancing debt, securing additional funding, settling escrows, and implementing cash conservation - The company refinanced and extended its U.S. Revolving Credit Facility to June 30, 2022, and Last Out Term Loans to December 30, 2022, through the A&R Credit Agreement in May 2020[295] - B. Riley committed to provide up to $70.0 million of additional Last Out Term Loans and provided a limited guaranty for the U.S. Revolving Credit Facility[295] - Cash conservation measures included temporary furloughs, executive salary deferrals, suspension of 401(k) match, temporary rent deferrals, and deferral of approximately $46.0 million in pension contributions[296] Cash and Cash Flows Cash used in operating activities decreased significantly, while financing activities provided net cash, improving overall cash position Cash Flow Summary (in millions) | Cash Flow (in millions) | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :---------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(67.3) | $(201.1) | | Net cash from investing activities | $2.0 | $7.1 | | Net cash from financing activities | $52.4 | $181.0 | - Cash used in operations decreased primarily due to the improved net loss from continuing operations and the $26.0 million non-recurring insurance settlement[300] - At September 30, 2020, unrestricted cash and cash equivalents totaled $38.9 million, with $36.8 million held by foreign entities, and $23.1 million available for borrowings under the U.S. Revolving Credit Facility[299] U.S. Revolving Credit Facility The facility was refinanced and extended to June 2022, with modified interest rates and deferred interest payments - The U.S. Revolving Credit Facility was extended to June 30, 2022, with interest rates reduced to LIBOR plus 7.0% or base rate plus 6.0%[308] U.S. Revolving Credit Facility Details (in thousands) | Metric (in thousands) | Sep 30, 2020 | | :-------------------- | :----------- | | Borrowings | $181,900 | | Weighted average interest rate | 7.63% | | Available for additional borrowings | $23,100 | - Interest payments of $3.8 million on revolving credit loans incurred from May 14, 2020, to August 31, 2020, were deferred and will be paid in six equal installments starting January 29, 2021[308] Last Out Term Loans Term loans were extended, resulting in a debt extinguishment loss, with interest payments settled by issuing common stock - The maturity date for Last Out Term Loans was extended to December 30, 2022, under the A&R Credit Agreement, leading to a $6.2 million loss on debt extinguishment[309] - The company issued 2,334,002 and 1,192,371 unregistered shares of common stock to B. Riley in Q3 and Q2 2020, respectively, to settle quarterly interest payments[310] - New Tranche A-4 ($30.0 million) and Tranche A-6 ($30.0 million) Last Out Term Loans were funded by B. Riley in 2020, with a fixed interest rate of 12.0%[317][321] Letters of Credit, Bank Guarantees and Surety Bonds The company uses these instruments to support obligations, with sufficient U.S. Revolving Credit Facility capacity crucial for future contracts Letters of Credit, Bank Guarantees and Surety Bonds (in millions) | Metric (in millions) | Sep 30, 2020 | Dec 31, 2019 | | :------------------- | :----------- | :----------- | | Aggregate value of L/Cs and bank guarantees (outside U.S. Revolving Credit Facility) | $80.6 | $88.5 | | Aggregate value of L/Cs backstopping L/Cs or bank guarantees (U.S. Revolving Credit Facility) | $31.6 | N/A | | Bonds issued and outstanding under surety arrangements | $277.6 | N/A | | Aggregate value of L/Cs backstopping surety bonds (U.S. Revolving Credit Facility) | $34.7 | N/A | - The ability to obtain and maintain sufficient capacity under the U.S. Revolving Credit Facility is essential for supporting future contract security requirements[326] A&R Credit Agreement This agreement refinanced and extended debt maturities, secured additional funding, and established new financial covenants - The A&R Credit Agreement extended the maturity of the U.S. Revolving Credit Facility to June 30, 2022, and Last Out Term Loans to December 30, 2022[331] - New financial covenants for interest coverage ratios (ranging from 0.50:1.00 to 1.25:1.00) and senior leverage ratios (ranging from 7.75:1.00 to 2.25:1.00) were established, effective October 30, 2020[337] - B. Riley committed up to $70.0 million in additional Last Out Term Loans, with $30.0 million funded upon execution of the A&R Credit Agreement[329] B. Riley Limited Guaranty B. Riley provided a limited guaranty for the U.S. Revolving Credit Facility, receiving common stock for the associated fee - B. Riley provided a limited guaranty for the company's obligations under the U.S. Revolving Credit Facility, enforceable under specific circumstances such as B. Riley's failure to fund term loans or company's failure to pay amounts due[338] - The company paid B. Riley a $3.9 million guaranty fee, which was settled by issuing 1,712,479 unregistered shares of Common Stock on June 8, 2020[340] Fee and Interest Equitization Agreement B. Riley received common stock in lieu of interest payments on Last Out Term Loans and the guaranty fee, with stockholder approval - B. Riley received unregistered shares of Common Stock in settlement of $13.4 million in Equitized Interest Payments on Last Out Term Loans and the B. Riley Guaranty Fee[342] - The conversion price for these shares was calculated at $2.2774 per share, with stockholder approval obtained on June 16, 2020[343][345] - The company issued 2,334,002 and 1,192,371 unregistered shares of Common Stock on September 30, 2020, and June 30, 2020, respectively, for quarterly interest payments[344] Off-Balance Sheet Arrangements No significant off-balance sheet arrangements existed as of September 30, 2020 - No significant off-balance sheet arrangements existed as of September 30, 2020[346] Equitization Transactions These transactions involved a rights offering and debt-for-equity exchanges, altering the capital structure and related party ownership - The 2019 Rights Offering resulted in the issuance of 16,666,666 shares of common stock, generating $37.8 million in cash and exchanging $8.2 million of Tranche A-3 Last Out Term Loans for shares[347][349] - Tranches A-1 and A-2 of the Last Out Term Loans were fully extinguished, and Tranche A-3 was partially prepaid, as part of the Equitization Transactions[349][350] - After the transactions, Vintage increased its beneficial ownership to 32.8%, and B. Riley to 18.4%, including warrants[350] 2019 Rights Offering The 2019 Rights Offering generated $41.8 million in gross proceeds, used to repay Last Out Term Loans, with B. Riley as backstop - The 2019 Rights Offering, which expired on July 18, 2019, resulted in the issuance of 13.9 million common shares at $0.30 per share[351][352] - Gross proceeds of $41.8 million were used to fully repay Tranche A-2 of Last Out Term Loans ($10.3 million) and reduce Tranche A-3 ($31.5 million)[352] - B. Riley acted as a backstop, purchasing unsubscribed shares and exchanging a portion of Tranche A-3 Last Out Term Loans for $8.2 million in common shares[347][352] Critical Accounting Policies and Estimates No significant changes occurred in critical accounting policies and estimates during the nine months ended September 30, 2020 - No significant changes occurred in the company's critical accounting policies and estimates during the nine months ended September 30, 2020[353] Item 3. Quantitative and Qualitative Disclosures about Market Risk Market risk exposures are unchanged, except for the significant adverse impact of the COVID-19 pandemic on operations and financing - Market risk exposures have not materially changed, except for the significant adverse impact of the COVID-19 pandemic[354][355] - The COVID-19 pandemic has disrupted business operations, financial markets, and could negatively impact demand, financing, and potentially the company's ability to continue as a going concern[355][357][358] Item 4. Controls and Procedures Disclosure controls and procedures were effective, with no material changes in internal control over financial reporting despite remote work - The company's disclosure controls and procedures were deemed effective as of September 30, 2020, providing reasonable assurance for timely and accurate financial reporting[359][360] - No material changes occurred in internal control over financial reporting during Q3 2020, despite remote work arrangements due to the COVID-19 pandemic[361] PART II - OTHER INFORMATION This section provides information on legal proceedings, risk factors, equity sales, exhibits, and signatures Item 1. Legal Proceedings Information on ongoing legal proceedings, including lawsuits and an SEC investigation, is incorporated by reference from Note 17 - Information regarding ongoing legal proceedings, including a breach of contract lawsuit, an SEC investigation, and stockholder derivative and class action litigation, is incorporated by reference from Note 17 to the Condensed Consolidated Financial Statements[362] Item 1A. Risk Factors No material changes to risk factors have occurred since the 2019 Annual Report on Form 10-K and Q3 2020 Quarterly Report - No material changes to risk factors have occurred since the Annual Report on Form 10-K for 2019 and the Quarterly Report on Form 10-Q for Q3 2020[364] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Shares were acquired in Q3 2020 to satisfy tax withholding obligations related to employee restricted stock vesting Shares Acquired (number of shares) | Period | Total number of shares acquired | | :---------- | :------------------------------ | | July 2020 | — | | August 2020 | 96,718 | | September 2020 | 108 | | Total | 96,826 | - Shares were acquired in connection with the vesting of employee restricted stock to satisfy statutory income tax withholding obligations[365] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including various agreements, amendments, and certifications - Exhibits include Amendment No. 1 to the Amended and Restated Credit Agreement, Second Amendment to Executive Services Agreement, and various certifications (CEO, CFO)[368] SIGNATURES The report was signed by Louis Salamone, EVP, CFO, and Chief Accounting Officer, on November 13, 2020 - The report was signed by Louis Salamone, Executive Vice President, Chief Financial Officer and Chief Accounting Officer, on November 13, 2020[371][373]