Babcock & Wilcox(BW) - 2022 Q2 - Quarterly Report

Cautionary Statement Concerning Forward-Looking Information This report contains forward-looking statements based on current expectations that are subject to various risks and uncertainties - The report includes forward-looking statements identified by words like "expect," "plan," and "believe," concerning future operational performance or events[7] - These statements are based on current management expectations and involve numerous risks and uncertainties, including impacts from COVID-19, the Russia-Ukraine conflict, acquisition integrations (Fosler, VODA, Fossil Power, Optimus), financing capabilities, debt compliance, market competition, economic conditions, backlog cancellations, contract performance, third-party performance, claim resolutions, restructuring benefits, R&D management, operational risks, regulatory approvals, pension liabilities, and international socio-political and economic conditions[8] - The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law[10] PART I - FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Condensed Consolidated Financial Statements This item presents the company's unaudited condensed consolidated financial statements and detailed notes for the periods ended June 30, 2022 Condensed Consolidated Statements of Operations Key Data from Condensed Consolidated Statements of Operations | Metric (in thousands of U.S. dollars) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenues | 221,019 | 202,860 | 425,068 | 371,108 | | Income (Loss) from Operations | 3,668 | 2,784 | (3,115) | (3,678) | | Net Income (Loss) Attributable to Common Stockholders | (6,282) | 1,395 | (18,261) | (14,069) | | Basic Earnings (Loss) Per Share | (0.07) | 0.02 | (0.21) | (0.18) | | Diluted Earnings (Loss) Per Share | (0.07) | 0.02 | (0.21) | (0.18) | - For the three months ended June 30, 2022, revenue increased 9.0% year-over-year to $221.0 million; for the six months ended June 30, 2022, revenue increased 14.5% to $425.1 million[13] - For the three months ended June 30, 2022, the company reported a net loss of $3.0 million, compared to a net income of $3.1 million in the prior-year period, primarily due to increased interest expense and foreign exchange losses[13] Condensed Consolidated Statements of Comprehensive Income (Loss) Key Data from Condensed Consolidated Statements of Comprehensive Income (Loss) | Metric (in thousands of U.S. dollars) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) | (2,994) | 3,141 | (11,678) | (12,302) | | Currency Translation Adjustments (CTA) | (6,634) | (1,478) | (10,919) | (1,548) | | Other Comprehensive Loss | (6,832) | (1,280) | (10,524) | (5,664) | | Comprehensive Income (Loss) Attributable to Stockholders | (9,328) | 1,851 | (21,243) | (17,973) | - For the three months ended June 30, 2022, currency translation adjustments resulted in a loss of $6.6 million, a significant increase from the $1.5 million loss in the prior-year period[17] Condensed Consolidated Balance Sheets Key Data from Condensed Consolidated Balance Sheets | Metric (in thousands of U.S. dollars) | As of June 30, 2022 | As of December 31, 2021 | | :--- | :--- | :--- | | Cash and Cash Equivalents | 71,524 | 224,874 | | Restricted Cash and Cash Equivalents | 8,664 | 1,841 | | Total Current Assets | 515,554 | 582,434 | | Goodwill | 164,777 | 116,462 | | Intangible Assets, Net | 63,561 | 43,795 | | Total Assets | 913,939 | 913,265 | | Total Current Liabilities | 302,535 | 253,383 | | Pension and Other Postretirement Benefit Liabilities | 166,056 | 182,730 | | Total Liabilities | 882,222 | 854,643 | | Stockholders' Equity Attributable to Stockholders | 7,204 | 33,149 | | Total Stockholders' Equity | 31,717 | 58,622 | - As of June 30, 2022, cash and cash equivalents decreased significantly by 68% to $71.5 million from $224.9 million at December 31, 2021[20] - As of June 30, 2022, goodwill and net intangible assets increased substantially to $164.8 million and $63.6 million, respectively, due to acquisition activities[20] Condensed Consolidated Statement of Stockholders' Equity (Deficit) Key Data from Condensed Consolidated Statement of Stockholders' Equity (Deficit) | Metric (in thousands of U.S. dollars) | Balance at Dec 31, 2021 | Balance at Mar 31, 2022 | Balance at Jun 30, 2022 | | :--- | :--- | :--- | :--- | | Common Stock, Shares | 86,286 | 86,338 | 86,392 | | Common Stock, Par Value | 5,110 | 5,111 | 5,112 | | Preferred Stock, Shares | 7,669 | 7,669 | 7,669 | | Preferred Stock, Par Value | 77 | 77 | 77 | | Capital in Excess of Par Value | 1,518,872 | 1,520,545 | 1,521,931 | | Accumulated Deficit | (1,321,154) | (1,333,133) | (1,339,415) | | Accumulated Other Comprehensive Loss | (58,822) | (62,514) | (69,346) | | Stockholders' Equity Attributable to Stockholders | 33,149 | 43,942 | 7,204 | | Noncontrolling Interests | 25,473 | 25,011 | 24,513 | | Total Stockholders' Equity | 58,622 | 43,942 | 31,717 | - As of June 30, 2022, total stockholders' equity decreased to $31.7 million from $58.6 million at December 31, 2021, primarily due to net loss, currency translation adjustments, and preferred stock dividend payments[22] - For the six months ended June 30, 2022, the company paid $7.4 million in preferred stock dividends[22] Condensed Consolidated Statements of Cash Flows Key Data from Condensed Consolidated Statements of Cash Flows | Metric (in thousands of U.S. dollars) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | (63,591) | (86,075) | | Net Cash Used in (Provided by) Investing Activities | (65,582) | 6,611 | | Net Cash (Used in) Provided by Financing Activities | (15,642) | 151,289 | | Effect of Exchange Rate Changes | (1,712) | 4,350 | | Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash | (146,527) | 76,175 | | Cash, Cash Equivalents and Restricted Cash at End of Period | 80,188 | 143,598 | - For the six months ended June 30, 2022, net cash outflow from operating activities was $63.6 million, an improvement from the $86.1 million outflow in the prior-year period[26] - Net cash outflow from investing activities was $65.6 million, primarily due to $64.9 million for business acquisitions[26] - Net cash outflow from financing activities was $15.6 million, mainly due to the payment of $7.4 million in preferred stock dividends[28] Notes to Condensed Consolidated Financial Statements NOTE 1 – BASIS OF PRESENTATION - The interim condensed consolidated financial statements are prepared in accordance with U.S. GAAP and SEC instructions for interim financial information, including normal, recurring adjustments[31] - The COVID-19 pandemic continues to adversely affect the company's business operations, supply chain, and project timelines, causing project delays and increased costs[32][33][34] NOTE 2 – EARNINGS PER SHARE - Basic and diluted earnings per share are identical for the three and six months ended June 30, 2022, and the six months ended June 30, 2021, due to net losses[36] - If the company had achieved net income, diluted shares would have increased by an additional 0.9 million (Q2 2022) and 1.4 million (H1 2021)[37] NOTE 3 – SEGMENT REPORTING - The company's operations are organized into three market-facing reporting segments: Babcock & Wilcox Renewable, Babcock & Wilcox Environmental, and Babcock & Wilcox Thermal[39] Segment Revenues and Adjusted EBITDA | Metric (in thousands of U.S. dollars) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenues: | | | | | | B&W Renewable | 75,227 | 38,344 | 143,188 | 67,155 | | B&W Environmental | 31,612 | 28,358 | 66,560 | 59,518 | | B&W Thermal | 116,305 | 136,316 | 218,544 | 244,597 | | Adjusted EBITDA: | | | | | | B&W Renewable | 8,869 | 3,427 | 10,324 | 3,631 | | B&W Environmental | 591 | 2,705 | 2,030 | 3,810 | | B&W Thermal | 16,361 | 12,572 | 30,515 | 23,107 | - Adjusted EBITDA is a non-GAAP measure used internally to evaluate performance and make strategic decisions, adjusted for specific items[42] NOTE 4 – REVENUE RECOGNITION AND CONTRACTS - The vast majority of the company's revenue (79% in Q2 2022 and 80% in H1 2022) is derived from products and services transferred over time, primarily custom-engineered solutions and construction services[47] Contract Balance Changes | Metric (in thousands of U.S. dollars) | As of June 30, 2022 | As of December 31, 2021 | Change Amount | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Contracts in Progress | 111,913 | 80,176 | 31,737 | 40% | | Advance Payments on Contracts | 95,718 | 68,380 | 27,338 | 40% | | Net Contract Position | 16,195 | 11,796 | 4,399 | 37% | | Accrued Contract Losses | 1,849 | 378 | 1,471 | 389% | - As of June 30, 2022, the company's total backlog (remaining performance obligations) was $731 million, with expected revenue recognition of 48.4% in 2022, 28.2% in 2023, and 23.4% thereafter[50] - The Fosler Solar reporting unit incurred losses due to inadequately disclosed construction activity status at the time of acquisition, resulting in a $14.4 million increase in goodwill, primarily from accrued liabilities and warranty accruals[53] NOTE 5 – INVENTORIES Inventory Composition | Inventory Category (in thousands of U.S. dollars) | As of June 30, 2022 | As of December 31, 2021 | | :--- | :--- | :--- | | Raw Materials and Supplies | 73,681 | 56,352 | | Work-in-Process | 9,198 | 5,723 | | Finished Goods | 16,233 | 17,452 | | Total Inventories | 99,112 | 79,527 | - As of June 30, 2022, total inventories increased to $99.1 million, a $19.6 million increase from December 31, 2021, driven primarily by higher raw materials and supplies[53] NOTE 6 – PROPERTY, PLANT & EQUIPMENT, & FINANCE LEASES Net Property, Plant & Equipment, & Finance Leases | Metric (in thousands of U.S. dollars) | As of June 30, 2022 | As of December 31, 2021 | | :--- | :--- | :--- | | Land | 2,460 | 1,489 | | Buildings | 35,291 | 31,895 | | Machinery and Equipment | 147,161 | 144,325 | | Construction in Progress | 4,834 | 12,480 | | Less: Accumulated Depreciation | 135,783 | 133,137 | | Net Property, Plant and Equipment | 53,963 | 57,052 | | Finance Leases | 34,159 | 34,159 | | Less: Accumulated Amortization of Finance Leases | 7,594 | 5,584 | | Net Property, Plant & Equipment, & Finance Leases | 80,528 | 85,627 | - As of June 30, 2022, net property, plant, and equipment, and finance leases was $80.5 million, a decrease from $85.6 million at December 31, 2021, mainly due to a reduction in construction in progress[54] NOTE 7 - GOODWILL Summary of Changes in Goodwill | Segment (in thousands of U.S. dollars) | Balance at Dec 31, 2021 | Balance at Jun 30, 2022 | | :--- | :--- | :--- | | B&W Renewable | 79,357 | 89,560 | | B&W Environmental | 5,667 | 5,511 | | B&W Thermal | 31,438 | 69,706 | | Total | 116,462 | 164,777 | - As of June 30, 2022, total goodwill increased to $164.8 million, a $48.3 million increase from December 31, 2021, primarily from the acquisitions of Fossil Power ($35.4 million) and Optimus Industries ($11.1 million)[56] - Measurement period adjustments for the Fosler acquisition resulted in a $10.7 million increase in goodwill, mainly due to the initial recognition of accrued liabilities and warranty accruals[56] NOTE 8 – INTANGIBLE ASSETS Net Intangible Assets | Intangible Asset Category (in thousands of U.S. dollars) | As of June 30, 2022 | As of December 31, 2021 | | :--- | :--- | :--- | | Customer Relationships | 68,041 | 46,903 | | Unpatented Technology | 18,189 | 15,410 | | Patented Technology | 3,638 | 3,103 | | Trade Names | 13,228 | 12,747 | | Acquired Backlog | 3,100 | 3,100 | | Other | 9,228 | 9,319 | | Less: Accumulated Amortization | (53,168) | (48,092) | | Net Definite-Lived Intangible Assets | 62,256 | 42,490 | | Indefinite-Lived Intangible Assets (Trademarks and Trade Names) | 1,305 | 1,305 | | Total Net Intangible Assets | 63,561 | 43,795 | - As of June 30, 2022, net intangible assets increased to $63.6 million, a $19.8 million increase from December 31, 2021, primarily due to new intangible assets from acquisitions[57][59] Estimated Future Amortization Expense for Intangible Assets | Year | Amortization Expense (in thousands of U.S. dollars) | | :--- | :--- | | Remainder of 2022 | 3,987 | | 2023 | 7,973 | | 2024 | 7,901 | | 2025 | 7,061 | | 2026 | 5,909 | | 2027 | 5,276 | | Thereafter | 24,149 | NOTE 9 – ACCRUED WARRANTY EXPENSE Changes in Accrued Warranty Expense | Metric (in thousands of U.S. dollars) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Beginning Balance | 12,925 | 25,399 | | Additions | 2,942 | 3,608 | | Expirations and Other Changes | (2,028) | (4,309) | | Payments | (2,144) | (8,576) | | Foreign Exchange and Other | (612) | 254 | | Ending Balance | 11,083 | 16,376 | - As of June 30, 2022, the ending balance for accrued warranty expense was $11.1 million, a decrease from the prior-year period; additions for the period included $0.4 million related to Fosler projects[62] NOTE 10 – RESTRUCTURING ACTIVITIES Restructuring Charges (Benefits) | Segment (in thousands of U.S. dollars) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | B&W Renewable | (20) | 557 | (213) | 1,066 | | B&W Environmental | 34 | 209 | 103 | 298 | | B&W Thermal | 82 | 1,542 | 280 | 1,890 | | Corporate | (198) | 92 | (178) | 139 | | Total | (102) | 2,400 | (8) | 3,393 | - For the three and six months ended June 30, 2022, restructuring activities resulted in a $0.1 million benefit and an $8 thousand loss, respectively, a significant reduction from the prior-year period, reflecting a lower level of restructuring actions[65] - As of June 30, 2022, the restructuring liability was $4.1 million, primarily related to employee termination benefits[66] NOTE 11 – PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS Net Periodic Benefit Cost (Income) | Metric (in thousands of U.S. dollars) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Periodic Benefit Cost (Income) for Pension Benefits | (7,427) | (5,918) | (14,900) | (15,011) | | Net Periodic Benefit Cost (Income) for Other Benefits | 227 | 218 | 454 | 436 | - For the six months ended June 30, 2022, the company contributed $0.5 million to its pension and other postretirement benefit plans, significantly lower than the $24.3 million contributed in the prior-year period[70] - There were no mark-to-market (MTM) adjustments for pension and other postretirement benefit plans for the three and six months ended June 30, 2022[69] NOTE 12 – DEBT Net Debt Balance of Senior Notes | Note Category (in thousands of U.S. dollars) | 8.125% Senior Notes | 6.50% Senior Notes | Total | | :--- | :--- | :--- | :--- | | Senior Notes due 2026 | 188,595 | 151,440 | 340,035 | | Unamortized Deferred Financing Costs | (4,641) | (5,967) | (10,608) | | Unamortized Premium | 541 | — | 541 | | Net Debt Balance | 184,495 | 145,473 | 329,968 | - In the first half of 2022, the company sold $2.4 million of its 8.125% Senior Notes under a sales agreement, receiving net proceeds of $2.4 million[73] - As of June 30, 2022, there were no borrowings under the Revolving Credit Facility, and usage under the Letter of Credit Facility included $16.1 million in financial letters of credit and $96.2 million in performance letters of credit[78] - As of June 30, 2022, letters of credit and bank guarantees outside the Letter of Credit Facility totaled $50.5 million, and outstanding performance surety bonds totaled approximately $293.3 million[86][87] NOTE 13 – PREFERRED STOCK - The company has issued 7.75% Series A Cumulative Perpetual Preferred Stock with a liquidation preference of $25.00 per share and pays quarterly dividends[93] - For the six months ended June 30, 2022, the Board of Directors approved and paid total preferred stock dividends of $7.4 million[94] - For the six months ended June 30, 2022, the company did not sell any additional preferred stock under its sales agreement with B. Riley Securities, Inc[96] NOTE 14 – COMMON STOCK - Company stockholders approved an amendment to the 2021 Long-Term Incentive Plan, increasing the total common shares authorized for awards from 1,250,000 to 5,250,000[98] NOTE 15 –INTEREST EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION Composition of Interest Expense | Category (in thousands of U.S. dollars) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Senior Notes | 6,114 | 3,459 | 12,329 | 5,192 | | Amortization or Accretion | 1,818 | 1,893 | 3,520 | 7,761 | | Lease Liabilities | 697 | 708 | 1,405 | 1,324 | | Other Interest Expense | 2,033 | 1,124 | 4,675 | 2,202 | | Total Interest Expense | 10,662 | 8,021 | 21,929 | 22,244 | - For the three months ended June 30, 2022, total interest expense increased to $10.7 million, a $2.6 million increase from the prior-year period[100] - For the six months ended June 30, 2022, cash paid for interest totaled $13.0 million, primarily for the 8.125% and 6.50% Senior Notes[102] - As of June 30, 2022, restricted cash and cash equivalents were $8.6 million, which included $5.9 million held in escrow for the acquisition of Fossil Power Systems[100] NOTE 16 – PROVISION FOR INCOME TAXES Income Tax (Benefit) Expense and Effective Tax Rate | Metric (in thousands of U.S. dollars) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | (Loss) Income Before Income Taxes | (4,349) | 6,687 | (11,803) | (5,920) | | Income Tax (Benefit) Expense | (1,355) | 3,546 | (125) | 6,382 | | Effective Tax Rate | 31.2% | 53.0% | 1.1% | (107.8)% | - The effective tax rate does not reflect the U.S. statutory rate, primarily due to a valuation allowance against certain net deferred tax assets and non-recurring items like withholding taxes[105] NOTE 17 – CONTINGENCIES - In the Glatfelter litigation, the court dismissed claims of fraud and negligent misrepresentation and capped potential damages at $11.7 million if the contract is found valid[107] - A settlement in principle was reached in the shareholder litigation for a total payment of $9.5 million, including corporate governance changes; $4.75 million will be paid by the company on behalf of B. Riley Financial, Inc. and Vintage Capital Management, LLC, with the other $4.75 million paid to the company from insurance proceeds and other parties[110] - The Russia-Ukraine conflict may impact the company's business, and while it has no direct contracts with Russian entities, its Italian subsidiary has approximately $3.1 million in sales to non-Russian parties who may resell products to or use them in Russia[111] NOTE 18 – COMPREHENSIVE INCOME Changes in Accumulated Other Comprehensive Income (Loss) | Metric (in thousands of U.S. dollars) | Balance at Dec 31, 2021 | Balance at Mar 31, 2022 | Balance at Jun 30, 2022 | | :--- | :--- | :--- | :--- | | Currency Translation Loss | (55,499) | (59,784) | (66,418) | | Unrecognized Loss Related to Pension Plans (Net of Tax) | (3,323) | (2,730) | (2,928) | | Total | (58,822) | (62,514) | (69,346) | - As of June 30, 2022, accumulated other comprehensive loss increased to $69.3 million, primarily driven by losses from currency translation adjustments[114] NOTE 19 – FAIR VALUE MEASUREMENTS Fair Value of Available-for-Sale Securities | Category (in thousands of U.S. dollars) | As of June 30, 2022 | As of December 31, 2021 | | :--- | :--- | :--- | | Corporate Notes and Bonds | 6,900 | 9,477 | | Mutual Funds | 640 | 714 | | U.S. Government and Agency Securities | 3,016 | 2,017 | | Total | 10,556 | 12,208 | Fair Value of Senior Notes (as of June 30, 2022) | Note Category | Carrying Value (in thousands of U.S. dollars) | Estimated Fair Value (in thousands of U.S. dollars) | | :--- | :--- | :--- | | 8.125% Senior Notes | 188,595 | 179,216 | | 6.50% Senior Notes | 151,440 | 131,026 | - The fair value of the contingent consideration liability related to the Fosler Construction Company acquisition is $9.6 million, classified as a Level 3 liability based primarily on significant unobservable inputs[123] NOTE 20 – RELATED PARTY TRANSACTIONS - As of June 30, 2022, B. Riley beneficially owned approximately 30.5% of the company's outstanding common stock[125] - The company pays CEO service fees to B. Riley's affiliate, BRPI Executive Consulting, LLC, totaling $0.2 million in Q2 2022 and $0.4 million in H1 2022[126] - The company paid multiple underwriting fees and other transaction costs to B. Riley Securities, Inc. related to the issuance of senior notes, common stock, and preferred stock[127][128][130][131][133][136][137][139] - B. Riley Financial, Inc. provides a payment guaranty for the company's Reimbursement Agreement obligations, for which the company pays B. Riley an annual fee of $0.9 million[135] NOTE 21 – ACQUISITIONS AND DIVESTITURES - On September 30, 2021, the company acquired a 60% controlling interest in Fosler Construction Company Inc. for a total consideration of $36.0 million, including $27.2 million in cash and $8.8 million in contingent consideration, resulting in a $14.4 million increase in goodwill[141][142][145] - On November 30, 2021, the company acquired 100% of the shares of VODA A/S in Denmark for approximately $32.9 million[146] - On February 1, 2022, the company acquired 100% of the shares of Fossil Power Systems, Inc. for approximately $59.2 million, including a $5.9 million holdback[148] - On February 28, 2022, the company acquired 100% of the membership interests of Optimus Industries, LLC for approximately $19.2 million[151] - On June 30, 2022, the company sold the development rights to future solar projects for $8.0 million, recognizing a $7.0 million gain on the sale[163] NOTE 22 – NEW ACCOUNTING STANDARDS - In H1 2022, the company adopted ASU 2020-06 (Debt with Conversion and Other Options), which did not have a material impact on the condensed consolidated financial statements[167][169] - The company is evaluating the impact of ASU 2021-08 (Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers), effective January 2023[169] - The company is evaluating the impact of ASU 2018-19 (Codification Improvements to Topic 326, Financial Instruments—Credit Losses), effective January 2023, which introduces the current expected credit losses (CECL) model[170] NOTE 23 – SUBSEQUENT EVENTS - On July 20, 2022, B. Riley's affiliate, BRF Investments, LLC, exercised warrants to purchase 1,541,666 shares of common stock at a price of $0.01 per share[171] - On July 28, 2022, B&W was the successful bidder to acquire the assets of Hamon Research-Cottrell, Inc., a leading supplier of air pollution control technologies, for approximately $2.9 million[172] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation This item provides management's discussion and analysis of the company's financial condition and results of operations for the three and six months ended June 30, 2022 BUSINESS OVERVIEW - B&W is a global provider of renewable, environmental, and thermal technologies with over 150 years of experience, serving industrial, electric utility, and municipal customers[174] - The company's business is organized into three market-facing segments: B&W Renewable, B&W Environmental, and B&W Thermal[175] - In February 2022, the company acquired Fossil Power Systems, Inc. and Optimus Industries, LLC, both of which are included in the B&W Thermal segment[176][177] - The company's business is significantly dependent on capital, operating, and maintenance expenditures by global power generation companies and industrial facilities with environmental compliance requirements[178] - The Russia-Ukraine conflict has negatively impacted the global economy, causing supply and material shortages and affecting the timing of revenue recognition on several projects[180] RESULTS OF OPERATIONS Components of Our Results of Operations - Revenues are primarily derived from renewable, environmental, and thermal technology solutions[185] - Income (loss) from operations consists mainly of revenues less costs of operations, SG&A expenses, and advisory fees and settlement costs[186] - Net income (loss) is primarily composed of operating income less other income and expenses, including interest income, foreign exchange, and benefit plan-related expenses[187] Condensed Consolidated Results of Operations Summary of Condensed Consolidated Results of Operations | Metric (in thousands of U.S. dollars) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenues | 221,019 | 202,860 | 425,068 | 371,108 | | Net Income (Loss) | (2,994) | 3,141 | (11,678) | (12,302) | | Income (Loss) from Operations | 3,668 | 2,784 | (3,115) | (3,678) | | Adjusted EBITDA | 20,608 | 15,222 | 32,628 | 23,793 | - For the three months ended June 30, 2022, revenue increased 9.0% year-over-year to $221.0 million, driven by the acquisitions of Fosler Construction and VODA and increased volume in the Environmental segment[191] - For the three months ended June 30, 2022, the net loss increased to $3.0 million, primarily due to higher interest expense and foreign exchange losses[192] - For the six months ended June 30, 2022, the net loss improved to $11.7 million, mainly due to positive contributions from acquisitions[194] Bookings and Backlog Summary of Bookings and Backlog | Metric (in millions of U.S. dollars) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Bookings | 245 | 168 | 484 | 337 | | Total Backlog | 731 | 500 | | | - As of June 30, 2022, total backlog was $731 million, a 46.2% increase from $500 million at June 30, 2021[200] Expected Revenue Recognition from Backlog | Year (in millions of U.S. dollars) | 2022 | 2023 | Thereafter | Total | | :--- | :--- | :--- | :--- | :--- | | B&W Renewable | 178 | 111 | 123 | 412 | | B&W Environmental | 59 | 25 | 43 | 127 | | B&W Thermal | 118 | 70 | 5 | 193 | | Other/Eliminations | (1) | — | — | (1) | | Expected Backlog Revenue | 354 | 206 | 171 | 731 | Non-GAAP Financial Measures - Adjusted EBITDA is a non-GAAP measure used internally to evaluate performance and make strategic decisions, calculated by adjusting net income (loss) for interest, taxes, depreciation, amortization, and other specific items[203] Reconciliation of Adjusted EBITDA to Net Income (Loss) | Metric (in thousands of U.S. dollars) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) | (2,994) | 3,141 | (11,678) | (12,302) | | EBITDA | 13,445 | 19,349 | 24,517 | 25,309 | | Adjusted EBITDA | 20,608 | 15,222 | 32,628 | 23,793 | - Adjusted EBITDA for Q2 and H1 2022 includes a $7.0 million non-recurring gain from the sale of solar project development rights[204] B&W Renewable Segment Results B&W Renewable Segment Revenues and Adjusted EBITDA | Metric (in thousands of U.S. dollars) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenues | 75,227 | 38,344 | 143,188 | 67,155 | | Adjusted EBITDA | 8,869 | 3,427 | 10,324 | 3,631 | - For the three months ended June 30, 2022, B&W Renewable segment revenue grew 96% to $75.2 million, primarily due to the acquisitions of Fosler Construction and VODA and increased new build project volume[208] - For the three months ended June 30, 2022, Adjusted EBITDA increased to $8.9 million, driven by revenue growth and a $7.0 million non-recurring gain from the sale of solar project development rights[209] B&W Environmental Segment Results B&W Environmental Segment Revenues and Adjusted EBITDA | Metric (in thousands of U.S. dollars) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenues | 31,612 | 28,358 | 66,560 | 59,518 | | Adjusted EBITDA | 591 | 2,705 | 2,030 | 3,810 | - For the three months ended June 30, 2022, B&W Environmental segment revenue grew 11% to $31.6 million, driven by higher overall volume in the systems product line[214] - For the three months ended June 30, 2022, Adjusted EBITDA decreased to $0.6 million, primarily due to the completion of higher-margin projects in the prior period[215] B&W Thermal Segment Results B&W Thermal Segment Revenues and Adjusted EBITDA | Metric (in thousands of U.S. dollars) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenues | 116,305 | 136,316 | 218,544 | 244,597 | | Adjusted EBITDA | 16,361 | 12,572 | 30,515 | 23,107 | - For the three months ended June 30, 2022, B&W Thermal segment revenue decreased 15% to $116.3 million, primarily due to lower construction project activity, partially offset by the acquisitions of Fossil Power Systems and Optimus Industries[218] - For the three months ended June 30, 2022, Adjusted EBITDA increased to $16.4 million, driven by a favorable product mix and acquisitions, which offset the decline in overall volume[219] Corporate - Corporate costs, representing unallocated SG&A in Adjusted EBITDA, increased to $4.2 million in Q2 2022, a year-over-year increase of $1.2 million, primarily due to higher tax and accounting services[222] - For H1 2022, corporate costs increased to $8.6 million, a year-over-year increase of $2.9 million, mainly due to higher tax and accounting services[224] Advisory Fees and Settlement Costs - Advisory fees and settlement costs increased to $5.1 million in Q2 2022 (up $0.6 million YoY) and $9.1 million in H1 2022 (up $1.3 million YoY), primarily related to higher legal fees and other costs[225] Research and Development - R&D expenses were $1.1 million in Q2 2022 and $1.9 million in H1 2022, focused on product improvement, cost reduction, and meeting customer expectations[226] Restructuring - Restructuring activities resulted in a $0.1 million benefit in Q2 2022 and $0 expense in H1 2022, a significant reduction from the prior-year period, reflecting a lower level of restructuring actions[227] Transition Costs - Transition costs were $1.9 million in Q2 2022 and $4.5 million in H1 2022, primarily from outsourcing certain tasks to offshore providers or shifting administrative tasks to global service providers to reduce future SG&A expenses[228] Depreciation and Amortization - Depreciation expense was $2.6 million in Q2 2022 and $4.8 million in H1 2022[229] - Amortization expense was $3.1 million in Q2 2022 and $7.1 million in H1 2022, a significant increase from the prior-year period[229] Pension and Other Postretirement Benefit Plans - The company recognizes income from its defined benefit and other postretirement benefit plans, primarily because the expected return on assets exceeds service costs[230] - There were no mark-to-market (MTM) adjustments for pension and other postretirement benefit plans for the three and six months ended June 30, 2022[231] Foreign Exchange - Foreign exchange resulted in a $4.3 million loss in Q2 2022 (vs $1.8 million gain YoY) and a $1.2 million loss in H1 2022 (vs $0.6 million gain YoY)[235] - Foreign exchange gains and losses are primarily related to unhedged intercompany loans denominated in European currencies[235] Income Taxes Income Tax (Benefit) Expense and Effective Tax Rate | Metric (in thousands of U.S. dollars) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | (Loss) Income Before Income Taxes | (4,349) | 6,687 | (11,803) | (5,920) | | Income Tax (Benefit) Expense | (1,355) | 3,546 | (125) | 6,382 | | Effective Tax Rate | 31.2% | 53.0% | 1.1% | (107.8)% | - The effective tax rates for Q2 and H1 2022 do not reflect the U.S. statutory rate, primarily due to a valuation allowance against certain net deferred tax assets and unfavorable non-recurring items[237] Liquidity and Capital Resources Liquidity - The company's primary liquidity needs include debt service, preferred stock dividend payments, and working capital requirements[238] - Liquidity is primarily sourced from cash from operations, external financing (including senior notes and equity offerings), and the Revolving Credit Facility[238] - In H1 2022, the company completed the acquisitions of Fossil Power Systems and Optimus Industries and sold $2.4 million of its 8.125% Senior Notes[239] Cash and Cash Flows - As of June 30, 2022, the company had $71.5 million in unrestricted cash and cash equivalents, $334.3 million in total debt, and $191.7 million in total preferred stock[242] - For the six months ended June 30, 2022, net cash outflow was $63.6 million from operations, $65.6 million from investing (primarily business acquisitions), and $15.6 million from financing (primarily preferred stock dividends)[243][244][245] - Foreign locations held $33.2 million of unrestricted cash, which is generally not available to fund U.S. operations unless repatriated or used to repay intercompany loans, potentially incurring taxes[242] Debt Facilities - The company entered into a Reimbursement Agreement, Revolving Credit Facility, and Letter of Credit Facility on June 30, 2021; as of June 30, 2022, there were no borrowings under the Revolving Credit Facility[246] - Usage under the Letter of Credit Facility included $16.1 million in financial letters of credit and $96.2 million in performance letters of credit[246] - Related party B. Riley provides a payment guaranty for the company's obligations under the Reimbursement Agreement[246] Letters of Credit, Bank Guarantees and Surety Bonds - As of June 30, 2022, letters of credit and bank guarantees outside the Letter of Credit Facility totaled $50.5 million[247] - As of June 30, 2022, outstanding performance surety bonds totaled approximately $293.3 million[250] - The ability to obtain and maintain sufficient capacity under existing debt facilities is critical to support the issuance of letters of credit, bank guarantees, and surety bonds[251] Other Indebtedness - Loans Payable - As of June 30, 2022, a Danish subsidiary had a $0.8 million interest-free loan (COVID-19 related) due in May 2023[252] - Fosler Construction has $0.6 million in vehicle and equipment loans[253] Off-Balance Sheet Arrangements - As of June 30, 2022, the company had no off-balance sheet arrangements expected to have a material current or future effect on its financial condition, results of operations, liquidity, capital expenditures, or capital resources[254] Critical Accounting Policies and Estimates - There were no material changes to critical accounting policies and estimates during the six months ended June 30, 2022, from those disclosed in the Annual Report for the year ended December 31, 2021[255] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's exposure to market risk has not materially changed from that disclosed in the Annual Report for the year ended December 31, 2021 - The company's exposure to market risk has not materially changed from that disclosed in the Annual Report for the year ended December 31, 2021[256] Item 4. Controls and Procedures This item confirms the effectiveness of the company's disclosure controls and procedures as of June 30, 2022, and reports no material changes to internal control over financial reporting during the period Disclosure Controls and Procedures - As of June 30, 2022, the company's CEO and CFO concluded that its disclosure controls and procedures were effective to provide reasonable assurance that information required in reports filed under the Securities Exchange Act is recorded, processed, summarized, and reported in a timely manner[258] Changes in Internal Control Over Financial Reporting - There were no material changes to internal control over financial reporting during the three months ended June 30, 2022[260] - Internal controls were not materially affected despite some team members working remotely due to the COVID-19 pandemic[260] PART II - OTHER INFORMATION This part provides other required information, including legal proceedings, risk factors, sales of unregistered securities, and exhibits Item 1. Legal Proceedings This item references Note 17 to the financial statements for information on ongoing investigations and legal proceedings - For information regarding ongoing investigations and legal proceedings, refer to Note 17 to the Condensed Consolidated Financial Statements[262] Item 1A. Risk Factors This item updates risk factors, highlighting the ongoing adverse impact of the Russia-Ukraine conflict on the company's business and operations - There have been no material changes to the risk factors listed in the Annual Report for the year ended December 31, 2021, except for the new risk factor below[263] - The Russia-Ukraine conflict may continue to adversely affect the company's business and results of operations, causing significant volatility and disruption in global markets, including shortages of supplies and materials required for the company's business[264] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item reports no unregistered sales of equity securities for the quarter ended June 30, 2022, and details shares withheld for employee tax obligations - During the quarter ended June 30, 2022, the company did not withhold any shares to satisfy employee statutory income tax withholding obligations in connection with the vesting of employee restricted stock[265] - The company does not currently have a common stock repurchase program[265] Item 6. Exhibits This item lists the exhibits filed as part of the Form 10-Q report, including various agreements, certificates, and XBRL taxonomy documents - Exhibits include the Master Separation Agreement, Restated Certificate of Incorporation, Amended and Restated By-laws, Certificates of Designations, and certifications by the CEO and CFO[268] SIGNATURES This section contains the required signatures for the report filing under the Securities Exchange Act - The report is signed on behalf of Babcock & Wilcox Enterprises, Inc. by Louis Salamone, Executive Vice President, Chief Financial Officer, and Chief Accounting Officer, on August 8, 2022[273]