Babcock & Wilcox(US:BW)2024-03-14 16:00PART I Item 1. Business Babcock & Wilcox Enterprises, Inc. is a global provider of renewable, environmental, and thermal technologies - The company operates through three primary segments: B&W Renewable, B&W Environmental, and B&W Thermal, providing a range of energy and environmental solutions globally13322 - Customer demand is significantly impacted by business cycles, energy needs, and environmental policies in the countries where they operate, driven by climate change initiatives, environmental regulations, electricity prices, and industrial sector strength18128 - The company utilizes various contract structures, including fixed-price, cost-plus, and cost-reimbursable models, with fixed-price contracts carrying higher risk due to the need for accurate upfront cost estimation3033 Primary Competitors by Segment | B&W Renewable segment | B&W Environmental segment | B&W Thermal segment | | :--- | :--- | :--- | | Andritz AG | Aker Carbon Capture ASA | AZCO Inc. | | Hitachi Zosen Corporation | Durr Group | Babcock Power Inc. | | Keppel Ltd. | Elessent Clean Technologies Inc. | Clyde Bergemann Power Group | | MARTIN GmbH | ENEXIO Management GmbH | Doosan Corporation | | Steinmuller Engineering GmbH | EVAPCO, Inc. | Enerfab, Inc. | | Valmet Oyj | Paharpur Cooling Towers Ltd. | General Electric Company | | | Radscan AB | Mitsubishi Power, Ltd. | | | Seagull Environmental Technologies, Inc. | | - As of December 31, 2023, the company had approximately 2,250 employees worldwide, with about 450 hourly employees union-affiliated under four agreements in Mexico, the U.S., the U.K., and Canada54 Item 1A. Risk Factors The company faces significant risks, including substantial doubt about its ability to continue as a going concern, which management believes has been alleviated by recent actions - The company's financial condition raises substantial doubt about its ability to continue as a going concern, though management believes actions taken to address liquidity needs have alleviated this doubt, with additional financing expected for working capital7673 - Significant revenue is derived from the historically cyclical electric power generation industry, with 45% of 2023 consolidated revenues related to coal-fired power plants, making demand vulnerable to macroeconomic downturns and shifts toward renewable energy167170175 - The company must refinance its 8.125% and 6.50% Senior Notes, both due in 2026, with a new Credit Agreement with Axos Bank potentially accelerating to August 30, 2025, if the notes are not refinanced by then178179 - As of December 31, 2023, B. Riley controls approximately 30.7% of the company's voting power, giving it significant influence over management, policies, and shareholder matters246 - Material weaknesses in internal control over financial reporting were identified as of December 31, 2023, creating a reasonable possibility that a material misstatement of financial statements will not be prevented or detected on a timely basis260143 - The company's backlog was $530.5 million as of December 31, 2023, down from $549.1 million at year-end 2022, and is subject to adjustments and cancellations, potentially not being a reliable indicator of future revenue96101 Item 1B. Unresolved Staff Comments The company reports that it has no unresolved staff comments from the Securities and Exchange Commission - None165151 Item 1C. Cybersecurity The company has integrated a cybersecurity risk management program into its enterprise risk management, informed by frameworks like NIST - The cybersecurity program is integrated with enterprise risk management and is based on industry frameworks such as NIST151 - Governance includes oversight by the Board of Directors, an IT Steering Committee comprised of executive management, and a Director of IT with 20 years of experience321323 - The company has not identified any cybersecurity threats or incidents that have materially affected or are reasonably likely to materially affect its business, strategy, or financial results326 Item 2. Properties The company owns and leases various properties globally for manufacturing, administrative, and warehouse purposes Principal Properties as of December 31, 2023 | Segment | Location | Use | Status | | :--- | :--- | :--- | :--- | | B&W Renewable | Esbjerg, Denmark | Manufacturing / Admin | Owned | | B&W Environmental | Paruzzaro, Italy | Administrative Office | Leased (2027) | | B&W Thermal | Akron, Ohio | Administrative Office | Leased (2034) | | B&W Thermal | Lancaster, Ohio | Manufacturing Facility | Leased (2041) | | B&W Thermal | Dumbarton, Scotland | Manufacturing Facility | Owned | | B&W Thermal | Guadalupe, NL, Mexico | Manufacturing Facility | Leased (2024) | Item 3. Legal Proceedings The company is involved in ongoing litigation, as detailed in Note 21 of the financial statements - The company is a defendant in the Glatfelter Litigation, where the plaintiff alleges breach of contract and seeks damages exceeding $58.9 million, with the company filing a counterclaim for over $2.9 million, and the case set for trial in March 2024654 - The Stockholder Litigation, which alleged breaches of fiduciary duty related to a 2019 rights offering, was settled in principle in June 2022 and received final court approval in July 2023, including a total payment of $9.5 million655710 Item 4. Mine Safety Disclosures This item is not applicable to the company - Not Applicable330 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock is traded on the New York Stock Exchange under the symbol "BW" - The company's common stock trades on the NYSE under the ticker symbol BW336 - As of February 29, 2024, there were 845 stockholders of record337 - No equity securities were repurchased during the quarter ended December 31, 2023, and there is no active share repurchase program340 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, revenues increased to $999.4 million from $847.9 million in 2022, driven by growth in the Renewable and Thermal segments Results of Operations For the year ended December 31, 2023, consolidated revenues increased by 17.9% to $999.4 million, while operating income grew to $19.9 million from $2.3 million in 2022 Consolidated Results of Operations (2023 vs. 2022) | (in millions) | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Revenues | $999.4 | $847.9 | +$151.5 | | Operating Income | $19.9 | $2.3 | +$17.6 | | Net Loss from Continuing Operations | ($78.6) | ($20.0) | ($58.6) | Bookings and Backlog by Segment (as of Dec 31) | (in millions) | Bookings 2023 | Backlog 2023 | Backlog 2022 | | :--- | :--- | :--- | :--- | | B&W Renewable | $256.0 | $133.5 | $128.9 | | B&W Environmental | $222.1 | $179.4 | $148.4 | | B&W Thermal | $409.9 | $210.5 | $265.3 | | Total | $878.3 | $530.5 | $549.1 | Reconciliation of Net Loss to Adjusted EBITDA | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net loss | ($196,971) | ($26,584) | | Loss from discontinued operations, net of tax | (118,338) | (6,596) | | Interest expense, net | 48,703 | 44,220 | | Income tax expense | 8,481 | 11,059 | | Depreciation & amortization | 19,990 | 21,628 | | EBITDA | ($1,459) | $56,919 | | Adjustments (Benefit plans, stock comp, etc.) | 80,590 | 10,590 | | Adjusted EBITDA | $79,131 | $67,509 | Liquidity and Capital Resources The company experienced recurring operating losses and negative operating cash flow of $42.3 million in 2023, leading to conditions that raise substantial doubt about its ability to continue as a going concern - Recurring operating losses and negative cash flow have raised substantial doubt about the company's ability to continue as a going concern313513 - Management is implementing plans to secure funding, including selling a non-strategic business, selling real estate assets, and potentially selling common stock via an At-The-Market offering, which are deemed probable to alleviate the going concern doubt314319514 Key Liquidity and Capitalization Figures (as of Dec 31, 2023) | Metric | Amount (in millions) | | :--- | :--- | | Cash, Cash Equivalents, and Restricted Cash | $71.4 | | Total Debt | $379.5 | | Gross Preferred Stock Outstanding | $191.7 | - In January 2024, the company entered into a new Credit Agreement with Axos Bank, which substantially replaces its prior debt facilities with PNC and MSD506 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks primarily from changes in interest rates and foreign currency exchange rates - The company's primary market risks are related to interest rate fluctuations on its cash and investments, and foreign currency exchange rate changes412413 - Key foreign currency exposures include the Danish krone, British pound, Euro, Canadian dollar, Mexican peso, and Chinese yuan, with a hypothetical 100 basis point change in exchange rates impacting annual earnings by approximately $0.2 million413 Item 8. Consolidated Financial Statements and Supplemental Data This section presents the company's audited consolidated financial statements for the years ended December 31, 2023, 2022, and 2021, along with the report from the independent registered public accounting firm, Deloitte & Touche LLP Report of Independent Registered Public Accounting Firm Deloitte & Touche LLP issued an unqualified opinion, stating that the consolidated financial statements are presented fairly in all material respects - The auditor issued an unqualified opinion on the financial statements but an adverse opinion on the effectiveness of internal control over financial reporting as of December 31, 2023, due to material weaknesses424 - The critical audit matter identified was Revenue Recognition on fixed-price long-term contracts, which involves significant management judgment in estimating total costs and profit430440 Consolidated Financial Statements The consolidated financial statements for the year ended December 31, 2023, show revenues of $999.4 million and a net loss of $197.0 million, compared to revenues of $847.9 million and a net loss of $26.6 million in 2022 Key Financial Statement Data (in thousands) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Revenues | $999,354 | $847,918 | $710,873 | | Operating Income | $19,899 | $2,269 | $19,422 | | Net (Loss) Income | ($196,971) | ($26,584) | $31,538 | | Total Assets | $775,698 | $941,689 | N/A | | Total Liabilities | $976,048 | $943,778 | N/A | | Total Stockholders' (Deficit) | ($200,350) | ($2,089) | N/A | | Net Cash from Operations | ($42,270) | ($30,637) | ($111,196) | Notes to Consolidated Financial Statements The notes provide detailed information supporting the financial statements - Going Concern (Note 1): The company's recurring losses and negative operating cash flow raise substantial doubt about its ability to continue as a going concern, but management's plans to sell assets and raise capital are believed to be sufficient to alleviate this doubt for the next 12 months513515 - Discontinued Operations (Note 4): The B&W Solar business was classified as held for sale, resulting in a goodwill impairment charge of $56.6 million and total losses from discontinued operations of $118.3 million for 2023780781779 - Pension Plans (Note 14): As of December 31, 2023, the company's defined benefit pension and postretirement plans were underfunded by approximately $164.6 million ($158.2 million pension + $6.3 million other benefits)154823 - Debt (Note 15): The company has $193.0 million of 8.125% Senior Notes and $151.4 million of 6.50% Senior Notes, both maturing in 2026, and in January 2024, it entered a new credit agreement with Axos Bank to replace its prior revolving facilities826583705 - Related Party Transactions (Note 23): The company has numerous transactions with B. Riley and its affiliates, including an executive services agreement for the CEO, underwriting services for debt and equity offerings, and a guaranty for its credit facilities689690719 Item 9A. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were not effective as of December 31, 2023 - Management concluded that internal control over financial reporting was not effective as of December 31, 2023, due to identified material weaknesses708753 - Material weaknesses were identified in three components of the COSO framework: Control Environment (insufficient qualified personnel), Control Activities (inadequate reconciliations, access rights, and journal entry reviews), and Monitoring (failure to perform ongoing evaluations)734735736 - A remediation plan is underway, which includes hiring more qualified professionals, augmenting resources with consultants, enhancing controls over reconciliations and complex transactions, and developing a robust monitoring program738739 - The independent auditor, Deloitte & Touche LLP, issued an adverse opinion on the effectiveness of the company's internal control over financial reporting737764 Item 9B. Other Information On March 15, 2024, the company entered into the Fourth Amendment to its Reimbursement Agreement - On March 15, 2024, the company amended its Reimbursement Agreement to modify financial covenants, such as the Fixed Charge Coverage Ratio and Senior Net Leverage Ratio, for future periods865853 PART III Item 10. Directors, Executive Officers and Corporate Governance This section provides information about the company's directors and executive officers - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2024 Proxy Statement854 Item 11. Executive Compensation Information required for this item concerning executive compensation is incorporated by reference from the company's definitive Proxy Statement for its 2024 Annual Meeting of Stockholders - Information regarding executive compensation is incorporated by reference from the company's 2024 Proxy Statement892 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership by certain beneficial owners and management, as well as details on equity compensation plans, is incorporated by reference from the company's definitive Proxy Statement for its 2024 Annual Meeting of Stockholders - Information regarding security ownership is incorporated by reference from the company's 2024 Proxy Statement860 Item 13. Certain Relationships and Related Transactions, and Director Independence Information required for this item concerning certain relationships, related party transactions, and director independence is incorporated by reference from the company's definitive Proxy Statement for its 2024 Annual Meeting of Stockholders - Information regarding related transactions and director independence is incorporated by reference from the company's 2024 Proxy Statement893872 Item 14. Principal Accountant Fees and Services Information regarding the fees billed by the principal accountant, Deloitte & Touche LLP, is incorporated by reference from the company's definitive Proxy Statement for its 2024 Annual Meeting of Stockholders - Information regarding principal accountant fees and services is incorporated by reference from the company's 2024 Proxy Statement894 PART IV Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Annual Report on Form 10-K - This section contains the consolidated financial statements (included in Item 8) and a comprehensive index of all exhibits filed with the report873863 Item 16. Form 10-K Summary The company has elected not to provide a summary of the Form 10-K - None887