10-Q: Babcock & Wilcox Enterprises Reports First Quarter 2024 Results Amid Strategic Business Shifts

Babcock & Wilcox Enterprises, Inc. reported a net loss attributable to common stockholders of $20.5 million in the first quarter of 2024, reflecting ongoing strategic shifts and market challenges.

Summary

• Babcock & Wilcox Enterprises, Inc. (B&W) reported its financial results for the first quarter ended March 31, 2024.
• Revenues decreased by $33.7 million to $207.6 million compared to $241.3 million in the first quarter of 2023.
• The decrease was primarily driven by a $22.1 million decrease in the B&W Renewable segment and a $6.2 million decrease in the B&W Thermal segment.
• The company reported an operating income of $4.3 million, up from $1.3 million in the same period last year.
• The increase in operating income was mainly due to a $6.6 million reduction in selling, general, and administrative expenses, partially offset by a $3.4 million lower gross margin.
• The net loss attributable to common stockholders was $20.5 million, or $(0.23) per share, compared to a net loss of $16.2 million, or $(0.18) per share, in the first quarter of 2023.
• The company is undergoing strategic shifts, including the planned sale of non-strategic businesses and focusing on higher-margin segments.
• B&W is also addressing liquidity concerns through various measures, including potential asset sales and cost management initiatives.

Sentiment

Score: 3

Explanation: The sentiment is low due to the increased net loss, revenue declines, liquidity concerns, and the going concern warning. However, the company's proactive steps to address these challenges and the potential for improvement through strategic sales and a focus on higher-margin segments slightly mitigate the negative sentiment.

Positives

• Operating income improved to $4.3 million in Q1 2024 from $1.3 million in Q1 2023.
• Selling, general, and administrative expenses were reduced by $6.6 million.
• The B&W Environmental segment saw a 23% increase in revenues, reaching $48.4 million.
• Adjusted EBITDA in the B&W Environmental segment increased to $3.3 million from $1.9 million in the prior year.
• The company is actively pursuing strategic initiatives to improve liquidity and focus on higher-margin businesses.

Negatives

• Total revenues decreased by $33.7 million year-over-year.
• Net loss attributable to common stockholders increased to $20.5 million from $16.2 million in the prior year.
• The B&W Renewable segment experienced a 38% decrease in revenues.
• The B&W Thermal segment saw an 8% decrease in revenues.
• The company reported a loss from continuing operations of $15.8 million.
• There is substantial doubt about the company's ability to continue as a going concern due to recurring operating losses and insufficient projected liquidity.
• The company wrote off $5.1 million in deferred financing fees due to the termination of the PNC Revolving Credit Agreement.

Risks

• The company faces substantial doubt about its ability to continue as a going concern due to recurring operating losses and insufficient projected liquidity.
• The company is projecting insufficient liquidity to fund operations through one year from the date of the quarterly report.
• Macroeconomic conditions, including inflation, higher interest rates, and supply chain disruptions, could negatively impact the company's performance.
• The company's ability to meet customer demands may be adversely affected by ongoing market conditions.
• The company's ability to refinance its 8.125% Notes due 2026 and 6.50% Notes due 2026 prior to their maturity is uncertain.
• The company faces risks associated with contractual pricing, customer relationships, and compliance with contractual obligations.
• The company faces risks related to its international operations, including fluctuations in foreign currency values and global tariffs.
• The outcome of the Glatfelter Litigation is uncertain and could have a material adverse impact on the company's financial position.

Future Outlook

The company is focused on improving liquidity through the potential sale of non-strategic businesses and assets, cost management, and other strategic initiatives, while also shifting its focus towards higher-margin segments and growth platforms in the renewable and environmental sectors.

Management Comments

• Management continues to adapt to macroeconomic conditions, including the impacts from inflation, higher interest rates and foreign exchange rate volatility, geopolitical conflicts and global shipping and supply chain disruptions.
• We are implementing several strategies to obtain the required funding for future operations and are considering other alternative measures to improve cash flow, including suspension of the dividend on our Preferred Stock.

Industry Context

B&W's announcement reflects broader industry trends related to the ongoing energy transition and increasing demand for renewable and environmental technologies. The company's focus on waste-to-energy, emissions control, and carbon capture aligns with the global push towards decarbonization and sustainability. However, the company faces challenges common in the industry, such as intense competition, supply chain disruptions, and the need for significant capital investments to develop and commercialize new technologies.

Comparison to Industry Standards

• Compared to industry peers like FuelCell Energy, Inc. (FCEL) which reported Q1 2024 revenues of $16.7 million and a net loss of $33.7 million, B&W's revenue of $207.6 million is significantly higher, although B&W's net loss of $20.5 million is also substantial.
• Bloom Energy Corp (BE) reported Q1 2024 revenues of $235.3 million and a net loss of $75.5 million, placing B&W's revenue in a similar range but with a smaller net loss.
• In the broader power generation equipment industry, companies like General Electric (GE) and Siemens (SIEGY) have much larger revenue bases, with GE reporting Q1 2024 revenues of $16.1 billion and Siemens reporting Q2 2024 revenues of EUR 23.7 billion, highlighting the scale difference between B&W and these industry giants.
• B&W's focus on waste-to-energy and emissions control aligns it with companies like Covanta Holding Corporation, which operates numerous waste-to-energy facilities. However, Covanta was acquired by EQT Infrastructure in 2021, making direct public comparisons challenging.
• B&W's performance in the thermal segment can be compared to other boiler and industrial equipment manufacturers, such as Alfa Laval (ALFA) and SPX FLOW, Inc. (FLOW), which provide similar aftermarket services and equipment. Alfa Laval reported Q1 2024 order intake of SEK 14.8 billion, indicating a strong market for industrial equipment, while SPX FLOW was acquired by Lone Star Funds in 2022.

Legal Proceedings

• A complaint was filed against the company by P.H. Glatfelter Company on December 27, 2019, alleging damages in excess of $58.9 million. The case is set for trial on August 5, 2024.

Related Party Transactions

• B. Riley beneficially owns approximately 32.4% of the company's outstanding common stock as of March 31, 2024.
• B. Riley has provided a guaranty of payment regarding the company's obligations under the Axos Credit Agreement and will receive an annual fee equal to 2.00% of Aggregate Revolving Commitments.
• The company entered into a sales agreement with B. Riley Securities, Inc., among others, for the offer and sale of common stock, with B. Riley entitled to compensation equal to 3.0% of the gross proceeds from sales made through it.
• The company has an agreement with BRPI Executive Consulting, LLC, an affiliate of B. Riley, for the services of Mr. Kenneth Young as Chief Executive Officer, with payments of $0.75 million per annum.

Stakeholder Impact

• Shareholders: Potential dilution from the sale of common stock; uncertainty regarding the company's ability to continue as a going concern.
• Employees: Potential impact from restructuring activities and business divestitures.
• Customers: Potential delays or disruptions due to macroeconomic conditions and the company's financial challenges.
• Suppliers: Potential impact from changes in the company's operations and financial condition.
• Creditors: Increased risk due to the company's liquidity concerns and ongoing losses.

Next Steps

• Complete the sale of a non-strategic business, with expected proceeds of approximately $40.0 million to $46.0 million.
• Continue the process of selling other non-strategic businesses and non-core real estate assets.
• Seek a waiver for required minimum contributions to the U.S. Plan to reduce cash funding requirements in 2024.
• Continue to sell common shares pursuant to the At-The-Market Offering.
• Transition all outstanding letters of credit to the Axos Credit Agreement by June 30, 2024.
• Monitor and evaluate the effectiveness of internal control over financial reporting and continue remediation efforts for identified material weaknesses.

Key Dates

Keywords

renewable energy, environmental technologies, thermal technologies, power generation, emissions control, waste-to-energy, biomass-to-energy, steam generation, aftermarket services, industrial solutions, energy transition, decarbonization, hydrogen generation, carbon capture