BW Babcock and Wilcox Enterprises Inc

- 2015 Guidance for Adjusted EPS Lifted to $1.15 to $1.30- Global Power Revenues Increase 29.1%- Share Buyback Program to Target up to $50 million by the end of Q1 2016

Babcock & Wilcox Enterprises, Inc. (B&W) (NYSE:BW) announced today third quarter 2015 revenues of $420.0 million, an increase of $18.0 million, or 4.5%, from the third quarter of 2014. GAAP earnings per share from continuing operations for the third quarter of 2015 were $0.11 compared to $0.24 in the third quarter of 2014. Adjusted earnings per share, which excludes the impact of a litigation settlement, spin-related costs and restructuring for the quarter, were $0.25 for the three months ended September 30, 2015 compared to $0.33 in the prior year period.

"Third quarter performance met our internal targets, as a strong quarter from Global Power allowed us to overcome a challenging project in Global Services,” said Mr. E. James Ferland, Chairman and Chief Executive Officer. “We continue to expect strong performance in Q4 and we are raising the bottom end of our guidance for adjusted earnings per share by 5 cents to a range of $1.15 to $1.30.”

Results of Operations

Consolidated revenues for the third quarter of 2015 were $420.0 million, an increase of 4.5%, compared to $402.0 million for the third quarter of 2014. GAAP operating income for the third quarter of 2015 decreased $15.9 million to $9.6 million compared to $25.5 million in the prior year period primarily due to lower profits in Global Services and the inclusion of stand-alone costs. GAAP operating income for the third quarter of 2015 also included a $9.6 million charge comprised of $7.8 million of non-cash revenue reversal plus $1.8 million of legal costs related to the litigation settlement for Berlin Station, in addition to $1.6 million in spin-related costs and $1.1 million of restructuring costs. Adjusted operating income in the third quarter of 2015 was $21.9 million, a decrease of $10.4 million compared to adjusted operating income of $32.3 million in the third quarter of 2014 primarily due to a loss accrual on a construction services project and increased overhead costs due to running a stand-alone company. Adjusted operating income for the nine months ended September 30, 2015, increased 23.5% compared to the prior year period.

Third quarter 2015 revenues for the Global Power segment increased 29.1% to $160.0 million in the quarter compared to $123.9 million in revenues in the prior year period driven by an increase in new build steam projects that was partially offset by a decline in new build environmental projects. Gross profit in the Global Power segment was $25.8 million, compared to $29.7 million for the same period in 2014. Without the Berlin settlement, gross profit in Global Power was up for the quarter compared to the third quarter of 2014.

"Although we remained confident in our case, by settling the Berlin Station litigation, we avoided potential draws on our letters of credit, significant management distraction and the inherent uncertainty of collecting on any favorable court decisions years in the future," Mr. Ferland said.

Revenues in the Global Services segment were $221.1 million in the three months ending September 30, 2015, versus $229.2 million in the corresponding period in 2014, a decrease of $8.1 million primarily related to lower boiler auxiliaries sales in China and parts and technical services sales that were partially offset by a higher level of construction activities. The Global Services segment reported a gross profit of $38.9 million in the third quarter of 2015, which was $8.8 million less than the gross profit of $47.7 million in the prior year third quarter primarily due to a loss accrual on a construction services project.

The Industrial Environmental segment contributed $38.9 million in revenues this period compared to $48.9 million in the third quarter of 2014, a decrease of $10.0 million due to lower volume of aftermarket sales and timing of product delivery. Gross profit in the Industrial Environmental segment was $13.2 million in the third quarter of 2015, a $2.2 million increase compared to $11.0 million in the prior year period due to the completion of the amortization period of the transaction-related backlog intangible asset on June 30, 2015.

"We continued to execute our strategy to drive shareholder value through revenue growth and margin improvement in the core businesses in the quarter," Mr. Ferland said. "We are also making progress on our plans to grow the business through value-added acquisitions and the number of M&A opportunities that we are evaluating continues to rise.”

Liquidity and Debt

The Company’s cash and investments position, net of restricted cash, increased $22.2 million to $334.9 million at the end of the third quarter of 2015. This consolidated cash position includes $194.4 million in non-U.S. cash.

At September 30, 2015, the Company had no borrowings outstanding under the revolving credit facility, and after giving effect to the leverage ratio and $120.1 million in letters of credit issued under the credit agreement, we had approximately $364.6 million of capacity available to fund acquisitions or to meet letter of credit requirements.

Share Repurchase Program

"We plan to accelerate the utilization of our $100 million share repurchase authorization to buy back up to $50 million in shares by the end of the first quarter of 2016," Mr. Ferland said. "We have a strong balance sheet that allows us to pursue concurrent buy-back and acquisition strategies to create shareholder value."

The Company may utilize various methods to effect the repurchases and the timing of repurchases will depend upon several factors, including market and business conditions, and repurchases may be discontinued at any time. The pace of buy-backs beyond Q1 2016 will be determined based on the status of potential acquisitions as well as market conditions.

2015 Outlook

The Company updated its guidance for 2015 by narrowing the range for earnings per share to an adjusted EPS of $1.15 to $1.30, which raises the bottom of the range by 5 cents. Adjusted EPS excludes mark-to-market adjustment for pension and post-retirement benefits, the Berlin settlement, spin-related costs and restructuring charges.

All other financial benchmarks remain the same:

• Consolidated revenue is expected to increase to approximately $1.7 billion through a combination of core growth and the full year of the MEGTEC acquisition; and
• Adjusted tax rate for 2015 is expected to be in the range of 32% to 34%.

Conference Call to Discuss Third Quarter 2015 Results

Date:

  Wednesday, November 4, 2015, at 8:30 a.m. EST

Live Webcast:

Investor Relations section of website at www.babcock.com

 

Forward-Looking Statements

B&W cautions that this release contains forward-looking statements, including, without limitation, statements relating to backlog, to the extent they may be viewed as an indicator of future revenues; management’s expectations regarding the industries in which we operate; our guidance and forecasts for 2015; our projected operating margin improvements, savings and restructuring costs; and growth through acquisitions. These forward-looking statements are based on management’s current expectations and involve a number of risks and uncertainties, including, among other things, disruptions experienced with customers and suppliers; the inability to successfully operate independently following the spin-off; the inability to retain key personnel; adverse changes in the industries in which we operate and delays, changes or termination of contracts in backlog; the timing and amount of repurchases of our common stock, if any; and the inability to grow and diversify through acquisitions. If one or more of these risks or other risks materialize, actual results may vary materially from those expressed. For a more complete discussion of these and other risk factors, see B&W’s filings with the Securities and Exchange Commission, including the information statement on Form 10 and subsequent quarterly reports on Form 10-Q. B&W cautions not to place undue reliance on these forward-looking statements, which speak only as of the date of this release, and undertakes no obligation to update or revise any forward-looking statement, except to the extent required by applicable law.

About B&W

Headquartered in Charlotte, N.C., Babcock & Wilcox is a global leader in energy and environmental technologies and services for the power and industrial markets. B&W companies employ approximately 6,000 people around the world. Follow us on Twitter @BabcockWilcox and learn more at www.babcock.com.

Exhibit 1Babcock & Wilcox Enterprises, Inc.Reconciliation of Non-GAAP Operating Income and Earnings Per Share(1)(2)$ in millions, except per share amounts

    Three Months Ended September 30, 2015 GAAP  

LitigationSettlement(3)

  Spin Costs   Restructuring   Non-GAAP Operating Income (Loss) $ 9.6   $ 9.6   $ 1.6   $ 1.1 $ 21.9 Other Income / (Expense) (1.6 ) — — — (1.6 ) Income Tax (Expense) / Benefit (1.8 )   (3.7 )   (0.6 )   (0.4 )   (6.5 ) Net Income $ 6.3 $ 5.8 $ 1.0 $ 0.7 $ 13.8 Non-Controlling Interest (0.1 )   —     —     —     (0.1 ) Net Income from Continuing Operations $ 6.2     $ 5.8     $ 1.0     $ 0.7     $ 13.7     Diluted EPS - Continuing Operations $ 0.11 $ 0.11 $ 0.02 $ 0.01 $ 0.25   Tax Rate 22.0% 32.1%     Three Months Ended September 30, 2014 GAAP   Restructuring  

Pension &OPEB MTM(Gain) / Loss

 

NE SgmtAllocation

 

MEGTECAcquisitionCosts

  Non-GAAP Operating Income (Loss) $ 25.5   $ 2.8   $ 2.0   $ 1.3   $ 0.6   $ 32.3 Other Income / (Expense) 0.1 — — — — 0.1 Income Tax (Expense) / Benefit (12.9 )   (1.0 )   (0.5 )   (0.3 )   (0.2 )   (14.9 ) Net Income $ 12.8 $ 1.8 $ 1.5 $ 1.0 $ 0.4 $ 17.5 Non-Controlling Interest (0.1 )   —     —     —     —     (0.1 ) Net Income from Continuing Operations $ 12.7     $ 1.8     $ 1.5     $ 1.0     $ 0.4     $ 17.5     Diluted EPS - Continuing Operations $ 0.24 $ 0.03 $ 0.03 $ 0.02 $ 0.01 $ 0.33   Tax Rate 50.2% 45.9%     Nine Months Ended September 30, 2015 GAAP  

LitigationSettlement(3)

  Impairments   Restructuring  

NE SgmtAllocation

  Spin Costs   Non-GAAP Operating Income (Loss) $ 31.8   $ 9.6   $ 9.0   $ 8.7   $ 2.7   $ 2.5   $ 64.3 Other Income / (Expense) (1.7 ) — — — — — (1.7 ) Income Tax (Expense) / Benefit (8.4 )   (3.7 )   (3.4 )   (3.1 )   (0.7 )   (1.0 )   (20.3 ) Net Income $ 21.8 $ 5.8 $ 5.6 $ 5.6 $ 2.0 $ 1.6 $ 42.3 Non-Controlling Interest (0.2 )       —     —     —     —     (0.2 ) Net Income from Continuing Operations $ 21.5     $ 5.8     $ 5.6     $ 5.6     $ 2.0     $ 1.6     $ 42.1     Diluted EPS - Continuing Operations $ 0.40 $ 0.11 $ 0.10 $ 0.10 $ 0.04 $ 0.03 $ 0.78   Tax Rate 27.8% 32.5%   Nine Months Ended September 30, 2014 GAAP   Restructuring  

NE SgmtAllocation

 

Pension &OPEB MTM(Gain) / Loss

 

MEGTECAcquisitionCosts

  Non-GAAP Operating Income (Loss) $ 33.2   $ 11.7   $ 4.0   $ 2.0   $ 1.1   $ 52.1 Other Income / (Expense) 2.2 — — — — 2.2 Income Tax (Expense) / Benefit (13.7 )   (4.1 )   (1.2 )   (0.5 )   (0.4 )   (19.9 ) Net Income $ 21.7 $ 7.7 $ 2.8 $ 1.5 $ 0.7 $ 34.3 Non-Controlling Interest (0.3 )   —     —     —     —     (0.3 ) Net Income from Continuing Operations $ 21.4     $ 7.7     $ 2.8     $ 1.5     $ 0.7     $ 34.1     Diluted EPS - Continuing Operations $ 0.39 $ 0.14 $ 0.05 $ 0.03 $ 0.01 $ 0.62   Tax Rate 38.8% 36.7%  

(1) May not foot due to rounding.

(2) B&W is providing non-GAAP information regarding certain of its historical results and guidance on future earnings per share to supplement the results provided in accordance with GAAP and it should not be considered superior to, or as a substitute for, the comparable GAAP measures. B&W believes the non-GAAP measures provide meaningful insight into the Company’s operational performance and provides these measures to investors to help facilitate comparisons of operating results with prior periods and to assist them in understanding B&W’s ongoing operations.

(3) On a GAAP basis, the litigation settlement in the three and nine months ended September 30, 2015 reduced revenues and gross margin of the Global Power segment by $7.8 million and added $1.8 million to selling general and administrative expense.

 

Exhibit 2Babcock & Wilcox Enterprises, Inc.Condensed Consolidated and Combined Statements of Operations

    Three Months Ended September 30, Nine Months Ended September 30, 2015   2014   2015   2014 (Unaudited) (In thousands, except per share amounts)     Revenues $ 419,977 $ 402,016 $ 1,254,617 $ 1,041,473 Costs and expenses: Cost of operations 342,055 313,646 1,011,414 827,224 Research and development costs 3,977 4,502 12,457 12,795 Losses on asset disposals and impairments, net 10 19 9,037 1,476 Selling, general and administrative expenses 62,637 58,414 178,539 160,666 Restructuring and spin transaction costs   2,713     2,752     11,279     11,743   Total costs and expenses 411,392 379,333 1,222,726 1,013,904 Equity in income of investees   1,047     2,859     (57 )   5,658   Operating income 9,632 25,542 31,834 33,227 Other income (expense): Interest income 138 242 420 919 Interest expense (389 ) (181 ) (673 ) (385 ) Other – net   (1,326 )   63     (1,436 )   1,617   Total other income (expense) (1,577 ) 124 (1,689 ) 2,151

Income from continuing operations before provision for income taxes

8,055 25,666 30,145 35,378 Provision for income taxes   1,770     12,894     8,381     13,727   Income from continuing operations 6,285 12,772 21,764 21,651 Income from discontinued operations, net of tax   —     (7,102 )   2,803     237   Net income 6,285 5,670 24,567 21,888 Net income attributable to noncontrolling interest   (116 )   (61 )   (222 )   (254 ) Net Income attributable to Babcock & Wilcox Enterprises, Inc.   $ 6,169     $ 5,609     $ 24,345     $ 21,634     Amounts attributable to Babcock & Wilcox Enterprises, Inc. Income from continuing operations $ 6,169 $ 12,711 $ 21,542 $ 21,397 Income from discontinued operations, net of tax   —     (7,102 )   2,803     237   Net income attributable to Babcock & Wilcox Enterprises, Inc.   $ 6,169     $ 5,609     $ 24,345     $ 21,634     Basic earnings per common share: Continuing operations $ 0.11 $ 0.24 $ 0.40 $ 0.39 Discontinued operations   —     (0.14 )   0.05     0.01   Basic earnings per common share   $ 0.11     $ 0.10     $ 0.45     $ 0.40   Diluted earnings per common share: Continuing operations $ 0.11 $ 0.24 $ 0.40 $ 0.39 Discontinued operations   —     (0.14 )   0.05     0.01   Diluted earnings per common share   $ 0.11     $ 0.10     $ 0.45     $ 0.40     Shares used in the computation of earnings per common share: Basic 53,758 53,553 53,569 54,552 Diluted 53,787 53,722 53,716 54,741  

Exhibit 3Babcock & Wilcox Enterprises, Inc.Condensed Consolidated and Combined Balance Sheets

   

September 30,2015

 

December 31,2014

(Unaudited) (In thousands) ASSETS   Current assets: Cash and cash equivalents $ 334,150 $ 218,659 Restricted cash and cash equivalents 40,293 26,311 Investments 750 1,607 Accounts receivable – trade, net 274,679 265,456 Accounts receivable – other 59,337 36,147 Contracts in progress 113,431 107,751 Inventories 96,358 98,711 Deferred income taxes 39,900 36,601 Other current assets 22,124 11,347 Current assets of discontinued operations   —     46,177   Total current assets 981,022 848,767   Property, plant and equipment - gross 330,230 335,761 Accumulated depreciation   (184,956 )   (200,525 ) Net property, plant and equipment 145,274 135,236   Investments 1,055 214 Goodwill 201,870 209,277 Deferred income taxes 130,149 115,111 Investments in unconsolidated affiliates 86,785 109,248 Intangible assets 38,479 50,646 Other assets 27,040 9,227 Non-current assets of discontinued operations   —     38,828   TOTAL ASSETS   $ 1,611,674     $ 1,516,554    

Exhibit 3Babcock & Wilcox Enterprises, Inc.Condensed Consolidated and Combined Balance Sheets (continued)

   

September 30,2015

 

December 31,2014

(Unaudited) (In thousands, except shareand per share amounts) LIABILITIES AND STOCKHOLDERS’ EQUITY   Current liabilities: Notes payable and current maturities of long-term debt $ 3,140 $ 3,215 Accounts payable 151,178 160,606 Accrued employee benefits 44,783 39,464 Advance billings on contracts 200,932 148,098 Accrued warranty expense 38,643 37,735 Accrued liabilities – other 81,094 54,827 Current liabilities of discontinued operations   —     44,145 Total current liabilities 519,770 488,090   Accumulated postretirement benefit obligation 28,947 28,347 Pension liability 243,532 253,763 Other liabilities 42,862 42,929 Non-current liabilities of discontinued operations   —     15,988 Total liabilities 835,111 829,117   Commitments and contingencies   Stockholders’ Equity: Common stock, par value $0.01 per share, authorized 200,000,000 shares; issued 53,690,776 and 0 shares at September 30, 2015 and December 31, 2014, respectively 537 —

Preferred stock, par value $0.01 per share, authorized 20,000,000 shares; No shares issued

— — Capital in excess of par value 786,264 — Treasury stock at cost, 126,409 shares at September 30, 2015 (2,372 ) — Retained earnings 6,169 — Accumulated other comprehensive income (loss) (14,975 ) 10,374 Former net parent investment   —     676,036 Stockholders’ equity – Babcock & Wilcox Enterprises, Inc. 775,623 686,410 Noncontrolling interest   940     1,027 Total Stockholders’ equity   776,563     687,437 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 1,611,674     $ 1,516,554  

Exhibit 4Babcock & Wilcox Enterprises, Inc.Condensed Consolidated and Combined Statements of Cash Flows

  Nine Months Ended September 30, 2015   2014 (Unaudited) (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES:   Net Income $ 24,567 $ 21,888 Non-cash items included in net income: Depreciation and amortization 28,885 21,193 Income of equity method investees 57 (5,641 ) Losses on asset disposals and impairments 11,335 4,644 Write-off of accrued claims receivable, net 7,832 — Recognition of losses for pension and postretirement plans 300 462 Stock-based compensation charges and excess tax benefits 2,482 (12 ) Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable (23,247 ) 16,452 Accounts payable (7,823 ) (42,709 ) Contracts in progress and advance billings on contracts 48,549 (128,077 ) Inventories 528 2,303 Income taxes (13,720 ) 10,154 Accrued and other current liabilities 26,872 14,869 Pension liability, accrued postretirement benefit obligation and employee benefits (7,075 ) (19,680 ) Other, net   (6,494 )   1,716   NET CASH PROVIDED FROM OPERATING ACTIVITIES   93,048     (102,438 )   CASH FLOWS FROM INVESTING ACTIVITIES: Decrease in restricted cash and cash equivalents 1,627 1,270 Purchases of property, plant and equipment (21,931 ) (11,467 ) Acquisition of business, net of cash acquired — (127,705 ) Purchase of intangible assets — (722 ) Purchases of available-for-sale securities (9,935 ) (2,845 ) Sales and maturities of available-for-sale securities 5,997 9,834 Proceeds from asset disposals (796 ) 137 Investment in equity method investees   —     (4,900 ) NET CASH FROM INVESTING ACTIVITIES   (25,038 )   (136,398 )   CASH FLOWS FROM FINANCING ACTIVITIES: Payment of short-term borrowing and long-term debt — (4,424 ) Increase in short-term borrowing — 2,855 Net transfers from former Parent 80,589 244,174 Repurchase of shares of common stock (1,275 ) — Excess tax benefits from stock-based compensation — 12 Other   (256 )   129   NET CASH PROVIDED FROM FINANCING ACTIVITIES   79,058     242,746     EFFECTS OF EXCHANGE RATE CHANGES ON CASH   (6,360 )   (7,642 ) CASH FLOWS FROM CONTINUING OPERATIONS   140,708     (3,732 )   CASH FLOWS FROM DISCONTINUED OPERATIONS: Operating cash flows from discontinued operations, net (25,194 ) (5,486 ) Investing cash flows from discontinued operations, net (23 ) (864 ) Effects of exchange rate changes on cash   —     1,286   NET CASH FLOWS PROVIDED FROM DISCONTINUED OPERATIONS   (25,217 )   (5,064 )           NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 115,491 (8,796 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   218,659     191,318   CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 334,150     $ 182,522    

Exhibit 5Babcock & Wilcox Enterprises, Inc.Segment Information(1)

        Three Months Ended September 30, Nine Months Ended September 30, 2015   2014   2015   2014 (Unaudited) (In thousands) REVENUES: Global Power $ 160,004 $ 123,905 $ 441,263 $ 343,890 Global Services 221,077 229,209 689,971 645,081 Industrial Environmental   38,896   48,902   123,383   52,502     $ 419,977   $ 402,016   $ 1,254,617   $ 1,041,473 GROSS PROFIT: Global Power $ 25,780 $ 29,718 $ 72,884 $ 64,437 Global Services 38,925 47,680 138,521 137,640 Industrial Environmental   13,217   10,972   31,798   12,172     $ 77,922   $ 88,370   $ 243,203   $ 214,249     Three Months Ended September 30,   Nine Months Ended September 30, 2015   2014   2015   2014 (Unaudited) (In millions) BOOKINGS:     Global Power $ 236.0 $ 62.8 $ 750.0 $ 374.8 Global Services 146.6 212.6 555.1 595.9 Industrial Environmental   35.0  

44.9

  142.9   44.9     $ 417.6   $

320.3

  $ 1,448.0   $

1,015.6

    As of September 30, 2015   2014 (Unaudited) (In millions) BACKLOG:   Global Power $ 1,253 $ 795 Global Services 1,097 1,260 Industrial Environmental   92   79     $ 2,442   $ 2,134

(1)  May not foot due to rounding.

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Babcock & WilcoxInvestor Contact:Leslie Kass, 704-625-4944Vice President Investor Relations and Communicationsinvestors@babcock.comorMedia Contact:Ryan Cornell, 330-860-1345Public Relationsrscornell@babcock.com