Babcock & Wilcox Enterprises, Inc. (NYSE:BW)
Q4 2016 Earnings Conference Call
March 01, 2017, 08:30 ET
Jude Broussard - VP of IR
Jim Ferland - Chairman & CEO
Jenny Apker - SVP & CFO
Robert Labick - CJS Securities
Steven Fisher - UBS
Jamie Cook - Credit Suisse
Tahira Afzal - KeyBanc Capital Markets
Tate Sullivan - Sidoti & Company
Good morning. My name is Scott and I will be your conference operator today. At this time I would like to welcome everyone to the Babcock & Wilcox Q4 2016 earnings conference call. [Operator Instructions]. Thank you. Jude Broussard, Vice President of Investor Relations, you may begin your conference.
Thank you Scott and good morning everyone. Welcome to Babcock & Wilcox Enterprises' fourth quarter 2016 earnings conference call. I'm Jude Broussard, Vice President of Investor Relations at B&W. Joining me this morning are Jim Ferland, B&W's Chairman and Chief Executive Officer and Jenny Apker, Senior Vice President and Chief Financial Officer, to talk about fourth quarter earnings. Many of you have already seen a copy of our press release issued late yesterday. For those of you who have not, it's available on our website at babcock.com.
During this call, certain statements we make will be forward-looking. I want to call your attention to our Safe Harbor provision for forward-looking statements that can be found at the end of our press release.
The Safe Harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statements. Our most recent annual report on form 10-k on file with the SEC provides further detail about the risk factors related to our business. Additionally, I want to remind you that except as required by law, B&W undertakes no obligation to update any forward-looking statements to reflect events or circumstances that may arise after the date of this call.
We also provide non-GAAP information regarding certain of our historical results, as well as our 2017 outlook, to supplement the results provided in accordance with GAAP. This information should not be considered superior to or as a substitute for, comparable GAAP measures.
We believe that the non-GAAP measures provide meaningful insight into the Company's operational performance and we provide these measures to investors to help facilitate comparisons of operating results with prior periods and to assist in understanding B&W's ongoing operations. A reconciliation of historical non-GAAP measures can be found in our fourth quarter earnings release issued late yesterday and in our Company overview presentation hosted on the investor relations section of our web site at babcock.com.
With that, I will now turn the call over to Jim.
Thanks, Jude. Good morning, everyone. On today's call we'll provide information on our results for the fourth quarter. We will also provide an update on our strategic priorities and guidance for 2017. Let me start by saying that we made significant progress in realigning our business units and executing on our strategic goals during our 18 months as an independent Company.
We continued to move forward in our three-prong strategy to optimize our Power business and make it more efficient, to diversify and grow our Industrial segment through acquisitions and to pursue core growth in global market for our Renewable business. Through the restructuring of our Power business, we have created a leaner, more flexible organization that can more effectively compete in the market.
In addition, we've made key technology-based acquisitions in our Industrial segment to build and broaden the business. While productivity and scheduled issues in our Renewable segment impacted our results in the fourth quarter and for the full year, we have taken actions to enhance its resources and infrastructure and better position this segment for what we expect to be significant market opportunities in the future.
With that overview, I'd like to give more color on each of the business lines. Within the Power segment revenue of $218 million for the fourth quarter was in line with our expectations.
Based on the level of activity in the fourth quarter, we believe a majority of the market decline that we projected in the second quarter of 2016 for the U.S. coal power generation portion of our business has occurred. We also believe the decline in demand from our industrial steam customers has reached an inflection point and will begin to improve.
During the quarter the Power segment continued to benefit from the restructuring efforts we completed earlier in the year. As a result, the segment has produced higher than expected gross profit margins. There was a solid finish to the year and we intend to remain focused on operating efficiently, maintaining margins and delivering value for customers.
There continues to be high bidding activity and a strong pipeline of work within the Power segment. On our prior calls we mentioned that we expected one to two large contract bookings in late 2016 or early 2017.
Although we announced some new Renewable segment bookings in the fourth quarter, the new build Asian coal projects that we hoped to announce were delayed. Complexities surrounding international government approvals, permitting and financing have delayed two specific opportunities.
One of these, a $100 million equipment-only contract of which we have begun preliminary engineering under a limited notice to proceed, is now expected to book in the first half of 2017. The other, larger equipment-only opportunity for which we were selected is expected to have a permitting go/no-go decision in 2018.
Outside of the large global coal opportunities, our pipeline for the Power segment remains strong. Our aftermarket parts and services business, driven by book-and-bill type work, remains robust and we're seeing strength in U.S. service in retrofit opportunities, including a number of coal ash projects for some of largest utilities in the country. We expect Power segment revenues to be around the $1 billion in 2017, with the larger potential coal booking providing upside for 2018.
Turning now to the Industrial segment. As I mentioned earlier, in the last few months we successfully executed our plan to grow our Industrial revenue base and further diversify our overall B&W revenue stream. Specifically, the strategic acquisitions of SPIG and Universal which we completed in 2016 and early 2017 respectively have resulted in a step-up of our Industrial segment revenue.
In the fourth quarter the segment generated $106 million in revenues compared to $60 million in fourth quarter of 2015 and we expect additional growth in 2017 as Universal's revenues are incorporated. We're pursuing a number of cross-selling opportunities for these new businesses with B&W's historic customer base which we believe will allow for additional agreement growth within the business in 2017 and beyond.
I would like to take a moment to talk in more depth about the Universal acquisition which we closed in mid-January of this year and why we believe Universal is a great acquisition for B&W. As a reminder, Universal is a provider of custom engineered acoustic emission and filtration solutions with annual revenues of approximately $80 million which we purchased as a bolt-on for B&W MEGTEC.
B&W has had a long history of providing environmental solutions to customers and we expanded our market presence from Power to Industrial with the acquisition of MEGTEC back in 2014. Since then we focused on finding a nice-sized acquisition to further expand our presence in industrial environmental solutions.
The addition of Universal expands our air solutions portfolio and introduces noise abatement solutions to our products and services offerings. While Universe's exposure to the industrial markets is a good complement to B&W today, the acquisition specifically allows us to broaden our reach to natural gas power generation and natural gas pipelines.
The Universal bolt-on -- the Universal deal as a bolt-on is expected to provide sustained cost synergies of approximately $2.5 million to $3 million a year by 2018. In addition to acquisitions we're seeing potential improvement in industrial market conditions for the coming year which should benefit our MEGTEC business. That, coupled with a full year of SPIG revenue and the addition of Universal, will create a segment that will produce revenue north of $450 million for 2017, making it our second-largest segment.
Turning now to the Renewable business. Since the spinoff we've been focused on growing our revenue and market share in this segment and have accomplished that much faster than expected. In early 2015 the Renewable business began to book significantly more work and revenues increased from $230 million in 2014 to $349 million in 2016.
Due to this growth, our resources and capabilities across the business became stretched. Specifically, our previously disclosed efforts to address matters on a Renewable project in Northern Europe diverted resources and despite our mitigation plans, late in the fourth quarter began to impact other projects. As a result, we're experiencing productivity and schedule issues that are impacting our estimated cost to complete these projects.
We took charges in the fourth quarter, reducing margins and increasing contingency for these projects. We're committed to completing these projects in line with our revised timelines and budgets.
We've already made key changes to this business and are working with urgency to address these issues. We appointed Jimmy Morgan as the head of the segment in December before we became aware of the extent of the issues and their impact late in the fourth quarter.
Jimmy as a strong, project execution focused leader with many years of experience heading complex projects. In 2016 he led our Power segment's construction business and under his leadership the business achieved its highest performance in five years.
We also replaced on-site project managers at three key sites, dedicated significant U.S. talent and leadership to both the engineering and project management groups in Europe and are investing in enhanced project management processes that will span projects from their inception through bidding and execution. In addition, we have elected to limit bidding on new Renewable contracts that involve our European resources for at least the first six months of 2017.
We anticipate the revenue impact of this pause on bidding to slow, but not significantly impair revenue growth in this segment over the medium term. We also plan to leverage the engineering resources in our Barberton, Ohio office for opportunities that arise outside the EU.
It's important to point out that beyond project work, the Renewable segment's operation and maintenance business, as well as its engineered equipment and aftermarket parts and services businesses which together represent more than $100 million of the segment's revenues, were strong in 2016 and we expect they will remain strong into 2017. We continue to believe there are significant opportunities for the global Renewable business, as we provide our superior waste energy technology to a growing market around the world.
We continue to receive interest from potential customers and positive feedback regarding our technology from existing customers. While there is much work to do, this business has significant upside and the more we focus on our core boiler and grate technology going forward, the better we will be able to deliver consistent growth and bottom-line value. I will now turn the call over to Jenny to provide more specifics on our fourth quarter.
Thanks, Jim. Turning to the fourth quarter financial results, consolidated revenues were $380 million compared to $503 million in the prior-year fourth quarter. The change was driven by revenue declines in the Power segment of $109 million and the Renewable segment as $60 million, partially offset by an increase of $46 million in the Industrial segment.
For the quarter, we had an adjusted operating loss of $65 million as compared to adjusted operating income in the prior year of $39 million. The key driver was a $98 million change in estimate on the Renewable segment contracts. The adjusted loss per share was $1.60 as compared to adjusted earnings per share of $0.47 in the prior-year fourth quarter.
Our consolidated bookings for the quarter were $262 million net of a $47 million reduction in bookings due to foreign currency exchange rate changes in the period. Ending backlog as of December 31, 2016 stands at $2.1 billion compared to $2.3 billion on December 31, 2015. The year-over-year decline was driven by a decline in Power and Renewable backlog and was partially offset by improvements in the Industrial backlog due to the contributions of SPIG.
Turning to the Power segment. Revenues for this segment were $218 million compared to $327 million in the prior-year fourth quarter. The decrease which was expected, was attributable to lower volume in both new build equipment and industrial steam generation, but we benefited from a modest uptick in our aftermarket parts business.
Gross profit was $63 million as compared to $71 million in the prior-year period, while gross margin was an impressive 28.7% for the quarter. The success of the restructuring program announced we announced in the second quarter of 2016 and strong performance from our construction division drove the superior margins for the quarter.
Industrial segment revenues were $106 million, an increase of $46 million over the prior-year fourth quarter due to the acquisition of B&W SPIG which contributed $58 million of revenue for the quarter. Gross profit for the segment was $17 million which was about the same as in the prior year.
Renewable segment revenues were $56 million for the fourth quarter compared with $115 million in the prior-year fourth quarter. We had a gross loss of $83 million this quarter compared to a gross profit of $21 million in the prior-year fourth quarter. In total our changes in estimate this quarter reduced revenue by $80 million and lowered gross profit by $98.1 million compared to our prior forecast.
For the quarter consolidated SG&A was $64 million compared to $61 million last year. The increase from the fourth quarter of 2015 was largely driven by the addition of B&W SPIG during the year.
Equity income was $11.6 million for the fourth quarter of 2016. Equity income was benefited by an $8.3 million gain on the sale of Halley & Mellowes, our former joint venture in Australia.
Earlier in the year our joint venture partner approached us about a potential sale. We were able to reach terms that were advantageous to the Company and we closed the deal in December.
In total we received $18 million of cash proceeds. This joint venture contributed approximately $2 million of equity income in 2016 which will not repeat in 2017. The fourth quarter 2016 affective tax rate for the Company was a negative 12.2% compared to 47.4% in the fourth quarter of 2015. The fourth quarter of 2016 adjusted effective tax rate for the Company was a negative 10.6% compared to 37.3% in the fourth quarter of 2015.
The change in rate year over year was heavily impacted by the losses from our Renewable segment contracts in low tax rate jurisdictions and by increases in valuation allowances on related foreign deferred assets which reduced the benefit of the losses on the overall tax rate. In 2017 we forecast an effective tax rate in the range of 32% to 34%.
Moving onto cash liquidity and our credit facility. As of December 31 we had cash and cash equivalents of $96 million and total revolving debt outstanding of $24 million. For the quarter, ending cash increased $31 million driven by strong operating cash flow in the quarter of $42 million.
For 2017, due to the expected impact of the Renewable projects and the temporary slowdown in new bidding activity, we expect negative free cash flow of approximately $120 million. Approximately $60 million of this cash usage relates to the draw-down on our Renewable segment's advance build position which we expect to recover as we move into 2018 as new contractor sign and working capital returns to a normal level. Recognizing these challenges, we amended our credit facility effective last week to provide ample revolver access and capacity to meet our liquidity and letter of credit needs.
Now, I will turn to guidance for 2017. We expect 2017 revenues will grow to be approximately $1.8 billion. This reflects stability in Power and Renewable revenues and growth in our Industrial segment.
Going into 2017, our Companywide pipeline of opportunities stands at approximately $2.9 billion. We're confident that there are sufficient opportunities in our backlog and our pipeline to support our revenue projections.
We expect 2017 adjusting earnings per share which excludes non-cash intangible amortization and other one-time items, to be in the range of $0.75 to $0.95 per share. Compared to previous guidance, the reduction is due to approximately 60% share impact from the Renewable projects and related interest expense from revolver usage.
In addition, about $0.15 per share impact is due to the delayed timing of the large Power project bookings and the loss of equity income following the sale of our Halley & Mellowes joint venture. We're providing non-GAAP earnings per share guidance, excluding intangible asset amortization, to provide what we believe is better clarity into our financial performance.
Acquisitions are a key part of our strategy, so we want to highlight the earnings potential of these acquisition without the related non-cash charges. The intangible asset amortization is worth approximately $0.25 per share in 2017.
Due to the timing of the impacts of Renewable contracts and the normal seasonal level of activity in the first quarter of the year in our Power segment, we expect a small net loss on an adjusted basis in the first quarter of 2017. However, we expect to produce positive earnings results on an adjusted basis in the remaining three quarters of the year.
Before I hand the call back to Jim, I would like to welcome Chase Jacobsen to B&W. Previously a sell-side analyst, Chase very recently joined B&W to lead our investor relations efforts as our new Vice President of Investor Relations.
Jude Broussard, who is leading today's call and who has been in the IR role for the past nine months, has been appointed Vice President and Treasurer for B&W. Jude and Chase will be working together over the next several weeks to ensure seamless communications with the Street while they transition into their new roles. I will now turn the call back over to Jim.
Thanks, Jenny. We continue to believe that our three-pronged strategy to optimize our business and improve our efficiency, pursue core growth in global markets and execute a disciplined acquisition program to drive growth and diversification will create value and maximize sustained returns over the long term for our shareholders. We've made significant progress in the last 18 months as we successfully increased our industrial and natural gas revenue base and reduced our B&W-wide coal exposure from 55% in 2014 to nearly 40% in 2017. This is a trend we expect will continue well into the future.
Within our Power segment, in 2017 we will remain focused on operating efficiently and maintaining margins. In the Industrial segment we will be focused on maximizing revenue synergies for SPIG and successfully integrating and growing Universal. In the near term for the Renewable segment, we're focused on strengthening our execution model and creating world-class engineering and project management functions so that we can effectively capitalize on what we see as very substantial opportunities for our leading-edge CO2-neutral waste to energy technology.
As we look at B&W as a whole, we expect that 2017 will be a much improved year and that this will continue well into 2018 and beyond. That concludes our prepared remarks and I will now turn the call back over to Scott who will assist us in taking your questions.
[Operator Instructions]. Your first question comes from the line of Bob Labick with CJS Securities. Your line is open.
Good morning and thanks for taking my question.
Hi. So, just taking a step back on the renewables, can you talk about how many projects are impacted right now and if they’re the same problems at each project or if they’re different? I think you said you discovered the problems in late December. Can you talk a little bit about the process that lead to discovering these problems and what gives you confidence that it won’t spread through to some other projects in the Renewable segment, please?
Sure, Bob. Let me touch on timeline first and then I’ll talk about the individual projects a bit. So, in early December, we appointed Jimmy Morgan to lead the segment, and in late December, and in particular in early January, Jimmy began to dig into each individual project in detail. Our primary focus has been on our problem project in Europe, and that project, although it is in commissioning now—as we had said, it would enter commissioning in Q1 of 2017, it is in commissioning—it is a few weeks later than we had hoped and costs were increased on that project.
As Jimmy delved into each of the other projects, and Jenny and I joined him, it became apparent that the mitigation strategies we put in place to ensure that the resources we were putting on our original problem projects wouldn’t cause issues on the other projects were not working, and the further we dug into each of those individual projects, a couple in the traditional EU and a handful in the UK, the more concerned we became about our ability to deliver those projects on time and within the estimated cost to complete.
So, we took the bulk of January and the first two or three weeks of February to go project by project through each, to ensure that we understood the new schedule, that we incorporated the new costs to complete the project, that we accrued money to account for any potential LDs due to the late schedule, and to increase contingency significantly on all of those projects. So, we are now carrying estimated liquidated damages and we’re carrying more contingencies on those projects today than we had at the beginning of those projects.
So, we have—in addition to the one loss project we had discussed previously, there are three other loss projects, you can see the details quite clearly in the K, and there are approximately four other projects in the UK that we saw margins decrease on, but remain positive.
So, that’s a bit on both the timeline and the individual projects. We took a lot of time in January and February to dig into each of these projects and ensure we have the right cost to complete and, probably more importantly, we have enough contingency on those projects to give us comfort that we can make it through the rest of 2017, which is when we expect the bulk of these projects to complete or be near completion.
Got it, that’s helpful. Then, maybe this is oversimplifying but it sounds like you’re saying that, on certain projects, effectively, you discovered you bid probably too aggressively and you’ve gone back and corrected for that, but it sounds like you also said you’ve looked at everything else and believe the other projects were bid decently and you’re pausing your bidding right now. So, is that to say that you don’t believe that this will—that you’ve solved the problem and this should not occur going forward, or how do you think about how this will impact future projects or any discovery in the next few quarters on existing projects?
Sure. So, a little bit more detail on the issues. The original problem project in Europe was driven by an engineering error on piping. The problems or the challenges on the other projects today is not driven by the same cause. Rather, we moved enough engineering and project resources to the problem project, that we created a sequence of moderately late engineering for the other projects. So, it’s not as we have enough significant errors in the engineering, it’s just that the engineering did not come in on the schedule that we originally anticipated, and then that moves through procurement and construction. So, it’s a different set of problems. That ties back to the reason we’ve put a pause on bidding new projects for the first six months of 2017. So a handful of projects, at least one, if not more, that we had the potential to book either late 2016 or early 2017, that we chose not to bid.
The reason being bidding takes engineering resources, and the very first phase of each one of these projects, right after we win it, is heavy on the engineering front. We made the decision to keep our engineering resources focused and deployed on the existing projects, not distract them with either new bids or a new ramp-up on new work. We anticipate by mid to late summer we’ll be through enough of the engineering on the other projects that we’ll be in a position to reinstitute bidding going forward.
Great. All right, thank you very much. I’ll get back queue as requested.
Your next question comes from the line of Steven Fisher with UBS. Your line is open.
Thanks. Good morning guys.
In the Power segment, you’re calling for $1 billion of revenues, which is up slightly from 2016, but your backlog is about $200 million less than it was last year and it’s now at $615 million. Can you talk about where the other $400 million of revenues is going to come from and what’s your confidence in being able to kind of hit that outlook?
Sure. In any given year, there’s a large portion of the Power work that comes in as book-and-bill. In large part, it’s our aftermarket services and parts work. So, that’s a large portion of the difference between what’s in backlog today and the expected, roughly, $1 billion revenue for the segment.
In addition, we have the one new Asian coal project that I mentioned, we expect to book in the next few months, and we have a very strong pipeline of aftermarket projects and service work that we see, primarily in the US. An awful lot of that is driven for 2017, and likely into 2018, is based on the CCR rule, or the coal ash rule, where the utilities are spending money to upgrade their ash removal and ash processing systems. We have a handful of really good technology solutions, and we’ve been working with a lot of the US utilities to put that equipment in place.
So, that’s what gives us confidence that the $1 billion revenue number in Power is achievable.
So, if we step back and think about how the mix in 2017 in Power might look compared to 2016, what would that be and how does that affect the margins?
We continue to think—although we had a strong margin quarter in Q4 of 2016, we continue to believe that longer term margins in the Power business will be in the low 20s and that the mix of work we expect in 2017 will fit that low 20s model.
But how will the mix be different versus 2016? You gave a nice breakout in one of the slides that has all the different components of it by revenues. How do you think that’ll look differently in 2017 versus ’16?
I’ll leave the details on that to follow up, but I would expect a little bit more US work in 2017 in the Power segment.
I would say slightly less new build work, a little bit more industrial work in 2017, and a little more retrofit and services work in 2017.
Okay, that’s helpful. Thank you very much.
Your next question comes from the line of Jamie Cook with Credit Suisse. Your line is open.
Hi. Good morning, and welcome, Chase.
I guess, I’m sorry, a couple of follow-up questions on the problem projects. You know, Jim, I think you said you have three in a loss position, four that you’re assuming lower profitability of the project. Can you just size those seven projects for us so we can get a sense for scope, and just confirm—I think you said they’ll be done by the end of ’17, and I don’t know what’s in those seven projects. Is one bigger than the other or more material?
Then I guess my second question, with regards to—I appreciate you diversifying away from coal and getting into other businesses, but as you look at this business today and just the magnitude of the problems that we’re seeing in a short period of time as we try to diversify in another area, how do you think about this? I mean is this a good business for you to be in, Jim, longer term, and have you changed, your bidding processes within Renewable? Thanks.
Sure, Jamie. Let me see if I can get all the parts of both of those. So, in regard to the first question, the projects are all roughly the same size, give or take. A couple might be slightly under $100 million and a couple slightly over. In regard to the timeline, the bulk of the work on this set of projects will take place in 2017. Actually closing these projects, moving them into commissioning and start-up, some, a couple projects are late 2017; the bulk of that occurs in 2018. So, all or most of the work is done in ’17, some of the projects in terms of commissioning and start-up carry into early, even mid ’18.
Let me jump to whether the Renewable business is a good business or not, and then, Jenny, if you have anything to add on question one, feel free.
So, it’s a question, Jamie, that we’ve been examining. Here are a couple of thoughts. Number one, we really have a good technology solution on the waste energy side. Our units perform, they burn almost anything that the customers have to burn, and they tend to run at higher capacity factors than our competitors’ projects once they’re on line. So, we really have a good technology to bring to the market. Number two, there is a lot of market opportunity. It’s been strong for us in northern Europe. We actually see that continuing for the next couple of years. We are seeing waste energy and biomass opportunities around the world in a growing number as we move forward in time. So, we do believe it’s a technology that we can take global. The question is can we execute the projects and make money.
So, what you will see us do over time in this area is twofold. Number one, and the initial focus, is keeping up our engineering processes in-depth and improving our overall project management. That will help us not only execute the projects we have but bid projects more accurately in the future. Number two, and this is a shift that we’re going to make in the six-month window that we’ve created with this pause, is we’re going to emphasize the piece of the power plant that we’re really good at, which is the boiler and the grate. We’ve always outsourced the pure construction, the on-the-ground dirt and the big buildings and the big steel. There’s a piece in between the boiler and that on-the-ground construction that involves piping, detailed electrical, pumps and valves for the plant that in the past we covered a lot of that scope, either directly or with some subcontracted partners.
Going forward, we’ll be looking for opportunities to put in place longer term partnership arrangements, perhaps with AEs, to better cover that scope. It will still allow us to deliver a power plant, an end power plant, turnkey, to the customer, but I think it will focus us more on the boiler and grate, and perhaps find someone that does the piping and electrical every day. That might be a better model for us going forward, and we’ll be looking to make that shift between now and late summer when we bid projects again.
I’m sorry, Jim, just to clarify, because on the size of the projects, you said some are above $100 million and some are below. I mean does that imply, simplistically, seven projects, $700 million worth of problem work? I’m just trying to get the sense of the size relative to the size of the backlog of your company.
The average project is about $100 million, and so our seven projects we have our eyes on, a lot of that money is already spent on those projects. You can see the breakout in the K. A handful of them are in the 60 plus percent COC category already, and that work, what’s left of that revenue will come in ’17, and some of it in ’18.
Okay. Thank you. I’ll get back in queue.
Your next question comes from the line of Tahira Afzal with KeyBanc Capital Markets. Your line is open.
Hi folks and welcome, Chase. I guess the first question for me is, from my sort of experience—and Jim, you’ve been in this business for a while—these project problems don’t end until the last one is done. So, you know, from a balance sheet perspective—and I don’t know if this is more a question for Jenny—what are your contingency plans if things do get a little worse?
That’s a good question and it’s something we’re actually giving a lot of thought to. We have worked with our bank to provide a pathway to liquidity through the year, which we at this point believe will be acceptable. That said, we also have—we’re willing to look at and consider other sources of liquidity or capital, if we think—if these problems do continue to worsen rather than get muscled through within the estimates that we have today.
We filed a Shelf Registration last night, just as a standard good business practice. We are a large seasoned filer, and as result we were allowed to file a Shelf Registration with our 10-K. It’s certainly the easiest way to file a Shelf Registration. That said, it provides us additional flexibility if we need it, over the next year. As you are implying, if the worst happens, we have alternative sources of capital.
S, we have quite a bit of comfort that the revised credit facility that we put in place will carry us through ’17, and as Jenny mentioned in the cash usage in ’17, a good portion of that, about half of that is due to advanced billing decreasing because we slowed down our bidding process. Once we ramp that bidding process back up in the latter half of ’17, that advanced bill should build back up and we should be in a much better cash position come early mid ’18, moving forward. That said, it’s always smart to have a backup plan in place and I think we’ve thought that through, as Jenny mentioned.
Got it. Jim, unfortunately, this has all unfolded right as the rest of your strategy has played out very nicely. To the extent all of these issues are addressed, hopefully, as we anniversary out a year from now, it seems like we’ll be back on track. Have you considered maybe if things look like they’re getting a little worse in this transition phase of the year, would it make sense to be part of a bigger entity which has more cash and you don’t have to rely that much on the debt side or issuance side?
Tahira, can you just—I missed a couple words in the last part of that question, if you could just repeat it.
Yes, I guess what I’m just asking very indirectly is—essentially, you’re a sort of an industrial company more than an E&C. Does it make sense to be a part of a bigger company like a GE and Alstom given this is more of bridge issue, and maybe being a part of a more cash-rich entity in the near term would help?
Yes. So, we will—we always have, and we will certainly will over the next few months, think about all the different strategic options that are available to the Company. I do agree with your opening statement that our core strategy to drive cash out of coal and to diversify the business, to drive down the coal exposure and increase the industrial and gas exposure, I still think that’s a good strategy, and you’re right, we’ve made a lot of progress on that front.
The reality for the first few months of 2017 was it was probably time for us to focus on integrating SPIG and integrating Universal, but you’re right, even if we were ready to jump back in the acquisition/diversification path later in 2017, we’re clearly going to be slowed down on that front, at least into early ’18. So although we still think it’s a good strategy, we have plenty of acquisitions to integrate right at this minute, we probably are slowed down a bit.
I would say, in reference to your broader question, I think this Management team and this Board have proven over the last two or three years, reaching back to the spin, that we’re open to good ideas and if someone has a good idea that perhaps is better than the strategy we’re pursuing at least we’d listen to it.
Got it. Thank you very much, Jim.
[Operator Instructions]. Your next question comes from the line Tate Sullivan with Sidoti. Your line is open.
Hi, thank you. Jenny, can you go into more on the revised credit agreement? I’m just looking at the paragraph in the K I could find on it. Can you give any pro forma figures for what you’ll have drawn after you close—or since you have closed your recent acquisition?
Well, we indicated that we closed the year with about $9.8 million outstanding under that credit facility and we borrowed about $53 million, $54 million to close the Universal acquisition. On top of that, we would anticipate the negative cash flow mostly being funded out of the US this year, with our expectation is that our foreign operations will be able to be funded very adequately with the cash that’s offshore already. So, that math ought to help you connect to a year-end revolver balance.
Okay. Then, I thought I heard earlier that you’re carrying liquidated damages on some waste energy projects, and then it looks like you’re able to exclude from EBITDA certain segment contracts in Renewable. Can you give more context for that?
The only adjustment we are excluding for purposes of the covenant calculations under the credit agreement, is we are permitted to add-back $98.1 million of EBITDA in the fourth quarter. Our covenants are calculated on a rolling 12-month basis, so that one-time $98 million add-back benefits us for the next 12 months, after which time we shouldn’t need it. We should have profitable results for the balance of 2017, and will have a full clean 12 months of earnings at the end of 2017.
Okay. Thank you for that context.
There are no further questions at this time. Mr. Broussard, I’ll turn the call back over to you.
Thank you for joining us this morning. That concludes our conference call. A replay of this call will be available for a limited time on our website later today.
This concludes today’s conference call. You may now disconnect.
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