Babcock & Wilcox Enterprises, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. The company provides renewable, environmental and thermal technologies and services. B&W Solar was classified as held for sale and discontinued operations during the quarter; continuing-operations results exclude it.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $239.4 million | $211.7 million | $772.2 million | $611.5 million |
| Operating income (loss) | $5.5 million | $(2.7) million | $19.2 million | $(4.1) million |
| Loss from continuing operations | $(12.3) million | $(12.8) million | $(24.4) million | $(22.5) million |
| Net loss, including discontinued operations | $(116.8) million | $(20.6) million | $(134.2) million | $(32.2) million |
| Adjusted EBITDA (non-GAAP) | $20.0 million | $13.0 million | $59.6 million | $46.5 million |
| Cash used in operating activities | Not provided for the quarter | $(50.5) million | $(67.4) million |
Calculated operating margin was approximately 2.3% for Q3 and 2.5% for the first nine months of 2023. Adjusted EBITDA margin was approximately 8.3% and 7.7%, respectively. These are calculated from reported figures; adjusted EBITDA is non-GAAP.
At September 30, cash and cash equivalents were $48.4 million, with total cash, cash equivalents and restricted cash of $65.1 million. Debt was $377.6 million; gross preferred stock outstanding was $191.7 million. Stockholders’ deficit was $141.7 million. Current assets were $542.3 million and current liabilities were $393.5 million.
Material changes versus the prior comparable period
- Revenue rose 13% in Q3 and 26% year to date, driven mainly by renewable services and progress on major Thermal projects; nine-month growth also reflected Environmental project activity.
- Operating results improved substantially, turning from operating losses to income. Adjusted EBITDA increased in both periods, with improvement across all three segments.
- Continuing-operations net loss improved slightly in Q3 but widened for the nine-month period. Higher interest expense and less favorable pension benefits compared with 2022 weighed on results.
- Total net loss increased sharply due to B&W Solar’s discontinued-operations loss, including a $55.6 million goodwill impairment. Solar’s discontinued-operations loss was $104.5 million in Q3 and $109.9 million for the first nine months.
- Backlog for continuing operations was $506.8 million, down from $555 million a year earlier; nine-month bookings were $628 million versus $684 million.
Outlook, risks and unusual items
- Management expects to recognize approximately 40.2% of continuing-operations backlog in 2023, 49.9% in 2024 and 9.9% thereafter. Backlog may be canceled or modified and is not necessarily indicative of future results.
- The company committed to sell B&W Solar after a sharp increase in estimated costs to complete loss contracts. Solar had $36.8 million of backlog at quarter-end; substantially all was expected to be recognized by December 31, 2024.
- Management said operating cash flows should cover debt service, contractual obligations, capital expenditures and preferred dividends. However, nine-month operating cash flow was negative, and some cash is restricted or held overseas; management said it had no current plans to repatriate foreign cash.
- The company reported covenant compliance at September 30. On November 9, 2023, it amended reimbursement-facility covenants, including leverage, fixed-charge coverage and minimum cash-flow requirements; rates under that facility step up over time. It also obtained a commitment letter for up to $150 million to refinance existing senior secured facilities. The refinancing remained subject to definitive documentation and other conditions.
- Outstanding support obligations included $146.4 million of surety bonds and letters of credit and bank guarantees; management said access to adequate facility capacity is important to support future contracts.
- Risks cited include inflation, higher interest rates, foreign-exchange volatility, supply-chain and provider delays, geopolitical conflicts, project execution and contract-cost estimates. The Glatfelter litigation was scheduled for trial in February 2024; the court limited damages claims to a contractual cap described as $11.7 million, subject to adjustments. The company said the ultimate outcome remained uncertain.
Important facts for investors to verify
- Progress and terms of the B&W Solar sale, remaining contract exposure, and whether insurance claims recover any project losses.
- Whether the proposed refinancing closes, its final pricing and covenants, and the company’s ongoing ability to meet liquidity and covenant requirements.
- Cash generation and availability, particularly given negative operating cash flow, restricted cash and foreign-held balances.
- Conversion of the $506.8 million backlog into revenue and cash, and any cancellations, schedule slippage or additional contract-estimate revisions.
- Updates on the Glatfelter litigation and any material changes in contingent obligations or surety and letter-of-credit capacity.