Babcock & Wilcox Enterprises, Inc. annual report, FY2022

Babcock & Wilcox Enterprises, Inc. — FY 2022 Form 10-K

Reporting period: Fiscal year ended December 31, 2022. This is an annual report; the supplied filing does not provide a standalone Q4 income statement. B&W provides renewable, environmental and thermal energy equipment, technologies and services.

Financial performance

Metric	2022	2021
Revenue	$889.8 million	$723.4 million
Operating income (loss)	$(4.2) million	$20.8 million
Net income (loss)	$(26.6) million	$31.5 million
Net income (loss) attributable to common shareholders	$(37.7) million	$21.8 million
Adjusted EBITDA (non-GAAP)	$72.4 million	$70.6 million
Cash used in operating activities	$(30.6) million	$(111.2) million

Revenue grew 23%, primarily reflecting greater Renewable and Environmental activity, acquisitions, and recovery from prior-year COVID-19 impacts. Approximate gross margin, calculated as revenue less cost of operations, was 20.9%, down from 24.8%; operating margin was approximately negative 0.5%, versus positive 2.9%.
Segment revenue and adjusted EBITDA: Renewable $330.6 million and $26.1 million; Environmental $154.4 million and $9.8 million; Thermal $415.1 million and $56.3 million. Renewable EBITDA included a $6.2 million project-rights sale gain and a $9.6 million reversal of contingent consideration, so reported adjusted EBITDA included notable benefits.
Net loss reflected higher operating costs and interest expense, foreign-exchange losses and a $7.2 million goodwill impairment. Interest expense was $45.0 million, up from $39.4 million. Income tax expense was $11.1 million despite a pretax loss, with valuation allowances a key factor.
Cash, cash equivalents and restricted cash totaled $113.5 million, including $36.7 million restricted; unrestricted cash and equivalents were $76.7 million. Management stated that operating plans and available revolving-credit capacity should meet foreseeable needs, including at least the next 12 months. Cash declined from $226.7 million at year-end 2021.
Cash used in investing activities was $68.8 million, including $64.9 million for acquisitions and $13.2 million in capital expenditures. Financing activities used $11.2 million, including $14.9 million of preferred dividends and $16.9 million of debt repayments.
Year-end total debt was approximately $353.0 million, including $335.5 million carrying value of senior notes. Notes include 8.125% and 6.50% senior notes due in 2026. Gross preferred stock outstanding was $191.7 million and carries a 7.75% cumulative dividend. Total stockholders’ equity was a deficit of $2.1 million.
Current assets were $557.6 million and current liabilities $372.0 million. Backlog increased to $704 million from $639 million; approximately $565 million was expected to convert to revenue in 2023. Backlog is subject to delay, cancellation and margin risk.

Material changes and notable items

Revenue rose across Renewable and Environmental, while Thermal revenue fell 4% to $415.1 million, largely because a large construction project had been executed in 2021. Thermal EBITDA nevertheless increased, partly from acquisitions.
Bookings increased to $908 million from $779 million. Renewable backlog fell to $284 million from $394 million, including a reduction related to disposal of future unprofitable contracts; Thermal backlog increased to $265 million from $126 million.
Acquisitions included Fossil Power Systems for approximately $59.2 million and Optimus Industries for approximately $19.2 million. B&W also acquired remaining ownership of Babcock & Wilcox Solar and certain Hamon assets.
Thirteen B&W Solar projects were loss contracts; the company recorded $13.2 million of net losses from updated completion-cost estimates. A $7.2 million goodwill impairment was recorded for the Solar reporting unit.
Operating cash use improved substantially year over year but remained negative. Working-capital movements included increased contract assets and advance billings; timing of customer milestones can affect cash generation.

Outlook, risks and contingencies

No specific revenue, earnings or cash-flow guidance is provided in the supplied filing. Management described efforts to reduce costs, improve cash generation, pursue claims and recoveries, and consider non-core asset sales. It cautioned that inflation, supply-chain disruption, COVID-19 impacts and the Ukraine conflict make potential financial effects difficult to estimate.
Debt covenants were amended in November 2022 with stepped requirements and minimum cash-flow tests. The company reported compliance with its quarterly fixed-charge coverage covenant at year-end and disclosed a waiver for the September 2022 period. The debt facilities include a minimum-liquidity covenant and mature in 2025; management has also highlighted the need to refinance the 2026 notes.
On March 14, 2023, after year-end, lenders amended the revolving-credit agreement, including waiving a senior-net-leverage test for a preferred-share payment and replacing LIBOR references with Term SOFR.
Key risks include fixed-price contract overruns, loss-contract exposure, supplier and subcontractor performance, backlog conversion, customer collections, access to bonding and letters of credit, refinancing and covenant compliance. Outstanding surety bonds were approximately $320.6 million; letters of credit and bank guarantees also support contract obligations.
A $9.5 million proposed stockholder-litigation settlement remained subject to court approval; the company stated its portion was accrued. In the Glatfelter litigation, the plaintiff alleged damages exceeding $58.9 million; the court had found that damages would be subject to a contractual cap if the contract is found valid. B&W counterclaimed for more than $2.9 million, and the outcome was described as uncertain.
Defined-benefit pension and postretirement plans were underfunded by approximately $130.1 million. The company also disclosed environmental, tax, foreign-exchange, coal-market and regulatory risks. Coal-related activity represented an estimated 38% of 2022 revenue, versus 47% in 2021.
Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting. The audit identified critical audit matters involving long-term contract revenue estimates, Solar goodwill impairment, and Solar contingent consideration and ownership-interest accounting.

Important facts for investors to verify

Whether backlog converts on schedule and at profitable margins, particularly the remaining B&W Solar loss contracts and the 2023 revenue expectations.
Unrestricted liquidity, restricted-cash availability, cash generation, covenant headroom, required collateral and access to bonding and letters of credit.
Plans and financing capacity to address the 2025 credit-facility maturity and refinance the 2026 senior notes, alongside preferred-dividend obligations.
Whether acquisition integration and cost initiatives improve operating margins without further contract losses, impairments or cash outflows.
Final outcomes and cash impact of the stockholder settlement, Glatfelter litigation, and any insurance or subcontractor recoveries.