Babcock & Wilcox Enterprises, Inc. — Q1 2022 Form 10-Q
Business context and period: The company provides renewable-energy, environmental-control and thermal-power equipment and services. This unaudited report covers the three months ended March 31, 2022, compared with the three months ended March 31, 2021. Results include acquisitions of Fossil Power Systems and Optimus Industries in February 2022; Fosler and VODA, acquired in 2021, also contributed to the comparison.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Revenue | $204.0 million | $168.2 million; up 21% |
| Operating loss | $6.8 million | $6.5 million loss |
| Net loss | $8.7 million | $15.4 million loss |
| Net loss attributable to common stockholders | $12.0 million; $0.14 per diluted share | $15.5 million; $0.22 per diluted share |
| Adjusted EBITDA (non-GAAP) | $12.0 million | $8.6 million |
| Cash used in operating activities | $42.0 million | $54.0 million |
| Cash and cash equivalents | $108.1 million unrestricted; $117.0 million including restricted cash | $224.9 million unrestricted at December 31, 2021 |
| Total debt | $343.8 million | — |
| Stockholders’ equity | $43.9 million | $58.6 million at December 31, 2021 |
The operating loss was about 3.3% of revenue, versus about 3.8% a year earlier; adjusted EBITDA was about 5.9% of revenue versus 5.1%. These margins are calculated from reported figures. The company paid $3.7 million in preferred dividends during the quarter. It reported $1.2 million of income tax expense despite a pretax loss.
- Segment revenue / adjusted EBITDA: Renewable $68.0 million / $1.5 million (prior-year revenue $28.8 million / EBITDA $0.2 million); Environmental $34.9 million / $1.4 million ($31.2 million / $1.1 million); Thermal $102.2 million / $14.2 million ($108.3 million / $10.5 million).
- Liquidity and cash flow: Cash, cash equivalents and restricted cash fell by $109.7 million during the quarter. Investing used $65.4 million, mainly for $64.9 million of acquisitions; financing used $1.6 million. Cash used in operations remained substantial, though lower than a year earlier. Of the $108.1 million unrestricted cash balance, $35.9 million was held by foreign entities and was not generally available to fund U.S. operations without repatriation or intercompany-loan repayment.
- Debt and facilities: Debt primarily comprises $339.6 million principal of senior notes due in 2026, at 8.125% and 6.50%, plus loans payable. The company reported no borrowings under its revolving credit agreement, which matures in 2025, but the related facilities support letters of credit. Financial covenants include a minimum liquidity requirement of $30 million.
- Working capital indicators: Current assets were $541.0 million and current liabilities $317.3 million, compared with $582.4 million and $253.4 million at year-end. Advance billings on contracts increased to $99.9 million from $68.4 million.
Material changes versus prior-year quarter
- Revenue increased $35.8 million, principally from acquired businesses and higher new-build and Environmental segment activity. Thermal construction activity was lower.
- Net loss narrowed by $6.8 million, while operating loss increased slightly. The prior-year quarter included a $1.9 million gain on the sale of real property; this partly explains the weaker operating result in 2022.
- Adjusted EBITDA increased $3.4 million. Thermal improvements reflected acquisitions and cost-saving initiatives; Renewable and Environmental also improved. Corporate adjusted EBITDA costs rose to $4.4 million from $2.7 million.
- Operating cash outflow improved by $12.0 million, but cash balances declined sharply, mainly reflecting acquisitions and operating cash use.
- Backlog was $721 million at March 31, 2022, versus $535 million a year earlier. Quarterly bookings were $239 million versus $169 million. Renewable backlog increased substantially, while Thermal backlog fell.
Outlook, commentary, risks and unusual items
- The filing provides no formal earnings or revenue guidance. Management expects to pursue cost savings, grow through core technologies and services, consider additional non-core asset sales, and seek subcontractor recoveries and other claims where appropriate.
- Of the $721 million backlog, the company expected to recognize approximately $443 million in 2022, $111 million in 2023 and $167 million thereafter. Management cautions that backlog may be canceled, modified or otherwise changed and may not predict future results.
- COVID-19-related supply-chain and project delays continued to affect operations. Management said the Russia-Ukraine conflict had caused material shortages and delayed revenue timing; inflation, energy prices, lead times and currency movements were additional uncertainties. The company reported approximately $3.1 million of sales to non-Russian counterparties that might resell products to Russian entities or use them in Russia.
- Fosler acquisition accounting identified losses on seven U.S. solar projects whose construction issues existed at acquisition but were not adequately disclosed. The company recorded $14.5 million of accrued liabilities and $0.4 million of warranty accruals, with a corresponding goodwill adjustment, and submitted insurance claims for partial recovery. Recovery is uncertain.
- Two 2022 acquisitions cost approximately $59.1 million for Fossil Power Systems and $19.0 million for Optimus Industries, excluding working-capital adjustments. Purchase-price allocations remained provisional; Optimus’s fair-value analysis was incomplete. Fosler contingent consideration had a reported fair value of $9.6 million, with possible undiscounted payments of $0–$10 million.
- Contract commitments include $221.5 million of outstanding surety bonds, in addition to letters of credit and bank guarantees. Management says access to facility capacity is important to supporting these obligations. A Fosler loan balance of $8.9 million was due June 30, 2022; a subsidiary’s $1.7 million line of credit was repaid and terminated on April 1, 2022.
- Reported litigation includes the Glatfelter contract dispute, alleging damages over $58.9 million, and ongoing stockholder litigation. The company said it could not determine whether either outcome would materially affect its financial condition, results or cash flows. The filing also reports no material off-balance-sheet arrangements and no material change in internal controls.
Important facts for investors to verify
- Whether acquisitions—particularly Fosler, Fossil Power Systems and Optimus—deliver expected revenue, margins and cash generation, and whether provisional purchase accounting or project-loss estimates change.
- Whether operating cash use, working-capital requirements and the sharp reduction in cash can be managed while meeting the $30 million minimum-liquidity covenant and funding preferred dividends.
- Whether supply-chain constraints, inflation and geopolitical disruption continue to delay projects, increase costs or affect the reported backlog and expected revenue conversion.
- Whether contract execution, warranty, litigation and surety obligations result in additional costs or cash demands, and whether insurance claims related to Fosler losses are recovered.
- How much of reported adjusted EBITDA reflects recurring operating performance versus the substantial adjustments used to reconcile it to GAAP net loss.