Business context and reporting period
Babcock & Wilcox Enterprises, Inc. filed this unaudited Form 10-Q for the three months ended March 31, 2023. Its businesses provide renewable energy, environmental-control and thermal technologies and services through three segments: B&W Renewable, B&W Environmental and B&W Thermal. Comparisons are with the first quarter of 2022.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $257.2 million | $204.0 million; up $53.2 million, or about 26% |
| Operating income (loss) | $1.4 million | $(6.8) million |
| Net loss | $(12.5) million | $(8.7) million |
| Net loss attributable to common stockholders | $(16.2) million; $(0.18) per share | $(12.0) million; $(0.14) per share |
| Adjusted EBITDA (non-GAAP) | $14.2 million | $12.5 million |
| Cash used in operating activities | $12.9 million | $42.0 million |
| Cash, cash equivalents and restricted cash | $91.1 million | $113.5 million at December 31, 2022 |
| Total debt | $351.7 million | Includes $336.0 million net senior notes and $15.7 million loans payable |
Revenue rose in all three segments: Renewable to $100.1 million from $68.0 million, Environmental to $39.4 million from $34.9 million, and Thermal to $119.2 million from $102.2 million. Segment adjusted EBITDA was $4.9 million, $1.9 million and $13.7 million, respectively. Thermal adjusted EBITDA declined from $14.2 million despite higher revenue.
At March 31, current assets were $585.5 million and current liabilities were $410.4 million. Total liabilities exceeded total assets by $10.2 million, leaving a stockholders’ deficit. Cash and cash equivalents alone were $62.8 million; some cash was restricted or held by foreign entities. The company paid $3.7 million in preferred dividends during the quarter.
Material changes versus the prior comparable period
- Revenue increased about 26%, supported by Renewable project and service volume, Environmental dry-cooling work, and Thermal construction and package-boiler activity.
- Operating results improved from a loss to modest operating income, while net loss worsened. The prior-year quarter included a $7.5 million net benefit from pension plans and a $3.1 million foreign-exchange gain; Q1 2023 recorded a $0.5 million foreign-exchange loss.
- Operating cash use improved by $29.1 million year over year, though the company still used cash. Q1 2022 investing cash outflow was substantially higher because of acquisitions.
- Bookings were approximately $266 million versus $239 million. Backlog was $662.9 million versus $574 million a year earlier; the company expects to recognize about 77.7% of remaining performance obligations in 2023.
Outlook, risks, contingencies and unusual items
- Management said it expects future operating cash flows to cover debt service, contractual obligations, capital expenditures and dividends for the next 12 months and foreseeable future. It also plans continued cost savings and is evaluating non-core asset sales. No specific revenue or earnings guidance was provided.
- Management cited inflation, higher interest rates, foreign-exchange volatility, the war in Ukraine, COVID-related project delays and supply-chain and service-provider disruptions. Their duration and financial impact could not be reasonably estimated.
- Debt facilities include financial covenants and a minimum liquidity requirement. The company disclosed covenant amendments and a May 9, 2023 revolving-credit amendment allowing certain expenses to be excluded from EBITDA calculations; it stated that, in light of the amendment, it remained in compliance as of March 31. The facilities support substantial letters of credit and surety bonds, which are important to contract execution.
- Outstanding surety bonds supporting contracts totaled about $341.7 million. Backlog is subject to cancellation or modification and is not necessarily indicative of future results.
- B&W Solar had 13 loss-making projects identified in 2022; one additional project became a loss contract in Q1 2023, with an immaterial quarter impact. The company has submitted insurance claims relating to losses on acquired projects.
- At March 31, the company included about $7.0 million of change orders or claims in contract transaction prices that remained subject to customer resolution. Amounts ultimately realized could be higher or lower.
- A proposed $9.5 million stockholder-litigation settlement remained subject to court approval. The company accrued the settlement and a $3.4 million probable recovery; a hearing was scheduled for July 10, 2023. The separate Glatfelter litigation alleges damages exceeding $58.9 million; the company said the outcome’s potential material impact was too early to determine.
- Advisory fees and settlement costs included a benefit associated with the Parker settlement recovery. The filing also reported a $1.4 million net loss related to the company’s exit from its remaining fixed-fee Renewable operations-and-maintenance contract.
Most important facts for investors to verify
- Whether operating cash flow improves and management’s liquidity expectations are borne out, given cash use, restricted cash and foreign-held cash.
- Ongoing compliance with debt covenants and sufficient facility capacity for letters of credit, guarantees and surety bonds, including the effect of the May 2023 amendment.
- Execution, profitability and cash conversion of the $662.9 million backlog, including customer cancellations, contract estimates and unresolved claims.
- Costs, recoveries and remaining exposure from B&W Solar loss contracts and the pending litigation settlement.
- Whether segment profitability—particularly Thermal—improves as revenues grow, and whether management’s planned cost savings and asset sales deliver results.