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NI

NOS4-1, Inc. (WLMSQ)·Q4 2022 Earnings Summary

Executive Summary

  • Q4 2022 revenue declined 29.5% year over year to $55.8M and was flat sequentially versus Q3 ($56.7M), as reduced decommissioning and nuclear activity weighed on volume .
  • Profitability deteriorated: gross margin fell to -3.0% (from 11.6% in Q4’21) and diluted EPS from continuing operations was $(0.40) versus $0.03 a year ago, driven by losses on Florida water projects and transmission & distribution (T&D) start-up costs; adjusted EBITDA was $(7.0)M versus $3.6M in Q4’21 .
  • Liquidity tightened materially (total liquidity $3.8M; cash $0.5M; bank debt $40.8M) and the 2022 Form 10-K carried a going concern emphasis; management is pursuing strategic alternatives with Greenhill and has amended its credit facilities (and added Wynnefield subordinated notes in January) to bridge liquidity .
  • No 2023 guidance was provided; preliminary January update indicated FY22 underperformed updated guidance (additional ~$6M Q4 writedown on Florida water projects), and the Company is exiting large fixed-price water projects—key near-term catalysts are outcome of strategic review and liquidity runway .

What Went Well and What Went Wrong

What Went Well

  • Backlog remained sizable at $333.2M at 12/31/22, with ~$178.6M expected to convert within 12 months; mix remains anchored by U.S. nuclear and fossil customers .
  • Underlying margin excluding known problem areas showed resilience: adjusted gross margin would have been 12.5% after removing Florida water losses and T&D start-up costs .
  • Management emphasized early 2023 operational improvements and strategic actions: “we continue to mark progress investigating and assessing various strategic alternatives… [and] focus on cutting costs, streamlining the business, and exiting non-performing operations” (CEO Tracy Pagliara) .

What Went Wrong

  • Revenue fell sharply YoY due to reduced decommissioning and nuclear work; the revenue bridge highlights declines in decommissioning (-$12.0M) and Canada nuclear (-$7.7M) with partial offsets in chemicals (+$2.4M) .
  • Margin compression and losses: Q4 gross margin was -3.0% (vs. 11.6% LY), operating margin -15.5%, and adjusted EBITDA $(7.0)M, reflecting Florida water losses and T&D start-up costs .
  • Liquidity stress and going concern: total liquidity fell to $3.8M by year-end, and the audit opinion included a going concern emphasis; bank debt rose to $40.8M year over year .

Financial Results

Consolidated performance

MetricQ4 2021Q2 2022Q3 2022Q4 2022
Revenue ($USD Millions)$79.173 $56.059 $56.685 $55.816
Gross Margin (%)11.6% 4.1% 1.3% -3.0%
Operating Margin (%)3.1% -8.0% -11.1% -15.5%
Diluted EPS – Continuing Ops ($)$0.03 $(0.20) $0.14 $(0.40)
Adjusted EBITDA ($USD Millions)$3.551 $(3.230) $6.247 $(7.036)

End-market mix and project notes

End Market MixQ3 2022Q4 2022
U.S. Nuclear35% 39%
Fuel Storage/Decommissioning10% 6%
Energy Delivery (T&D)9% 8%
Fossil39% 38%
Industrial/Water/Other7% 9%
Notable ProjectVogtle 3&4 Q3 rev: $18.4M Vogtle 3&4 Q4 rev: $16.3M

Key performance indicators

KPIQ2 2022Q3 2022Q4 2022
Backlog ($USD Millions)$234.3 $352.7 $333.2
12-month Backlog Conversion ($USD Millions)$144.6 $168.2 $178.6
Total Liquidity ($USD Millions)$6.5 $7.3 $3.8
Cash & Equivalents ($USD Millions)$0.656 $1.0 $0.495
Bank Debt ($USD Millions)$41.4 $37.4 $40.8
Adjusted Gross Margin (%) ex FL Water & T&D10.0% 9.7% 12.5%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2022$275–$295M (8/4/22 update) $245–$255M (11/14/22 update) Lowered
Gross Margin %FY 20229.0%–9.5% (8/4/22) 5.5%–5.75% (11/14/22) Lowered
SG&A (% of Revenue)FY 20228.25%–8.75% (8/4/22) 10.5%–11.0% (11/14/22) Raised
Adjusted EBITDAFY 2022$5.0–$7.5M (8/4/22) $2.5–$3.5M incl. ~$11M recoveries (11/14/22) Lowered
FY 2022 Actuality (Prelim)FY 2022—Adj. EBITDA between $(4.5) and $(3.8)M (prelim) Below guidance
2023 GuidanceFY 2023—Not providing guidance Withdrawn/not provided

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 and Q3 2022)Current Period (Q4 2022)Trend
Florida water projects (fixed-price losses)Ongoing margin pressure from FL water projects in Q2; additional losses identified in Q3 Continued negative impact; prelim added ~$6M Q4 writedown; exiting large fixed-price water projects Worsened, now being exited
T&D start-up costsStart-up costs compressed margins in Q2; continued into Q3 Still depressing reported margins; adjusted gross margin ex-T&D/FL would be 12.5% Persisting but being reduced
Nuclear/decommissioning volumesReduced nuclear/decommissioning weighed on revenue in Q2 and Q3 Q4 revenue bridge shows declines in decommissioning (-$12.0M) and Canada nuclear (-$7.7M) YoY Weakness continued
Liquidity and debtLiquidity $6.5M (Q2) and $7.3M (Q3) Liquidity $3.8M; going concern emphasis; credit amendments executed; Wynnefield notes added in Jan Tightened materially
Strategic alternativesNot discussed in Q2; Q3 noted litigation settlements and backlog growth Engaged Greenhill (Jan 11) and “continues to work with Greenhill” (Q4 PR) Active process
Backlog trajectory$234.3M (Q2) to $352.7M (Q3) $333.2M at YE22; ~$178.6M 12-month conversion High but down seq.

Management Commentary

  • “I’m pleased to announce that we continue to mark progress investigating and assessing various strategic alternatives… Our performance thus far in 2023 is benefiting from stronger first quarter revenue, gross margin and EBITDA… as we focus on cutting costs, streamlining the business, and exiting non-performing operations.” — Tracy Pagliara, President & CEO .
  • On FY22 preliminary underperformance and portfolio decisions: “an additional $6 million write-down in the fourth quarter was deemed necessary for our two largest remaining Florida water contracts… The Company is no longer pursuing large fixed price water projects.” — Tracy Pagliara .
  • Liquidity disclosure and audit opinion: total liquidity $3.8M at year-end; audit opinion included a going concern emphasis of matter .

Q&A Highlights

  • A Q4 conference call was held on April 3, 2023, and slides were made available; however, a transcript was not available via our document sources. The Company provided webcast/replay details in the press release and referenced an accompanying slide deck -.

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2022 EPS and revenue was unavailable for WLMSQ due to missing mapping; therefore, no estimate comparisons are presented. If consensus becomes available, we will update the beat/miss analysis accordingly.

Key Takeaways for Investors

  • Reported profitability remains pressured by legacy Florida water losses and T&D start-up costs; excluding these, adjusted gross margin of 12.5% suggests normalized earnings power if execution issues are fully addressed .
  • Liquidity is the central near-term risk (total liquidity $3.8M; going concern emphasis); credit amendments and Wynnefield notes provide temporary relief but increase financing costs and constraints -.
  • Strategic alternatives process (with Greenhill) is a potential catalyst; outcomes range from asset sales to broader restructuring, with implications for equity holders .
  • Backlog size and 12‑month conversion (~$178.6M) provide revenue visibility, though end-market mix shifted away from decommissioning and Canada nuclear; monitoring nuclear maintenance cadence (e.g., Vogtle) is key .
  • With no 2023 guidance and an FY22 preliminary miss versus updated guidance, we expect estimates (when available) and investor expectations to reset lower near term; focus on cash generation, exiting loss-making work, and margin repair should drive narrative .
  • For trading, headlines around liquidity, covenant compliance, and any strategic review updates are likely to be the primary stock reaction drivers in the near term - -.