Babcock & Wilcox Enterprises, Inc. (NYSE:BW) Q1 2025 Earnings Call Transcript

Babcock & Wilcox Enterprises, Inc. (NYSE:BW) Q1 2025 Earnings Call Transcript May 12, 2025

Babcock & Wilcox Enterprises, Inc. beats earnings expectations. Reported EPS is $-0.11, expectations were $-0.16.

Operator: Good afternoon. Thank you for attending the Babcock & Wilcox Enterprises First Quarter 2025 Conference Call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I’d now like to turn the conference over to your host, Sharyn Brooks, B&W’s Director of Communications. Thank you. You may proceed, Ms. Brooks.

Sharyn Brooks: Thank you, Matt, and thanks to everyone for joining us on Babcock & Wilcox Enterprises first quarter 2025 earnings conference call. I’m Sharyn Brooks, Director of Communications and Marketing. Joining the call today are Kenny Young, B&W’s Chairman and Chief Executive Officer; and Cameron Frymyer, Chief Financial Officer, to discuss our first quarter results. During this call, certain statements we make will be forward-looking. These statements are subject to risks and uncertainties, including those set forth in our safe harbor provision for forward-looking statements that can be found at the end of our earnings press release and also in our Form 10-Q that has been filed this afternoon and our Form 10-K that is on file with the SEC and provide further detail about the risks related to our business.

Additionally, except as required by law, we undertake no obligation to update any forward-looking statement. We also provide non-GAAP information, regarding certain of our historical and targeted results to supplement the results provided in accordance with GAAP. This information should not be considered superior to or as a substitute for the comparable GAAP measures. A reconciliation of historical non-GAAP measures can be found in our first quarter earnings release published this afternoon and in our company overview presentation filed on Form 8-K this afternoon and posted on the Investor Relations section of our website at babcock.com. I will now turn the call over to Kenny.

Kenny Young: Thanks, Sharyn, and thanks everyone for joining this afternoon. We are pleased to report a strong start to 2025 with robust first quarter results across our entire business. Our results in the first quarter reflect the strong global and North American demand for our technologies as we continue converting our $7.6 billion global pipeline of identified project opportunities into new bookings. We generated strong operating results highlighted by revenue, operating income and adjusted EBITDA that exceeded both company and consensus expectations for the quarter. The results in the quarter were led by a strong performance from our global parts and services business, which posted the highest Q1 bookings revenue gross profit and EBITDA in the past decade.

The company’s core business continues to perform ahead of expectations and we anticipate returning to positive cash flows in 2025. We are also excited to report a significant accomplishment from our recent strategic efforts to reduce or refinance our current debt. Earlier today, we announced that approximately 40% of our outstanding bonds have been exchanged into new five-year notes at a discount to par, which significantly reduces our current debt, lowers our overall net debt and reduces our annual interest expense. This privately negotiated bond exchange is expected to result in $131.8 million of outstanding bonds due in 2026 being replaced with new bonds in the amount of $100.8 million that will be due in 2030. This lowers our annual interest expense by $1.1 million and combined represents a positive step in our restructuring and refinancing efforts, while demonstrating continued support from our lenders and bondholders.

Moving forward, we continue to explore further debt refinancing options and are in discussions regarding other potential asset, dispositions to reduce our current and long-term debt obligations. In support of that objective earlier this month, we also announced the sale of the majority of the assets of our Denmark-based waste energy subsidiary for $20 million in gross proceeds to Kanadevia Inova formerly known as Hitachi Zosen. As part of the sale, $5 million of the $20 million in total proceeds is directed to fund our BrightLoop project in Massillon, Ohio. As a part of this asset sale, we have also entered into agreements to work together regarding the North American waste energy market, leveraging each company’s best-in-class waste-to-energy grade technologies and B&W’s boiler technologies.

We also entered into an agreement to jointly develop BrightLoop opportunities to leverage renewable natural gas and other applications. ABI is a global leader in waste-to-energy technologies carbon capture and renewable natural gas and we look forward to working with them on joint opportunities in the years to come. We continue to see strong global demand for our diverse portfolio of technologies and are making progress in converting our $7.6 billion global pipeline of identified projects and opportunities as displayed by our strong bookings and backlog results this quarter. Our backlog of $526.8 million at the end of the first quarter was a 47% increase compared to the same period of 2024. This represents the largest backlog in recent company history as our Thermal segment continues to perform based on higher baseload generation demand in North America.

In addition, we achieved bookings from continued operations of $167 million, an 11% increase compared to the same period of 2024. This increase in bookings is supported by record high bookings from our global parts and services business. We believe these results affirm our strong foundation while underpinning our pipeline and outlook for the year ahead. Our efforts to progress BrightLoop are moving forward as we further the commercial development of existing projects and continue working to improve the overall operational effectiveness of these technologies to produce low-cost green hydrogen. We are continuing to progress with engineering work for our previously announced BrightLoop projects. We are finalizing the financing from Massillon, Ohio project for which we have already received a significant offtake agreement.

When completed the plant will produce 5 tonnes of hydrogen per day and we anticipate completing financing in the next few months while simultaneously placing long lead time orders and continuing with all permits licenses and construction, we anticipate hydrogen production from the Massillon plant sometime by mid-2026. We also continue to see opportunities for new projects related to renewable energy in the United States, which could enable us to leverage our clone decarbonization platform and presents additional higher margin prospects. These opportunities are for behind the meter data center power applications as well as carbon oxide removal technology. Looking forward, we anticipate industry tailwinds and generation demand to continue throughout 2025 in the years ahead.

However, the company is also keeping a close eye on the tariff negotiations and any potential impact on the business in 2025. As stated, the company’s core business continues to perform ahead of expectations and we do again expect to return to positive cash flows in 2025. I’ll now turn the call over to Cameron to discuss the financial details of the first quarter of 2025. Cameron?

Cameron Frymyer: Yes. Thanks, Kenny. I am pleased to review our first quarter results. Further details of which can be found in the 10-Q that is on file with the SEC. Our first quarter consolidated revenues were $181.2 million, which is a 10% increase compared to the first quarter of 2024. The increase is primarily driven by activity related to a large natural gas project for $8.5 million, higher construction volume of $6 million, and an increase in Thermal part sales of $10 million. Net loss from continuing operations in the first quarter of 2025, was $7.8 million, which was a better result compared to the net loss of $12.8 million in the first quarter of 2024. Our loss per share from continuing operations in the first quarter of 2025 was $0.11, compared to a loss per share of $0.19 in the first quarter of 2024.

Our operating income in the first quarter of 2025 was $5.9 million exceeding our quarterly expectations and outpacing operating income of $5.7 million in the first quarter of 2024. Our adjusted EBITDA was $14.3 million compared to $11.3 million in the first quarter of 2024. Bookings in the first quarter of 2025 were $167 million, an 11% increase compared to the same period last year and ending backlog was $526.8 million, a 47% increase since the first quarter of 2024. As Kenny previously mentioned, this extremely strong quarterly bookings is supported by the high performance of our parts and service business this quarter. I’ll now turn to the balance sheet, cash flow and liquidity. Total debt at March 31, 2025 was $473.6 million and the company had cash, cash equivalents and restricted cash balance of $116.8 million.

The company’s core business is performing ahead of expectations and we continue to anticipate returning to positive cash flows in 2025 excluding BrightLoop. One of our top priorities continues to be the refinancing and reduction of our current debt obligations. As noted previously, we have recently entered into a privately negotiated bond exchange, which is expected to result in a $131.8 million of outstanding bonds due in 2026, and being replaced with new bonds equal to $100.8 million that will be due in 2030. This is a significant positive step in our refinancing efforts as it decreases our debt obligation by $31 million and reduces interest by $1.1 million a year. Furthermore, this demonstrates the continued support from our lenders and our bondholders.

We continue to explore further debt refinancing options to extend or reduce our current and long-term debt obligations. We also continue to investigate the sale of certain other assets similar to the sale of the Denmark based waste energy subsidiary announced earlier this month. The proceeds of these sales will be used primarily to pay down existing debt and enhance working capital. I’ll now turn the call back over to Kenny.

Kenny Young: Thanks, Cameron. Well, in closing, we remain intently focused on executing our strategic plan and driving further improvements in our balance sheet. Our global pipeline of over $7.6 billion, and identified project opportunities remains healthy across all of our business segments. And we anticipate additional prospects for new bookings and stronger financial performance throughout 2025. We continue to believe our deep industry expertise with clean energy and carbon capture technologies coupled with our long history and traditional energy sources positioned us well to deliver environmental conscious technology-driven solutions to our global customers. As always, I would like to recognize the efforts of our dedicated and talented employees around the world who focused on working hard and safely to deliver consistent profitable growth for our shareholders, and help meet the world’s need for clean and reliable energy now and in the future.

I’d also like to thank our global customer base and suppliers for their continued support of Babcock & Wilcox and we remain excited about the prospects that lie ahead. With that, I’ll turn the call back over to Matt, who will assist us on taking one or two questions. Matt?

Q&A Session

Operator: Ladies and gentlemen, we will now begin the Q&A session. [Operator Instructions] First question is from the line of Aaron Spychalla with Craig-Hallum. Your line is now open.

Aaron Spychalla: Yes. Hi, Kenny and Cameron. Thanks for taking the question. Maybe first for me on guidance. Just wanted to make sure I might have missed it, but are you kind of reiterating guidance for the year? And I know you had some kind of caution on just project timing and tariffs and things like that, but with the strong start to the year. Just wanted to get a little bit more color there, and maybe an update on the coal to gas conversion project and kind of thoughts for contribution this year versus the next couple of years?

Kenny Young: Yes. We’re — we haven’t — we didn’t touch on guidance on the call just to kind of — it’s not — we’re basically just keeping it where it is or was on it and keeping an eye out for it rather than come back with different ranges and other aspects, we just said, let’s leave it where it is, but not touch it. I think our — the key part we got to keep an eye on, as we’ve talked about off-line is the — the tariffs out there and the potential impact that, that may have on projects. And that, honestly, right now is anybody’s guess or clue with all that’s going on in the world of these negotiations and discussions, and back and forth and back and forth. Obviously, our customers keep an eye on those as well, too. And as it relates to — I think, for parts and services, as we’ve talked about publicly probably not a big impact overall in the business, but some of the larger projects and upgrades and other aspects, those are things that have potential impacts and we just have to work with our customers on timing of that.

So, the range is broad just, because if a project gets delayed a month or two, because of tariffs or other aspects as people kind of wait through their strategies in and around those, it just has an impact overall in the business. So we just kind of didn’t touch it on any update or any other conversation around the guidance on it. On the natural gas project right now, it’s actually proceeding on schedule and doing — it’s on time, on schedule for us and a customer, that’s the large one in Indiana. So that’s progressing, I think, well. Hopefully, the tariff aspects don’t impact that at all from any kind of delays that may happen later on this year. The bulk of the shipment of inbound technology will happen later this year, early into next year, so any impact from the tariffs on that would not be realized until then.

So, I think both us and the customer are just keeping a close eye these constant negotiations and updates coming out of Capitol Hill and we’ll make a kind of a real game time decision and strategy around those tariffs when it — when we get closer to those activities if that makes sense.

Aaron Spychalla: No, it does. Thank you. And then maybe second, with the asset sales it sounds like some of those proceeds are going to be going to Massillon, can you just remind us of the timeline for that project? You touched on it a little bit, but just total kind of costs from you and for the overall project sounds like financing is still coming together there? And then just what that could mean for other projects in the pipeline as that gets up and running?

Kenny Young: Yes. So, obviously, it’s important for us to get in the ground. We have been and still working through the overall financing of that aspect of it. It’s — the project itself probably at this stage needs around $40 million or $50 million of additional financing to complete that project. We have — as we stated, wouldn’t go too much further on this, but as we’re in discussions with some financing options on the company that’s clearly one of them. And we’re working through those details as we speak. So that’s — hopefully we can complete that here in the next few months and then just release all of the orders that we have pending. The main bulk of that need right now is in the construction area and we really want to get the construction teams on site on ground here in the fall of this year.

And that’s — we’re trying to stay to that schedule as we speak. And then with the anticipation depending on the winner, how light or hard it is, anticipate producing hydrogen sometime by mid next year at this stage. I think as we move ahead with that project and move forward on that some of the other options — or opportunities not options, but opportunities that we’re working on we’ll start to really move more into a serious booking mode, sometime in 2016 and that’s the feedback we’re getting as we still work through some of the pipeline aspects out there, but the pipeline of opportunities on for BrightLoop seem to be growing. I just that — this is opportunity phase clearly. But within the oil and gas industry and some other heavy gas suppliers that are still looking at utilizing natural gas to hydrogen.

And the value here that BrightLoop brings is it brings an alternative that says hey if you want to isolate CO2 today great, if you don’t, fine to the customer. But obviously, if there are other mandates on CO2 in the future that option has been built in. So, there’s very little cost and that new plant to have to convert to carbon capture. It’s just — it’s a matter of what you want to do with the CO2 whether you — because we capture it as part of our process. So, there’s significant capital savings versus other natural gas to hydrogen technology is. And that’s — one of the reasons we’re getting a lot of attention on this technology right now as some of these larger companies are looking at alternatives to steam methane reform and ATR, which clearly SMR and ATR proven bondable bankable technologies, right?

It’s been out of the marketplace for quite some time. BrightLoop is new. So, the Massillon plant and getting the commercial plant up is vitally important. We also continue to have dialogue and are in discussions with the Department of Energy and other groups on Capitol Hill to participate either in Massillon or one or two of these other projects that we’re involved in Wyoming and/or West Virginia. And we hopefully some of that will move to a favorable outcome as well way too early to tell, but those discussions in the conversations still continue.

Aaron Spychalla: Understood. Thanks for taking the questions. I’ll turn it over. Appreciate the color.

Kenny Young: Yes, thanks Aaron.

Cameron Frymyer: Thanks Aaron.

Operator: Thank you for your question. Next question is from the line of Rob Brown with Lake Street Capital Markets. Your line is now open.

Rob Brown: Good afternoon. You had a pretty strong demand environment going on, what are some of the drivers that are kind of driving that at this point?

Kenny Young: On the demand side — is that what you were asking? Sorry, you cut out briefly here.

Rob Brown: Yeah. Sorry. Just you had a very good bookings quarter. I think you said one of the best in 10 years. Just wanted to get a sense of some of the drivers for that demand at this point?

Kenny Young: Yeah. I mean the exciting part about where we are — I mean obviously baseload generation worldwide right has really increased. And so the concept of increasing the utilization, some of our core technologies — in and around coal plants are still vitally important to meet that baseload generation and we’re just seeing some of the pickup from not only those plants, but other small plants as well too that could be natural gas packages balls there’s other aspects. So overall from a parts and services standpoint, we’re just seeing the need of baseload generation increase. And typically, Q1 for us is a little bit light, normally in our parts and services business. So it was pretty exciting to see the demand come in. And it’s — it was global in reach.

So it was international as well as in domestic North America for us on that. But primarily driven, if you go back to the basic aspect of it a lot of these plants are being used more and more and more. Some of those plants last year may have shifted some of the outage work and delayed some of the outage work. As a result, they have more parts wear and tear that they need to maintain. Some of these plants are placing orders trying to anticipate parts and other aspects that they’re going to need later on this year. So there’s combinations of all of those pieces that are happening across the board but it’s just exciting to see it translate into a very positive Q1.

Rob Brown: Okay. Great. And then I guess you touched on it a little bit, but do you expect sort of normal seasonality with a bit of a step up throughout the year in terms of just the demand cycle or the activity cycle in those outages?

Kenny Young: Yeah. I think we’ll still see a normal seasonality in the parts services. The outages obviously creates some of that happening as well too. But I think we’ll — Q2 will be always low like Q1 is and Q3, Q4 will do better for sure. I don’t — we don’t anticipate seeing much difference on that even given the current aspect around it. But it’s good to be a little bit ahead of the curve from a planning standpoint on where the demand is coming in on parts and services but then seasonality is there. I don’t know Cameron you may have a different thought on that but…

Cameron Frymyer: No, I think that’s exactly right. I think we’ll — I think there’s some lower this quarter, but I think the seasonality is a big part of it. So no, I agree completely.

Rob Brown: Okay. Great. Thank you. I’ll turn it over.

Operator: Thank you for your question. There are no additional questions waiting at this time. So I’ll pass the call back to Sharyn Brooks for any closing remarks.

Sharyn Brooks: Thank you for joining us today. This concludes our conference call. A replay will be available for a limited time on our website. If you have a question that was not addressed during today’s call, please feel free to reach out to our Investor Relations team at investors@babcock.com. Thank you.

Operator: That concludes the conference call. Thank you for your participation. You may now disconnect your lines.