Hello, everyone, and welcome to Babcock & Wilcox's Second Quarter 2023 Earnings Conference Call. My name is Louisa, and I will be your moderator today. It is now my pleasure to introduce your host, Sharyn Brooks. Sharyn, you may proceed when you are ready.

Thank you, Louisa, and thanks everyone for joining us on Babcock & Wilcox Enterprises second quarter 2023 earnings conference call. I’m Sharyn Brooks, Director of Communications. Joining the call today are Kenny Young, B&W’s Chairman and Chief Executive Officer; and Lou Salamone, Chief Financial Officer, to discuss our second 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 was filed today 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 statements. 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 second quarter earnings release published this afternoon and in our company overview presentation that was 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.

Thanks, Sharyn. And thanks everyone for joining us this afternoon. Well, as mentioned in our earnings release, we exceeded our company expectations in revenues and adjusted EBITDA for the second quarter of 2023, demonstrating the continued momentum we've experienced across all business segments. Revenues across all segments posted a second consecutive quarter of double-digit revenue expansion on a year-over-year basis with renewable, environmental and thermal increasing by 31%, 54% and 36%, respectively. In tandem, we recognized an underlying improvement in revenue adjusted EBITDA and net loss on a year-over-year basis, despite increased spending in support of our emerging and new technologies in our renewable energy segment. These investments include sales, marketing, engineering, research and development and back office services and are all important to support future growth from our clean energy segments. We are seeing our pipeline increasing to $9 billion of new projects over the next three years, which again, does not include our continued strong parts and services platform. In fact, we are seeing more than $1 billion in Bright Loop opportunities alone, and we'll be sharing more about that later in this call. Our bookings in renewable increased by 28% in Q2 of 2023 versus Q2 of 2022. Our Environmental segment was consistent and helped approximately the same amount of bookings and backlog year-over-year. Thermal bookings were lower quarter-over-quarter, primarily due to a large equipment supply construction project that we announced in 2022. However, thermal parts bookings increased by 17% year-over-year, quarter-over-quarter. Overall, our backlog was lower quarter-over-quarter by 6%, again due to the large thermal project mentioned previously in 2022, but our outlook for new booking opportunities remains robust, and we are projecting backlog to grow significantly to a range of $850 million to $1 billion by year-end 2023, which includes key projects in both thermal and renewables. If achieved, this would represent a growth of 20% to 40% in total company bookings and backlog by year-end 2023. Our parts and services business in the second quarter continued to support our revenue generation, accounting for nearly 37% of the company's total revenues. The Thermal segment was a large driving factor as we maintain a vital role in supporting the broad demand for energy security among global expansion and gas conversion efforts. We see thermal parts and services returning to normal levels, which is reflected in our revenues and full year expectations. In addition, our global reach and our renewable services, especially in Europe, was in line with our outlook at the start of the year and is expected to remain strong through the remainder of 2023. As I mentioned earlier, our project bookings within our clean energy technologies continue to grow. And most notably, the interest across our Climate Bright decarbonization platform continues to increase. In July, we announced that B&W received a contract award from North Star Clean Energy to conduct an engineering study of our SolveBright carbon dioxide capture process to convert a coal-fired power plant to biomass fuel. This study is the first phase of a commercial scale project partially funded by the US Department of Energy and marks an integral step towards our anticipated large-scale commercial project to retrofit Filer City's station power plant with biomass and decarbonization technologies to replace coal. When complete, the 75-megawatt power plant would use sustainable biomass as a fuel to generate power with net negative CO2, providing power to more than 70,000 homes. We are excited to bring our clean energy technology to the market and further advance NorthStar's decarbonization efforts. In addition, you should watch for an important announcement from the Governor of West Virginia about a hydrogen project developed by our partners at Fidelis. This new opportunity is based on previous Fidelis H2 announcements, and we are excited to be part of this developing next step in clean power generation in West Virginia. That announcement will be made tomorrow morning around 10:30 a.m. Eastern time. With regard to our renewable project developments, we are pleased with the recent demand we've had within our solar business as well, despite the headwinds within the residential solar space that you probably read about recently, the tailwinds across the US for both community and commercial solar projects continues to grow. Our recent contract award totaling over $20 million by Summit Ridge Energy for roughly 25 megawatts of community solar energy projects in Illinois reinforces this point. This contract marks another successful collaboration between B&W and Summit Ridge Energy and demonstrates the increasing demand in community and utility-scale solar projects. We are in negotiations on additional solar projects that when combined with the recent Summit Ridge Energy announcement, would equate to approximately $100 million in solar bookings in the second half of 2023, which is roughly double the amount of bookings in 2022. We are also increasing our investments in the solar business, which in the long run will help position the company for improved gross margin and operating margins on a run rate basis by year-end. This includes back-office systems and support, increased self-performance, as well as site management. Transitioning to our BrightLoop hydrogen generation technology, we are pleased to report several key developments, including announcing a dedicated organization within Babcock & Wilcox, led by our Chief Strategy and Technology Officer, Brandy Johnson, to drive our execution and ramp-up of our initial commercial projects in Wyoming and Louisiana. For market clarity, we are redefining our BrightLoop systems as small, medium and large for now, to demonstrate their ability to meet demand at all sizes. Initially, we are planning to deliver medium platforms in Wyoming and Louisiana with scale up to the larger platforms planned for both sites. Just yesterday, we announced an offtake agreement with General Hydrogen to acquire both hydrogen and CO2 from our medium-sized biomass BrightLoop platform. We are also in formal discussions with another global syngas company to sign an additional offtake for hydrogen from both a medium and large platform. The Louisiana projects will produce an initial hydrogen output of approximately 10 to 15 tons per day for industrial use with an anticipated scale-up to large unit hydrogen production by the second half of 2029. This timeline closely reflects the development plans in place for our Wyoming project with initial hydrogen production output of approximately 10 to 15 tons per day by mid-2025, with anticipated scale-up to a large unit hydrogen production by the second half of 2028. Also, we had demand for one or two smaller platforms, roughly one to three tons of hydrogen per day and are determined to have one of those sites producing hydrogen by the end of 2024. For our upcoming small and medium-scale projects, we've outlined projected development plans with the timeline for initial hydrogen production in 2024. Meanwhile, while BrightLoop's financing efforts continue to develop, our confidence remains strong. We anticipate funding coming from state and local governments as well as investments from various pension funds and end customers as well as Babcock & Wilcox. We are seeking direct financing either at the project level or through B&W directed towards specific projects. Longer term, we continue working with various Department of Energy and DOE loan program offices including progressively approved appropriations funding directed towards the funding of hydrogen demonstration using chemical looping. Our pipeline as previously mentioned, is over $9 billion across all three segments, and we currently have, as mentioned previously, approximately $1 billion in BrightLoop opportunities alone. We believe this puts us on a pathway to reach $1 billion in bookings by 2028 with combinations of small, medium, and large projects. We feel confident that could lead to $1 billion in revenues by 2030 and beyond. To provide more clarity, the revenues from small projects will range from approximately $5 million to $40 million per unit; revenues for medium units will be around $40 million to $100 million per unit; and revenues for large units will be about $150 million to $400 million per unit. These revenues should yield gross margins of 20% to 25%, with follow-on revenues of around $200,000 to $250,000 per ton of hydrogen produced in services and particle support per day leading to even higher margins. More details can be found in the new Bright Loop presentation available on our website, and we have included some of the new Bright Loop slides in our investor deck as well. Given our strong financial performance throughout the year, combined with our typically strong results in the third and fourth quarters, which are seasonally weighted to the second half, we are optimistic about reaching our full-year 2023 adjusted EBITDA target of $100 million to $120 million while maintaining a balance between investments in future growth and adjusted EBITDA performance. I'll now hand the call over to Lou for the financial details of the second quarter in 2023. Lou?

Thanks, Kenny. I'm happy to share our second quarter results, with further details available in our 10-Q filed with the SEC today. Our consolidated revenues for the second quarter reached $305.2 million, reflecting a 38% increase from the second quarter of 2022. This growth is mainly due to increased volumes in our renewables segment as a result of our renewable services and solar businesses, along with higher overall volume in our Environmental segment and a rise in thermal segment volume driven by increased construction and parts activity. Our net operating income for the second quarter of 2023 was $7 million, up from $3.7 million in the same period of 2022. This quarter included a one-time gain from the sale of an asset. Our adjusted EBITDA was $21.9 million compared to $22.9 million in the second quarter of 2022, which, when accounting for the one-time asset sale from that quarter, shows a notable increase in adjusted EBITDA from $15.9 million to $21.9 million. In the second quarter of 2023, bookings totaled $191 million, and we ended with a backlog of $567 million. Our loss per share for the quarter was $0.10, compared to a loss of $0.07 in the second quarter of 2022. In 2022, the loss per share on an underlying basis, excluding the noncash pension benefit of $7.4 million, was affected by the one-time asset sale gain I mentioned earlier. I'll now review our segment results for the second quarter. Within our Babcock & Wilcox Renewable segment, revenues reached $98.9 million for the second quarter of 2023, reflecting a 31% increase from $75.2 million in the same quarter of 2022. This growth in revenue is largely attributed to higher volumes in our renewable services and solar businesses. The adjusted EBITDA for this segment in the second quarter of 2023 was $500,000, contrasted with $4.2 million when excluding a one-time $7 million gain from the sale of development rights for a future solar project in the second quarter of 2022. In our Babcock & Wilcox Environmental segment, revenues were $48.7 million in the second quarter of 2023, marking a 54% increase from $31.6 million in the second quarter of 2022. This rise is primarily driven by increased volume in dry cooling technology projects within the Environmental segment. The adjusted EBITDA for this quarter was $3.4 million, up from $600,000 for the same quarter last year, also primarily due to higher revenue volumes. Moving to the Babcock & Wilcox Thermal segment, revenues amounted to $158 million in the second quarter of 2023, a 36% increase compared to $116.3 million in the second quarter of 2022, mainly due to higher volumes in our construction projects and packaged boiler business. The adjusted EBITDA for this segment was $24.4 million in the second quarter of 2023, which is an increase of 49% from $16.4 million in the same quarter of 2022, driven by the higher revenue volumes and improved project performance. As for our balance sheet, total debt at June 30, 2023, was $358.2 million, while we had cash, cash equivalents, and restricted cash totaling $83.9 million at the end of June 30, 2023. I will now hand it back to Kenny.

Thanks, Lou. Well, in closing, we continue to position Babcock & Wilcox as the leader within the broader clean energy transition, further developing our suite of decarbonization solutions while continuing to support our thermal customers. With our line of sight into expanding new bookings, opportunities and an expanded pipeline of over $9 billion in identified global projects, including our BrightLoop hydrogen generation technology, we are excited about the remainder of 2023 and the industry tailwinds in place for 2024 and beyond. Our momentum in the first half of the year wouldn't have been possible without the dedicated team of B&W employees driving these initiatives behind the scenes. I would like to thank all of our employees for your continued efforts in moving these innovations forward and also supporting our customer projects, both domestically and abroad, while working safely and providing the highest quality performance and operational success. In addition to thanking our employees, we also want to extend our appreciation to our valued customers, shareholders and trusted partners for their continued support and belief in our company. Our commitment to driving innovation forward is central to B&W's mission, and we look forward to working with you and building upon our accomplishments in the years to come.

Thank you. Our first question today comes from Aaron Spychalla of Craig-Hallum. Aaron, please go ahead when you're ready.

Hi, Kenny and Lou, thanks for taking the questions. Maybe first on my end, can you just talk a little bit about the NorthStar Clean Energy project and just kind of what the opportunity on the revenue side is there and maybe timeline milestones as we look to kind of Phase 1 to Phase 2? And then is there anything else you can share there on the opportunity with this customer or other customers on like the biomass side of things?

Sure, I'd be happy to. Thanks, Aaron, for joining today. The key kickoff project we announced is the engineering study and phase, which will generate small revenues for us, roughly $1 million for that phase overall. We expect to complete this phase in early fourth quarter and finalize it by year-end with the client. Once they move past this phase to the full project, which involves a 75-megawatt biomass facility, our focus will shift more toward the decarbonization aspect of the plant and site. SolveBright Technologies will be well-positioned for this, and we are excited about the opportunity. If we transition to the full project phase, we expect revenues to be in the range of $90 million to $100 million, depending on the final scope and contract details. This would likely materialize around mid-next year, possibly in the third quarter. This is an exciting early opportunity for our SolveBright Technology, and we look forward to seeing it progress.

Thank you for the information. Could you discuss your confidence in achieving the guidance for the second half, particularly regarding the backlog? Additionally, you mentioned a target range of $850 million to $1 billion; could you provide insights on which areas will contribute to that?

Yes, I previously mentioned a range of $850 million to $1 billion, but to clarify, it's actually $850 million. Thank you for pointing that out. We have several significant projects in negotiation, both in thermal energy and clean energy technologies. Some of these projects are anticipated to materialize, though some may be delayed into early next year. We originally expected one or two of these to translate into bookings in the second and third quarters, but they are being pushed to the third and fourth quarters, with possibly one or two slipping into next year. This is why we provided that $850 million to $1 billion range. We believe there are clear pathways to these opportunities, and we are actively discussing and negotiating them. This gives us confidence in those numbers. I hope that clarifies things, and I'm happy to provide more information if needed.

No. I think that's good. Thanks for taking the questions. Appreciate it.

No, no problem. Thanks, Aaron. I appreciate it.

Thank you for your question, Aaron. Our next question today comes from Rob Brown of Lake Street Capital Markets. Rob, please go ahead.

Hi, Kenny and Lou. On the Bright Loop pipeline, you've gotten more bullish on the Bright Loop pipeline and sort of scoped it out a little bit more definitively here. What's sort of driving all that comment? I assume it's a number of customer interactions, but where are the customers at? And is it driven by some of the IRA and other legislation?

We view the situation as increasingly positive due to our interactions, particularly regarding our projects in Wyoming and Louisiana. We are excited about potential projects that involve using petroleum coke as a fuel source, along with various other initiatives that are in the pipeline. We're currently focused on transitioning from medium-sized projects in Louisiana and Wyoming to larger-scale units. The demand for hydrogen in both locations exceeds what the medium units can deliver, and we are actively discussing ways to scale up. Once we have the medium units operational, we believe we can advance towards larger projects, which provides us with a clear pathway forward. Additionally, we are exploring opportunities in the oil and gas sector and other global projects, all of which strengthen our confidence in achieving our bookings and revenue goals associated with Bright Loop. Our technology stands out because it uniquely allows for the use of solid fuels in a way that supports hydrogen production while also isolating CO2. Specifically, in Wyoming, we are planning to mix biomass with coal as a fuel source, which will enable us to take advantage of IRA credits. We are currently in discussions with our customer to finalize this arrangement. Our ability to blend different fuels sets us apart, as we can also consider combinations of natural gas and biomass in various locations, depending on the specific context. When we compare our technologies to steam methane reforming (SMR) or autothermal reforming (ATR), we see significant differences. Our process can produce hydrogen from natural gas while isolating CO2 at the beginning, making it more cost-effective than the post-combustion carbon capture required by SMR and ATR, which is expensive. We believe the hydrogen market produced from natural gas will remain robust for many years to come, and our process gives us a competitive edge in terms of cost efficiency compared to traditional methods. All these factors contribute to our confidence in our technology's future.

Okay. Thanks. And then in general, on your pipeline growth or your increase in your pipeline estimate, how much of that or how is the European waste energy market at this point? Has that increased as well?

We are observing opportunities in waste synergies and continue to see strength in the European market, particularly in the UK for new build projects. There is increasing demand, which is positive for our renewable services business and platform in Europe, as older plants need upgrades and new services to expand their capabilities or update technologies and parts that B&W hasn't traditionally provided. Our renewable services group in Europe is performing well, resulting in increased revenues on that platform. We previously announced our involvement in the low stock project, currently the largest plant in the UK, and we are having discussions regarding additional projects that could contribute to our backlog and pipeline.

Okay. Thank you. I’ll turn over.

I will add to that. It's good, Rob. I think it's important to mention that we're starting to see a number of potential projects in the US, particularly in the waste energy segment, which is exciting for us. We're in discussions with several partners about these projects, and there is early demand for waste energy in the US, which I find encouraging. However, I don't expect any potential bookings until late 2024 or early 2025, as these projects take time to develop. Nonetheless, it's promising to see several initiatives beginning to take shape here in the US, and I believe this is good news for us. It's been a while.

Thanks.

Thank you for your question. Our next question today comes from Brent Thielman of D.A. Davidson. Brent, please go ahead.

Hey great. Thanks and good afternoon or evening. I guess, Kenny, you gave us a little flavor for the financial prospects around BrightLoop, we appreciate the added color there. Since you gave us kind of the revenue opportunity, I got to ask how we ought to think about maybe the margin opportunity from the business such a unique sort of technology to you in terms of what you're offering here. I presume at least margin opportunity may be in excess of kind of the legacy B&W businesses, but any thoughts there?

Yes, we fully expect a significant margin improvement for B&W overall. As we noted, the various sized platforms are projected to have gross margins in the 20% to 30% range for the new build projects we are engaged in. Another important point I mentioned was our expectation of additional annual revenues of approximately $200,000 to $250,000 for each ton of hydrogen produced. If we deploy around 400 to 500 tons of hydrogen, that would result in $200,000 to $250,000 a year in extra revenues from follow-on parts, services, and related offerings. We believe that these follow-on revenues will yield much higher margins compared to the initial projects. I hope that clarifies our perspective on future cash flows, which we wanted to share during the call.

Got it. I appreciate that. I want to revisit the visibility on the backlog figures. You mentioned that by year-end, it could be between $850 million and $1 billion. Can you clarify the stages of these various opportunities? Are these projects that you've been selected for but haven't signed yet? I just want to understand that a bit better.

Some of those opportunities we have been selected for, and we are currently in negotiations regarding contracts. In some cases, we are competing with one other party, and we are very confident that we will secure these for either technology or competitive reasons. We have a strong position, especially with our thermal projects, as we offer union construction opportunities along with our technologies. We are engaged in several thermal projects that will require both unit construction and technology components, putting us in a favorable position to deliver. Additionally, these are with customers with whom we have a solid history of providing services, which gives us confidence in achieving our backlog targets.

It does. And maybe just lastly, the solar arena for you. I know that's a business you've been ramping up quite a bit. Maybe just an update on the progress you're seeing there?

We are beginning to gain our share of opportunities in the solar market, where demand has been strong. We plan to announce at least $100 million in solar bookings for the second half of 2023, which would be double what we achieved last year. There are many opportunities in the solar market, particularly in community and utility-scale projects. We are focusing on improving margins as we expand this business. We are investing in back-office systems and enhancing our self-performance in solar services. Additionally, we are seeing growth in renewable energy projects, especially at the state level, tied to funding and initiatives that require solar and clean energy solutions. As more developers seek combined technologies, we expect to see increased activity next year when these initiatives are fully in effect. We are also working on optimizing our business by targeting an additional $15 million in cost reductions, which aligns with our goals for 2024. We are committed to optimizing our operations while continuing to invest in the future growth of the company.

Okay. Thank you.

Thank you for your question, Brent. Our final question today comes from Alex Rygiel of B. Riley Securities. Alex, please go ahead.

Thank you. Good morning, Kenny and Lou. It looks like you've got a lot of exciting things going on here long-term. A couple of questions for you first. Backlog, $567 million, your projection of $850 million to $1 billion by year-end is pretty fantastic growth. Can you just keep it simple and help us to bridge from $567 million to $850 million to $1 billion? It sounds like $100 million is coming out of solar, but maybe give us a few other bigger chunks that can help walk us there?

Yes, that's a great question, Alex. Thank you for joining. We are currently involved in several projects, though I can't provide specifics due to ongoing negotiations. Some of these projects are substantial, ranging from $150 million to $200 million, and include both thermal and renewable energy sectors. There are also smaller environmental projects. The larger ones I mentioned are in both renewable and thermal energy, and we are in discussions regarding them. Some projects focus on new builds in waste and biomass energy, while others involve upgrades and conversions in the thermal sector. Overall, we have several significant projects exceeding $100 million, with a couple possibly exceeding $200 million, which could contribute to scaling up from our current $850 million to $1 billion target.

That's very helpful. And then, with that said, can you talk about your comfort level and guidance of the $100 million to $120 million, and clearly, if backlog is at $850 million to $1 billion, I got to suspect you're going to have incrementally greater confidence in strong growth over that $100 million to $120 million this year out in 2024. So maybe talk about those two points?

The timing of our EBITDA and adjusted EBITDA this year will largely depend on when our backlog materializes. We need to start those projects, and while some will begin before the year ends, others will kick off in November and December. There are always timing considerations at play. Getting the backlog in place will help us concentrate on growth opportunities for 2024. However, we are also continuing to invest in new technologies, such as BrightLoop and biomass technologies linked to carbon capture and some innovative environmental technologies. We need to balance our expenses related to future growth investments with our current EBITDA performance. It's important to acknowledge that while we see growth potential, the backlog will be spread over the coming years, with some projects impacting revenue in 2024, 2025, 2026, and even as far out as 2027. The timing and revenue impact will vary based on individual projects.

Yes. When you review the quarterly report, you'll notice that approximately 60% of the $560 million to $570 million backlog will be accounted for this year, with around 30% expected next year. As mentioned, the remainder will follow thereafter. This represents our current backlog under contract, and there will be additional backlog as well. We do not factor in a significant portion of the backlog for the parts business since it operates on a book-and-bill basis, which we do not typically include in our backlog calculations. This gives us confidence in achieving our targets for 2023 and beyond.

Thank you.

Alex, thanks.

Thank you. That concludes the question-and-answer session. We have no further questions. Thank you, Kenny and Lou for your prepared remarks. I will now pass the call back to Sharyn Brooks for any closing remarks.

Thank you for joining us. That concludes our conference call. A replay will be available for a limited time on our website later today.

Thank you all for joining today's Babcock & Wilcox Second Quarter 2023 Earnings Conference Call. Have a good rest of your day. You may now disconnect your lines.