Babcock & Wilcox Enterprises, Inc. Q1 FY2026 Earnings Call

Good afternoon. Thank you for attending the Babcock & Wilcox Enterprises First Quarter 2026 Conference Call. Operator provides instructions for participants. I would 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.

Thank you, Allen, and thanks to everyone for joining us on Babcock & Wilcox Enterprises First Quarter 2026 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 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 in our quarterly report on Form 10-Q that was filed with the SEC earlier today. Additionally, except as required by law, we undertake no obligation to update any forward-looking statements. We also provide non-GAAP information regarding certain historical and targeted results to supplement the results provided in accordance with GAAP. This information, which includes our discussion of adjusted EBITDA, adjusted net income and net debt 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 2026 earnings release published earlier today and in our company overview presentation filed on Form 8-K, which is posted on the Investor Relations section of our website at babcock.com. Please also see our first quarter 2026 earnings release published on May 11, 2026, for further information regarding our bookings and backlog. I will now turn the call over to Kenny.

Thanks, Sharyn. Good afternoon, everyone, and thanks for joining us on our first quarter 2026 earnings call. We are very pleased to report one of the strongest first quarter performances in recent company history. Babcock & Wilcox continued to see significant growth in the quarter, driven by high demand for electrical generation from utility, industrial and AI data center customers. In addition, we also achieved strong operating results supported by continued momentum in our core business and ongoing debt reductions as well. Our quarterly results were highlighted by revenue and adjusted EBITDA that exceeded company and Street expectations. Adjusted EBITDA was $16.1 million for the first quarter, which was a 296% increase compared to the first quarter of 2025. Our revenues for the quarter came in at $214 million, which is a 44% increase compared to the first quarter of 2025. We also achieved positive adjusted net income from continuing operations of $2.2 million after removing $81.8 million of costs associated with increased noncash warrant and stock appreciation rights valuation, both of which are directly due to the significant stock price increase in the first quarter of 2026. These top line metrics capture the recent tailwinds we've seen across our business and illustrate B&W's growth trajectory moving forward as we continue to capitalize on strong global demand for parts and services, new baseload generation and behind-the-meter AI data center projects. These recent tailwinds can also be seen in our pipeline, bookings and backlog as well, which saw significant acceleration during the first quarter of 2026. Our total pipeline grew by more than 17% to over $14 billion, including new AI data center opportunities. Our bookings and backlog values continue to surge, fueled by our core business growth and development of our Base Electron project in North Dakota as we are in further discussions with other hyperscaler customers as well. In the first quarter of 2026, we had bookings of $2.5 billion, which is more than a 1,900% increase compared to the first quarter of 2025. Additionally, our backlog was $2.7 billion in the first quarter of 2026, which is a 483% increase compared to the first quarter of 2025. We believe our results reflect strong global demand for B&W's technologies and combined with the increased demand for power generation gives us a solid foundation for continued growth this year and for many years to come. Our core business, excluding data centers, continued to excel as our parts and services saw elevated demand from the increased operation of baseload generation in North America and beyond. Rising energy demand from consumers, industries and grid-dependent AI data centers is prompting utilities to recondition and recommission coal-fired generation assets to help meet accelerating load growth. Existing coal plants in the U.S. are currently operating at capacity factors of around 50%, highlighting a significant source of underutilized generation capacity available to support expanding electricity needs. At the same time, elevated natural gas prices are driving improved economics of coal-based generation. This has increased utilization and created additional demand for our core business offerings. The rising demand for power across North America serves as a catalyst for B&W's continued growth, positioning us to play a critical role in supporting AI data center expansion and meeting increased baseload generation needs in the years ahead. Our project with Base Electron is progressing favorably as boiler manufacturing and steam turbines move forward. Siemens Energy continues to progress turbine fabrication and other long lead time items such as boiler pressure parts are advancing as planned. Most of the construction, including civil and mechanical, is scheduled for 2027 and 2028, and the impact of AI data center growth on B&W is truly profound as we added over $2 billion in additional AI data center opportunities in our pipeline from hyperscalers and utility customers. And as I mentioned before, we remain in active discussions with different AI data center customers regarding potential bookings in 2026. In the first quarter of 2026, we paid off $15 million in outstanding bonds that are due in December of 2026. This is the continuation of our bond buybacks, and we expect to fully pay off the remaining $69 million in outstanding December 2026 bonds in a timely fashion. Including these bond repurchases, we have significantly reduced our secured debt and unsecured bonds by 87% in the first quarter of 2026, resulting in net debt of $42.4 million at the end of the quarter. These recent debt payments bring our net debt to below 1x our trailing 12-month adjusted EBITDA. Our efforts to progress our BrightLoop initiatives 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 hydrogen or steam. We are building momentum around the use of chemical looping as a means to convert solid and gas fuels to either hydrogen or steam generation while simultaneously capturing the CO2 that can be used for enhanced oil or methane recovery and other beneficial uses. The commercial scale demonstration of BrightLoop at our Massillon, Ohio project still remains a key priority for B&W as we continue to position the company for expanded growth opportunities in the years ahead. I'll now turn the call over to Cameron to discuss the financial details of the first quarter of 2026. Cameron?

Thanks, Kenny. I am pleased to review our first quarter 2026 financial results, further details of which can be found in the 10-Q that was filed with the SEC this morning. Our first quarter 2026 consolidated revenues were $214.4 million, which is a significant increase compared to revenue of $148.6 million in the first quarter of 2025. The increase is primarily driven by large project volume, including $31 million from Base Electron and the increasing need for electricity from fossil fuels driven by the demand from AI data centers and expanding economies. Our core parts and services continue to perform well, delivering the strongest first quarter revenues in recent history. This development comes as higher demand from consumers, industrials and AI data centers drive increased coal baseload generation. Continued growth in our parts and services is expected throughout 2026. Our operating loss in the first quarter of 2026 was $1.7 million, which is relatively flat compared to an operating loss of $1.8 million in the first quarter of 2025. Net loss from continuing operations in the first quarter of 2026 was $79.6 million compared to a net loss of $15.6 million in the first quarter of 2025. This increase in net loss is attributed to $81.8 million of noncash warrants and other stock-related costs that were recorded this quarter due to the increase in our stock performance. Excluding the impact of these stock warrants and other stock-related costs, B&W reported adjusted net income from continuing operations of $2.2 million. Adjusted EBITDA from continuing operations was $16.1 million in the first quarter of 2026 compared to $4 million in the first quarter of 2025. I'll now turn to the balance sheet, cash flow and liquidity. Total debt on our balance sheet at March 31, 2026, was $275.9 million, which includes unamortized fees, unamortized gains from the bond swap done in 2025. Excluding these fees, gains and leases, our secured debt and senior notes totaled $237.2 million, of which $69.1 million is current, which, as Kenny stated earlier, we will be paid off within the year. The company had cash, cash equivalents and restricted cash balance of $194.8 million, giving us net debt as of March 31, 2026, of $42.4 million against our secured debt and senior notes. With that, I will now turn the call back over to Kenny.

Thanks, Cameron. In closing, we are encouraged by a strong start to 2026. Our core business continues to see sustained opportunity fueled by the evolving need for power generation and growth in areas such as the AI data center space. B&W remains focused on our objectives and uniquely positioned to capitalize on this current landscape. Our pipeline remains robust, exceeding $14 billion in project opportunities with significant tailwinds bolstered by the growing impact of AI data centers. Meanwhile, our bookings and backlog continue to convert at a strong pace, and we expect that momentum to continue throughout 2026. As we celebrate B&W's 160th year, I would like to recognize our employees around the world, past and present, who have made this milestone possible. Their expertise, commitment to working safely and dedication to advancing our technologies and serving our customers set Babcock & Wilcox apart and have established our company as a recognized leader in the industries we serve. I also want to thank our customers and suppliers for their continued support. And with this strong foundation, we're excited about where we're headed and confident in our ability to leverage our leading power and environmental solutions to capitalize on the many opportunities ahead. With that, I'll now turn the call back over to Allen, who will assist on a few questions. Allen?

Operator provides instructions for participants. Our first question comes from the line of Rob Brown with Lake Street Capital Markets.

Congratulations on all the progress. First question is on the expanding pipeline, I think it went up by a couple of billion this quarter since last quarter. What's sort of the environment for the pipeline you're seeing? What are some of the opportunities you're taking a look at? And I know AI data center is driving a lot of it, but could you give us just some more color on the pipeline growth?

Sure. Yes. The data center aspect of our business is driving quite a bit there, but there are others. We continue—and I'll start with one part and work back—but we still continue to see a lot of opportunity in growing in either coal-to-natural-gas conversion opportunities or in some cases, some large coal generation plant upgrades, environmental upgrades to help and assist in those particular areas. So we're seeing a lot of larger opportunities across the breadth of our portfolio of technologies, both on the core side and environmental side as well. Specifically in the data center opportunities, we are seeing new opportunities emerge, both from utilities as well as hyperscalers that we're in discussions with that are—in some cases, they're looking to power specific data center opportunities. In some cases, they're looking to power specific manufacturing or large manufacturing associated with data center opportunities. And so there's combinations there on the specific end case or end user where that power would be applied. We're talking to them about utilizing and leveraging B&W's boiler technology. One of the key areas that we're focused on is supporting our customers on the ability to leverage our steam boilers with steam turbine combinations, but perhaps combine that with a combustion turbine down the road, where you can gain some efficiencies through that combination of adding the combustion turbine with the steam boiler and the steam turbine generation set. We also believe you can increase the amount of power output provided on the same size or same square-foot basis. In other words, if we're putting in a 50-megawatt or 100-megawatt boiler, by adding the combustion turbine and combining the heat from the turbine into the steam boiler itself, we can almost double the size of the output from that particular site. So with very little real estate, we can increase the amount of wattage that can come from that particular location. There's interest from a few of our customers in those long-term technology aspects. A few customers also want to make sure that they're in a position to capture CO2 at some future point in time, either for enhanced oil recovery, methane recovery, other uses, or even sequestration. As we talk about the data center concept, there's some uniqueness around our ability to get the steam boiler and turbine out quicker than a combustion set, but it also gives them the ability to combine the combustion turbine at a later date to enhance the site or increase overall productivity or output from an electrical generation standpoint. That's an attractive value proposition for our customers. So we're looking at all of that.

Okay. Great. Then on the Base Electron project, you had $31 million in the quarter. How do you see that kind of playing out? Is it really ramping significantly starting next year? Or do you get a decent amount of revenue this year?

We'll get more revenue this year. Clearly, the bigger ramp is when we get into the full construction aspect on site—not only civil and the early groundwork, but more when we're putting up steel and starting to do the steel production of the site itself. That's when there's a very significant ramp in revenue. So we'll see that as we go into next year. But we'll continue to produce revenue this year for Base Electron as we complete different milestones on the manufacturing side of the project itself and complete some of the on-site preparation work we need to do for engineering and other aspects for the civil construction capabilities and get the site prepped for the actual steel manufacturing itself. There are different milestones involved in those contracts, so we'll still see further revenue this year. But yes, the large amounts will start to impact next year.

Your next question comes from the line of Jef Grampp with Northland Capital Markets.

Kenny, for some of these projects, as I recall on the last earnings call a couple of months back, it sounded like there were a couple of projects that were in fairly serious discussions. I know you're relatively limited on what you can say on the call. But just kind of wondering on those specific projects or any others that have kind of come up on the priority list over the last couple of months, what's the latest and greatest in terms of the state of those conversations and the outlook there?

Yes. We still progress on those discussions with two or three different customers to determine the best way to move forward with them. I think if we get one or so across the goal line, it will clearly be a project where we'll sign some sort of MOU or limited notice to proceed (LNTP) to start and then allow us to get everything set up to move into the full notice to proceed at a later date—similar to what we do on almost every big project that B&W has been involved in. Those discussions continue and we're working through a number of different scenarios. As typical on these kinds of projects, there's a lot of variables that the end user and customers are trying to accomplish—technology, end user considerations, permitting, location, geography—so a lot of things ebb and flow as we enter these discussions, but they continue, and we're hopeful we can move one across the goal line.

Got it. Appreciate that. As my follow-up, to the extent you get another one or two projects under the belt here that you ultimately can book, are there any investments or things B&W may look to make to ensure it can deliver on perhaps an accelerated slate of projects? Or do you feel that the companies and the supply chains are appropriately situated to deliver on multiple projects running concurrently?

We feel good about the current supply chain we've established. Around the Base Electron project, we've used that to establish a broader aspect for potential other data center projects so we could begin to secure some capacity. Each project will be nuanced—the size of boilers and turbines will vary. As we've said, we want to leverage existing B&W technology on the boiler side and the turbine side, but there will be different sizes of boilers—Base Electron uses 300-megawatt boilers; other projects might be smaller or, in some cases, larger. The positive is that we have different manufacturers lined up depending on the size of the boiler. We've been proactive to make sure manufacturers are aligned with us to secure capacity. We feel good about our position today. Going forward, securing steam turbine capacity and some pressure parts will be crucial as we get past one or two additional projects, and we'll keep that in mind as we secure further capacity. At the moment, we feel pretty good about our position.

Your next question comes from Aaron Spychalla with Craig-Hallum.

Maybe first for me on just guidance with the better start to the year, and it sounds like confidence in activity levels. Can you just talk to visibility in the guidance and maybe cadence throughout the year?

Good question. We kept the guidance where it is right now as we figure out how much we could shift either into construction or pull forward some of the manufacturing and other aspects around these projects. Once we have a better handle on that in the coming months, we'll relook at the guidance we put out and see how things progress. The positive news is there's definitely potential upside to our current guidance, and we'll keep an eye on how things progress this year. If it doesn't hit this year, it goes into next year, so either way it's a good position for B&W to be in. We'll monitor and circle back on that at a later date.

Understood. And then within the guide for this year, is there a way to think about that base parts and services business—what kind of contribution looks like there? And as we think about growth in the coming years, you obviously have the big projects and some of these coal-to-gas conversions. What's that base run rate? It seems like that business is still very much healthy.

Our parts and services had a significantly strong first quarter—one of its best first quarters in recent history. Typically, Q1 is a little low for parts and services, Q2 similar or slightly better, and Q3 and Q4 pick up due to outages. Demand for that business remains strong and we don't see that changing for the rest of the year. We have pretty good visibility into outages targeted later this year that will drive activity, including upgrades and environmental work on coal plants. The uniqueness is these coal plants are being used more and have capacity to be used further; utilities are investing more in these plants to ensure longevity for baseload generation. It's a good place for us to be; we're taking it a quarter at a time, but the current outlook for parts and services is strong and we anticipate that continuing for the foreseeable future. These are not one-off parts; they're based on continued plant operation, and we don't see that slowing down anytime soon.

Right. Okay. And then just housekeeping: on the pipeline expansion to $14 billion, it's great to see. You had talked about a data center power gen pipeline of $3 billion to $5 billion plus, I think. Is most of that increase just driven by an increase in that pipeline, or anything else to highlight?

The data centers obviously have a large impact because of project size. There are a few we're talking to that are in the 500-megawatt range to start, a couple in the 300-megawatt range, and some in the 1 to 2 gigawatt range. There's big demand as data centers grow. We won't book all of that business, but the opportunities span that size range. A 1 gigawatt project or higher is significant and would have solid revenue ramifications if booked. The pipeline growth reflects that activity. The pipeline comprises projects we think we'll close within the next three years, not necessarily all with us. There are opportunities outside that three-year window that would increase the pipeline but aren't included by definition. There are conversations on projects four years out that don't make it into the pipeline for that reason.

We have reached the end of the Q&A session. I will now turn the call back to Sharyn Brooks for 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.

You may now disconnect.