Earnings Call Transcript - BW Q1 2025

Operator, 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, Director of Communications and Marketing

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 provides 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, Chairman and Chief Executive Officer

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 the 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 clean 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.

Cameron Frymyer, Chief Financial Officer

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, 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.

Kenny Young, Chairman and Chief Executive Officer

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 in 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 positions us well to deliver environmentally 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 are 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.

Operator, Operator

Ladies and gentlemen, we will now begin the Q&A session. The first question is from Aaron Spychalla with Craig-Hallum. Your line is now open.

Aaron Spychalla, Analyst

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, Chairman and Chief Executive Officer

Yes. We didn't provide an update on guidance during the call. We're essentially maintaining the existing guidance without making any changes. We're monitoring the situation closely instead of introducing new ranges. A key factor to watch is the tariffs and the potential impact on projects, which is uncertain given the ongoing negotiations. Our customers are also aware of these developments. Regarding parts and services, we don't expect a significant impact on the overall business, but larger projects and upgrades could be affected, requiring us to coordinate with our customers on timing. Delays of a month or two due to tariffs could influence the business as strategies evolve. Therefore, we decided not to adjust our guidance. The natural gas project in Indiana is currently on schedule, and we hope the tariff situation won't cause any delays. Most shipments of inbound technology are expected later this year and early next year, so any tariff impacts would not be seen until then. Both we and the customer are carefully monitoring ongoing negotiations, and we'll adjust our strategy regarding tariffs as necessary when we get closer to those activities.

Aaron Spychalla, Analyst

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, Chairman and Chief Executive Officer

Yes, it's crucial for us to establish a presence on the ground. We are currently working through the overall financing aspect and the project requires around $40 million to $50 million in additional funding to reach completion. As mentioned, we are in discussions regarding financing options, which is clearly a priority. We hope to finalize these arrangements in the coming months and then release all pending orders. The primary need right now is in construction, and we aim to have the construction teams on site this fall. We are striving to adhere to that timeline. Depending on the winter's severity, we anticipate producing hydrogen by mid-next year. As we advance the project, we believe some of the other opportunities we are pursuing will begin to transition into serious bookings around 2026. The pipeline of opportunities for BrightLoop appears to be expanding, primarily within the oil and gas sector and among heavy gas suppliers interested in using natural gas for hydrogen production. BrightLoop offers an alternative that allows customers to manage CO2 emissions based on their preferences, and we have an integrated approach for capturing CO2 in our process. This leads to substantial capital savings compared to other natural gas-to-hydrogen technologies. Our innovative approach has garnered significant interest as larger companies look for alternatives to established technologies like steam methane reforming and autothermal reforming. Getting the Massillon plant and the commercial facility operational is critical. Furthermore, we are in ongoing discussions with the Department of Energy and various groups in Washington, D.C., to explore participation in Massillon or potentially in other projects we are engaged with in Wyoming and West Virginia. While it is too early to predict outcomes, these discussions are progressing.

Aaron Spychalla, Analyst

Understood. Thanks for taking the questions. I'll turn it over. Appreciate the color.

Kenny Young, Chairman and Chief Executive Officer

Yes, thanks Aaron.

Cameron Frymyer, Chief Financial Officer

Thanks Aaron.

Operator, 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, Analyst

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, Chairman and Chief Executive Officer

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

Rob Brown, Analyst

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, Chairman and Chief Executive Officer

The exciting aspect of our current situation is the significant increase in baseload generation globally. This highlights the need to enhance the utilization of our core technologies, particularly around coal plants, which remain crucial for meeting baseload generation demands. We are observing a rise in activity not only from these plants but also from smaller facilities, including those powered by natural gas. Overall, the demand for parts and services is increasing, which is noteworthy given that the first quarter is typically a slower period for us in this area. It's encouraging to see strong global demand, both internationally and within North America. This surge is largely due to the fact that many plants are being operated more frequently. Some plants that postponed maintenance work last year are now experiencing greater wear and tear, leading them to place orders in advance for necessary parts as they prepare for future needs. These various factors are contributing to a very positive outcome for us in the first quarter.

Rob Brown, Analyst

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, Chairman and Chief Executive Officer

I believe we will continue to see typical seasonality in parts services, although outages do contribute to some variations. Q2 will likely remain low like Q1, while Q3 and Q4 should improve. I don't expect significant changes in this pattern, despite the current circumstances. It's beneficial to plan ahead for the expected demand in parts and services, while also keeping in mind the seasonality factor. Cameron, do you have a different perspective on that?

Cameron Frymyer, Chief Financial Officer

No, I think that's exactly right. I believe there will be some decreases this quarter, but seasonality plays a significant role. So, I completely agree.

Rob Brown, Analyst

Okay. Great. Thank you. I'll turn it over.

Operator, 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, Director of Communications and Marketing

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, Operator

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