Babcock & Wilcox Enterprises, Inc. (NYSE:BW) Q1 2023 Earnings Call Transcript May 10, 2023

Babcock & Wilcox Enterprises, Inc. misses on earnings expectations. Reported EPS is $-0.18 EPS, expectations were $-0.09.

Operator: Hello, everyone, and welcome to the Babcock & Wilcox Enterprises First Quarter 2023 Earnings Conference Call. My name is Nadia, and I’ll be coordinating the call today. If you would like to ask a question pad. I will now hand over to your host, Sharyn Brooks to begin. Sharon, please go ahead.

Sharyn Brooks: Thank you, Nadia, and thanks to everyone for joining us on Babcock & Wilcox Enterprises first quarter 2023 earnings conference call. I’m Sharon 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 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 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 first quarter earnings release published this morning and in our company overview presentation that was filed on Form 8-K this morning and posted on the Investor Relations section of our website at babcock.com. I will now turn the call over to Kenny.

Kenny: Thanks, Sharyn. Well, good morning, everyone, and thanks for joining us today on our first quarter 2023 earnings call. We are pleased to report strong results for the first quarter of 2023, which exceeded our expectations and were highlighted by increases in revenues, bookings and backlog on a year-over-year basis. Our parts and service bookings across all of our segments were the highest in the past 7 years despite continued supply chain challenges. Given our positive start to the year, growing customer demand across all of our segments and visibility for new booking opportunities, we believe we are well positioned for significantly improved full year performance in 2023. The revenues generated within our renewables and environmental business segments showed significant increases of 47% and 13%, respectively, as compared to the first quarter of 2022.

This growth was driven by higher volumes across both segments, which helped drive our consolidated revenues and adjusted EBITDA above expectations. More specifically, revenues in the first quarter increased 26% compared to 2022, while our bookings and backlog increased 11% and 15% on a year-over-year basis, respectively. Our strong start to the year also adds to our confidence in achieving our full year 2023 adjusted EBITDA target. And during the first quarter, we generated adjusted EBITDA of $14.2 million, which was above our internal projections and compares to $12.5 million in the first quarter of 2022. As always, I want to express my thanks and gratitude to our employees for their continued dedication to achieving the highest operational performance for their high focus on safety across our project and manufacturing sites and to thank them for driving innovation and advancing the world’s transition towards sustainable and secure energy, which is central to B&W’s mission.

Notably, the performance of our parts and services business across all of our segments 2was particularly strong in the quarter. Combined parts and service bookings for our Thermal, Renewable and Environmental segments were $114 million, which is the strongest quarter for parts and services we’ve had since 2016. This was led by $67 million in bookings by our Thermal segment, which had been – which has seen increased demand as customers around the world look to improve performance and extend the useful life of their facilities. B&W’s Renewable and Environmental segments also booked $40 million and $7 million in parts and services orders, respectively, as well. In total, we are recognizing a significant increase in customer demand stemming from the need for long-term energy security and clean technology solutions.

Looking back at the quarter, we were ecstatic with the progress our clean energy solutions have made, which have been bolstered by new environmental and renewable contracts in the first quarter of 2023, totaling $123 million. These projects not only demonstrate the increasing momentum in our customer adoption of our innovative technologies, but also the expanding interest in our expertise in solar projects. Throughout the first quarter, we announced 4 environmental and 2 renewable contracts to supply various technologies and services for carbon capture, waste to energy and solar installation projects. This includes our collaboration with Phillips 66 and which we will provide engineering and design services, equipment and construction support for carbon capture project in the U.K. This project aims to reduce carbon emissions by capturing and storing carbon dioxide emissions from a refinery.

As a company committed to promoting sustainability, we are proud to be a part of this critical effort to reduce carbon emissions and support the energy transition to a low-carbon future. Our progress in the U.K. also includes a contract to provide engineering and advanced technology for our waste-to-energy plant. Our innovative combustion system will help convert waste into clean energy, further promoting sustainable practices. Additionally, B&W has also secured contracts to provide highly efficient cooling systems for a few U.K. waste-to-energy plants as well. These cooling systems will help optimize the performance of the plants, ensuring they are able to operate efficiently and sustainably. Transitioning to our solar business, we were awarded contracts worth over $15 million by Summit Ridge Energy or SRE to construct 5 community solar power installation projects in Illinois.

The projects scheduled to be completed in 2023 will total approximately 15 megawatts. B&W will manage subcontractors, site coordination and supervision and electrical tie-ins to the grid. This is the second set of contracts awarded by – to B&W SRE, which is one of the leading community solar companies in the United States. The growing market for community solar projects in the U.S. has been attributed to the high demand for affordable clean energy and state and federal incentives for renewable energy, including for solar power. We are excited about the solar opportunities and continue to see that we continue to see emerge over the coming quarters, especially with regards to community solar and small utility projects. Looking forward, we remain committed to further supporting sustainable energy projects that make a positive impact on the world.

These recent award wins further strengthen our position as a leading provider of energy solutions and we look ahead to exploring new opportunities to promote a cleaner, more sustainable future. We also are pleased with the significant traction our Bright Lube technology has received to date. Most notably, we received announced – we recently announced a commercial project with Black Hills Energy in which B&W’s Bright loop hydrogen generation technology was selected to produce hydrogen gas from coal and capture carbon dioxide emissions. Utilizing our technology, clean energy can be produced using a variety of fuels with complete CO2 retention, enhancing energy security and creating local clean energy jobs in the region. This project not only highlights B&W’s transformational technology, but also demonstrates utility market interest in our clean power production and carbon capture capabilities.

We look forward to scaling this product offering and working in tandem with our customers to provide the solutions they need to enhance energy independence and deliver efficient energy to their customers while also combating climate change. I’ll now turn the call over to Lou to discuss the financial details for first quarter of 2023. Lou?

Lou Salamone: Thanks, Kenny. I’m really pleased to review our first quarter results and further details of which can be found in the 10-K – in our 10-Q, which has been filed with the SEC. Our first quarter consolidated revenues were $257.2 million, which is a 26% improvement compared to the first quarter of 2022. This is primarily attributable to higher volumes in our Renewables segment due to B&W Renewable parts and services and our project-based business as well as higher overall volume in our Environmental segment and increased thermal segment volume and a higher level of construction activity. Net operating income in the first quarter was – of 2023 was $1.4 million compared to an operating loss of $6.8 million in the first quarter of 2022.

Our adjusted EBITDA was $14.2 million as compared to $12.5 million in the first quarter of 2022, while bookings in the first quarter of 2023 were $206 million, an 11% increase compared to the first quarter bookings in 2022. Our ending backlog was $663 million, which was over a 15% increase compared to our backlog at the end of the first quarter of 2022. Our loss per share in the first quarter was $0.18 as compared to a loss per share of $0.14 in the first quarter of 2022. I’ll now turn over to the first quarter segment results. Within our Babcock & Wilcox Renewables segment, revenues were $100.1 million for the first quarter of 2023, which is a 47% increase compared to the $68 million in the first quarter of 2022. This increase in revenue is primarily due to the higher volume of new build projects and the increase in revenues associated with our renewable parts and services business.

The adjusted EBITDA in the quarter for this segment was $4.9 million compared to $2 million in the first quarter of 2022, and this was primarily due to the higher volume as described above, offset somewhat by increases in expenses to support the growth of this business. The higher revenue levels also increased share overhead and SG&A allocations to the segment, which are based on revenue. Within the Bobcat and Wilcox Environ-mental segment, revenues were $39.4 million in the first quarter of 2023, which is a 13% increase compared to the $34.9 million in the first quarter of 2022. This increase is primarily driven again by higher overall volume of dry cooling technology projects across the Environmental segment. Our adjusted EBITDA for the segment was $1.9 million in the quarter as compared to $1.4 million in the same quarter last year, again, primarily driven by the higher revenue volume described above and offset by higher levels of shared overhead and SG&A that’s allocated to this segment.

Turning to our Babcock & Wilcox Thermal segment revenues were $119.2 million in the first quarter of 2023, and this is a 17% increase compared to the $102 million in the first quarter of 2022. Again, this is primarily attributable to higher levels of volume on our construction projects business and the inclusion of Optimus Industries. Adjusted EBITDA in the first quarter of 2023 was $13.7 million, which is a decrease of 3% compared to $14.2 million in the first quarter, primarily attributable to higher expenses that we incurred which are related to the growth of this business. I’ll now turn to our balance sheet, cash flow and liquidity. Our total debt at March 31, 2023, was $351.7 million, and the company had a cash, cash equivalents and restricted cash balance of $91.1 million.

Finally, based on our strong bookings and backlog in the first quarter of 2023, we are reiterating our full year 2023 target of between $100 million and $120 million in adjusted EBITDA. I’ll now turn the call back over to Kenny.

Kenny Young: Thanks. Well, in closing, I would like to emphasize the continued progress in growth that Babcock & Wilcox has achieved over the past several years. We have taken proactive steps to improve our operations and qualify additional suppliers, which has reinforced our own supply chain and positions as well to navigate challenging market conditions compared to our competitors. Despite the ongoing market challenges we face, we have strong and growing customer demand across all of our segments, expanding our bookings and backlog while maintaining the highest operational and project performance across our global operations, leveraging a strong balance sheet and our expanded pipeline of more than $8 billion in identified global opportunities, we are excited about our growth prospects and diversification initiatives within our renewable and environmental and thermal business segments.

Looking ahead to the rest of 2023, we are excited to continue enhancing our Climate Bright decarbonization platform and executing our Bright Luke commercialization strategy with the aim of deploying our transformative technology at scale. We are at the forefront of a global effort to combat climate change and are excited about the growing industry tailwinds that support our clean energy initiatives. As the year unfolds, we anticipate announcing meaningful projects that align with the seasonality of the business and revenue ramp that is back half weighted for the full year. Finally, we would like to thank our employees again and our customers for their continued efforts and dedication to the company, which ultimately has driven our success as an organization.

Together, we’re focused on driving innovation, supporting the global transition to sustainable energy solutions and delivering strong profitable growth for our shareholders. I will now turn the call back over to Nadia who will assist in taking your questions. Nadia?

Q&A Session

Operator: Thank you. Our first question today goes to Aaron Spychalla, Craig-Hallum Capital Group. Aaron, please go ahead your line is open.

Operator: Thank you. The next question goes to Rob Brown of Lake Street Capital Markets. Rob, please go ahead your line is open.

Operator: Thank you The next question goes to Alex Rygiel, B. Riley. Alex, please go ahead your line is open.

Operator: The next question goes to Brent Thielman of D.A. Davidson. Brent?

Operator: Thank you. We have no further questions. I will now hand back to Sharyn for any closing comments.

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

Operator: Thank you. This now concludes today’s call. Thank you so much for joining. You may now disconnect your lines.+