Babcock & Wilcox Enterprises, Inc. (NYSE:BW) Q4 2022 Earnings Call Transcript

Babcock & Wilcox Enterprises, Inc. (NYSE:BW) Q4 2022 Earnings Call Transcript March 15, 2023

Operator: Hello, everyone and welcome to the Babcock and Wilcox Q4 and Full-Year 2022 Earnings Conference Call. My name is Emily and I’ll be coordinating your call today. I will now turn the call over to our host, Sharyn Brooks; Director of Communications. Please go ahead.

Sharyn Brooks: Thank you, Emily and thanks to everyone for joining us on Babcock and Wilcox Enterprises fourth quarter and full-year 2022 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 fourth quarter and full-year 2022 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 Annual Report on Form 10-K that will be filed with the SEC tomorrow, March 16, 2023 after the close of the market.

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 fourth quarter and full year earnings release published this morning, and in our company overview presentation 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 Young: Thanks, Sharyn. Thanks, operator and good morning, everyone, and thanks for joining our fourth quarter and full-year 2022 earnings call. We had a very strong quarter for Babcock & Wilcox and generated backlog and new opportunities to position us to reach our 2023 EBITDA targets. We increased our pipeline of opportunities, especially around our clean energy technologies, and renewable and environmental as well as expanding opportunities with our BrightLoop hydrogen production technologies. Despite the near-term headwinds and ongoing supply chain disruptions, our seasonally strong fourth quarter results, which improved significantly on a sequential basis, enabled us to achieve our revised EBITDA, adjusted EBITDA target for the full year of 2022.

Revenues in the fourth quarter increased 30% compared to 2021 and our quarterly bookings were $197 million, which were in-line with our strong fourth quarter bookings in the prior year. Our year-over-year results for 2022 were just as significant. Revenues for the year increased 23%, and our annual bookings of $908 million set a new record highs since 2017. In addition, we booked seven renewable waste-to-energy new build projects in 2022, and announced several agreements with a number of leading companies to further augment our market applications of BrightLoop, SolveBright and OxyBright technologies. Although, our performance for the year was impacted by global supply chain and market conditions, we continue to execute and progress against our long-term strategic growth strategy with an expanded pipeline of $8 billion and quality projects, and an ending backlog of $704 million, a 19% increase compared to the end of 2021.

And remember, our backlog does not include our standard parts and service revenues. We look forward to 2023, we see strong customer demand across all of our business segments, coupled with significant backlog and booking momentum, which reinforces our conviction for an improved full year performance and continued growth throughout the year. Given our current visibility for new booking opportunities, we reiterate our 2023 full year adjusted EBITDA target of $100 million to $120 million. While industry challenges and negative impacts of the global supply chain pressures still remain, we have implemented several strategic initiatives to mitigate these headwinds where possible. In recent quarters, we have worked to expand the qualification of alternative suppliers and modified our sourcing strategies to limit the impact that industry-wide bottlenecks have had with respect to availability of raw materials, fabrication capabilities and labor shortages among a broad range of other factors.

While we continue to evaluate where further improvements in our supply chain can be implemented, we are proud of our team’s ability to react proactively to the present global and regional challenges, while maintaining the highest level of operational performance. Our focus on providing customers with the technologies and services necessary to meet their growing demands for thermal base load generation and clean energy solutions remain our top priority. In the fourth quarter, we also announced two significant contract awards in our Environmental segment, which serves as a testament to our customers confidence in our emission control and ash handling technologies. The first contract valued at over $24 million included the supply of two industrial package boilers, auxiliary equipment and advanced emission control technologies for a petroleum refinery in North America.

Under that same contract, B&W Environmental will supply two select catalytic reduction systems STR’s to control nitrogen oxide emissions. The second contract is valued at over $20 million included the design and supply of ash handling and conveying technologies for a power plant in North America, leveraging our equipment to assist the plant, operator and reducing the environmental impact of the plant and ensuring compliance with emission requirements. B&W Environmental will design, manufacture and supply four state-of-the-art Allen-Sherman-Hoff submerged grind conveyors or STC systems, that are designed to meet Effluent Limitation Guidelines, ELG and other coal combustion residuals requirements and also supply two tube conveyors for the project.

These contract awards follow two very instrumental announcements we made last quarter, including a $43 million contract to provide construction and installation services for an environmental upgrade project here in the U.S. In addition to a contract award to study the application of B&W SolveBright solvent based carbon dioxide capture solution for console energy. Overall, we are pleased with the progress, our environmental business segment has achieved and the validation it brings to our growth pipeline and ultimate goal of revenues being two-thirds environmental and renewable, and one-third thermal. In addition, we just recently announced this year, a $65 million contract to provide renewable waste-to-energy and environmental technologies to low stock sustainable energy plan in the United Kingdom.

This is one of the largest waste-to-energy plants in the UK and reflect strongly on our relationships with Copenhagen Infrastructure Partners and FCC Environmental Services. With respect to the supportive industry legislation has been passed, we are excited to announce that we are collaborating with customers and partners to pursue a number of advanced clean energy projects and opportunities that will be made possible through the funding provided by the historic $1.7 trillion spending package recently signed by President Biden. The appropriations packages contained historic funding for clean energy projects, including opportunities for hydrogen generation, carbon capture, renewable energy and methane mitigation, demonstrations that would potentially benefit from B&W’s advanced clean energy solutions.

The spending package includes specific appropriations language that directs the Department of Energy to support commercial demonstration of hydrogen production using chemical looping, utilizing coal biomass or natural gas. This is a significant accomplishment and developed, we look forward to advancing our discussions with customers, partners and representatives from the U.S. Department of Energy to explore ways in which we can accelerate the clean energy transition and provide essential innovative technologies for those projects. B&W has a diverse suite of renewable energy environmental and decarbonization technologies that are proven and ready to deploy including hydrogen, CO2 capture, decarbonization, methane abatement, renewable energy and emission controls.

Our commitment to further drive sustainability is reinforced by our recently announced collaboration with Chart Industries to evaluate innovative application, utilizing our BrightLoop technology and the Global Alliance with Fidelis to produce clean zero carbon intensity hydrogen. Through the collaboration with Chart Industries, B&W were further deploy its BrightLoop hydrogen technology utilizing Chart’s hydrogen liquefaction and carbon capture equipment. The partnership aims to provide low carbon hydrogen generation and cost effective transportable forms of liquid hydrogen and carbon dioxide, while developing sales and marketing strategies for potential commercial customers. We are excited to partner with Chart industry and look forward to advancing the scalability and innovative applications our BrightLoop technology has to offer.

The Global Alliance with Fidelis focuses on the production of clean hydrogen, using B&W’s bubbling fluidized bed boiler technology and Fidelis’s proprietary Fidelis H2 technologies. The partnership aims to produce zero carbon intensity hydrogen from natural gas that meets the required threshold under the Inflation Reduction Act to qualify for the full $3 per kilogram, 45B hydrogen production tax credit. We look forward to deploying these technologies at scale, and further developing our suite of carbon capture solutions ultimately leveraging our ClimateBright Decarbonization platform and supportive industry legislation to further diversify our environmental and renewable business. I’ll now turn the call over to Lou to discuss the financial details of the fourth quarter and the full year 2022.

Lou?

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Lou Salamone: Thanks, Kenny. First, I’ll review our full year 2022 results, and then I’m going to turn over to our fourth quarter 2022 results. For further detail, I call your attention to the fact that we will file our 10-K with the SEC tomorrow March 16 after the close of the market and you can refer to it for further details, beyond what we discussed here in this call today. Our consolidated revenues for 2022 were $889.8 million and as Kenny mentioned that’s a 23% improvement compared to 2021. The improvement was primarily due to a higher level of activity in our Renewable and Environmental segments, and our expanded geographic presence and the improved strategies to mitigate the continued impact of COVID-19, as well as acquisitions we closed in the second half of 2021.

The net loss in 2022 was $26.6 million compared to net income of $31.5 million in 2021, which included non-cash items — which ’21 included non-cash items of approximately $31.1 million, which were primarily related to non-cash items with respect to income tax benefits and mark-to-market pension benefits. GAAP operating loss in 2022 was a $4.2 million compared to an operating income of $20.8 million in 2021. We achieved our revised 2022 adjusted EBITDA target of more than $70 million with an adjusted EBITDA reaching $72.4 million as compared to $70.6 million in 2021. Total bookings in 2022 were $908 million, a 17% increase compared to full year bookings in 2021. This is the highest level of annual bookings since 2017. Backlog at December 31, 2022 was $704 million and this is a 19% increase compared to the prior year end.

Now I will turn over to our fourth quarter results. Fourth quarter consolidated results, revenues were $249.9 million, that’s a 30% improvement compared to the fourth quarter of 2021. This improvement was primarily attributable to higher overall volumes and previously competed — completed acquisitions, while it was partially offset by a lower level of construction activity in our thermal segment. Net income for the fourth quarter was $5.7 million compared to net income of $30.2 million in the fourth quarter of 2021, again this is primarily related to non-cash items, including a $15.2 million tax benefit and a $17.8 million positive mark-to-market adjustments in our benefit plans. Our GAAP operating income in the fourth quarter was $9.3 million compared to an operating income of $9.7 million in the fourth quarter of 2021.

Adjusted EBITDA was $26.7 million in the quarter, compared to $27.8 million in the 2021 quarter. Bookings in the fourth quarter were — of 2022 were $197 million, which is in-line with the strong bookings of the fourth quarters of comparable 2021 period. I’ll now turn to cash flow, our balance sheet and our liquidity. Our cash flow from operations in the fourth quarter of 2022 was a source of cash of $36.8 million. We ended the year with total debt of $353 million and a combined cash, cash equivalent and restricted cash balances of over $113.5 million for net debt of approximately $239.5 million. Our net leverage at December 31, 2022 was 3.31 times the last 12 months adjusted EBITDA. As Kenny stated, our strong results for the fourth quarter were propelled by continued execution of our growth strategy and drove us to achieve our adjusted EBITDA target of more than $70 million for the full year of 2022.

We booked seven sizable renewable waste-to-energy product — projects in 2022 contributing again as I said to the highest level of our annual bookings since 2017. We expect 2024’s quarterly profile to follow our normal cyclical performance of increasing profitability from the first to the fourth quarter. And again, as Kenny has highlighted, we are reiterating our 2023 target of $100 million to $120 million of adjusted EBITDA. This is supported by a robust pipeline of more than $8 billion of opportunities through 2024 and a $704 million backlog at the end of 2022. The backlog is in 19% improvement over the prior year and shows the accelerating momentum of our strategic actions. I’ll now turn the call back over to Kenny.

Kenny Young: Lou, thanks. Well in closing, capacity has been one of tremendous growth and progress for B&W despite all of the macro headwinds and an ongoing growing supply chain disruptions. Notably, we have seen continued success across the multiple key fronts, including achieving a record level of annual bookings since 2017. Topline annual revenue improvement year-over-year, an improved outlook for adjusted EBITDA growth in 2023, demonstrating the effectiveness of our strategic initiatives and the strength of our world-class team of operators. Looking ahead, we remain excited about the prospects stemming from a robust pipeline of more than $8 billion of global identified projects and upgrade opportunities, driving profitable multi-year growth and enhancing shareholder value.

Our deep industry expertise with clean energy and carbon capture technologies coupled with our experienced in traditional energy sources, gives us a unique advantage in delivering sustainable solutions to our customers and stakeholders. As we continue to evaluate the ever evolving landscape of the energy transition, Babcock & Wilcox looks forward to developing its ClimateBright Platform and deploying its technology at scale. I want to express my sincere gratitude to all of our employees and customers and shareholders and partners for their continued support and confidence in our company. We remain steadfast in our commitment to becoming a front-runner in the global energy transition and look forward to building on our successes in the years ahead.

Together, we continue to drive strong profitable growth and create a more sustainable future for generations to come. That wraps up our comments. I will turn it back over to the operator to answer any questions.

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Q&A Session

Operator: Thank you. The first question today comes from Aaron Spychalla with Craig-Hallum. Aaron, please go ahead.

Aaron Spychalla: Good morning, Kenny and Lou. Thanks for taking the questions. Maybe first on waste-to-energy. Good to see the low stock award to start 2023. Can you just maybe talk about the pipeline there, how it’s trending and then supply chain and timelines on the current project. Just how that compares to your expectations back in October?

Kenny Young: Yeah. So low stock obviously was a great announcement. We are hoping to get that one in before the end of the calendar year 2022. But it took a few extra days to get that complete, but excited about that and there is — I would say, the exciting part about that project right now is that there could be opportunities to expand, more scope depending on certain activities and other things that may be developing down the road. So we’re truly excited about that and also reflect strongly as I mentioned in my remarks on our relationship with SIP and FCC. FCC has got a large presence here in the U.S. as well as in Northern Europe and it’s great to expand our relationship with both SIP and FCC, likewise. From an overall pipeline standpoint, we do have a number of other opportunities that we are working on some hopefully would be announcements this year, some that would be — we’re working diligently on that would be announced next year, this is all in waste-to-energy around that segment.

And we’re continuing to expand some of the royalty capabilities we talked about it a little bit here and there. But where we’re licensing our waste-to-energy technology in Asia, specifically in China, in India and we’re seeing some growth come out of those segments as well too, and we anticipate seeing more here in 2023 and ’24. So the pipeline is strong overall, and we continue to see advancements in both waste-to-energy and I would say to follow-on, we’re starting to see more opportunities in biomass-to-energy primarily because of the net negative impact of what biomass-to-energy power looks like, especially when you’re sequestering the CO2 through OxyBright. And we’re seeing a pipeline starting to increase on specifically around those combined technologies, because of the IRA advancements here in the U.S. So from a supply chain perspective, what we talked about on the call.

I don’t — we don’t see anything that’s significantly improved in supply chain. What we’ve done is just basically taking the approach like we mentioned last year and looking at our projections this year and going into next year, you see we’re living in this era of this current supply chain aspects. So things that normally would have taken a few months to bring on or getting access to steel inside 90 days now takes six months. So as we look at how we negotiate contracts, as we look at how we look at revenue and forecast going forward. We just — we tried our best to incorporate all of those standard supply chain issues to make it just part of our normal business expectations, and then reset our cost structures and then obviously our forecast around that.

So, as we always said, unless things get materially worse we think we’ve got much of that baked into our forecast, and our business planning at this point in time. And if things get better, obviously, that would have a positive impact for us, but we’re not assuming it does as it relates to our numbers and projections for ’23.

Aaron Spychalla: Understood. Thanks for the color. And then you mentioned language on commercial demonstration for chemical looping in the legislation. Can you just talk a little bit about what funding might look like there, anything on timing for deployments? And then any update to just the broad kind of 30 plus pipeline of kind of ClimateBright as those things are progressing?