Babcock & Wilcox Enterprises (BW) Q1 2025 earnings call transcript

Thank you, Matt, and thanks to everyone for joining us on Babcock and Wilcox Enterprises first quarter 2025 earnings conference call. I'm Sharon Brooks, Director of Communications and Marketing. Joining the call today are Kenny Young, B&W's Chairman and Chief Executive Officer, and Cameron Freimer, 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 10Q that was filed this afternoon and our form 10K 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 afternoon and in our company overview presentation filed on form 8K this afternoon and posted on the investor relations section of our website at abcock. com. I will now turn the call over to Kenny.

Thanks, Sharon, 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 on 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 and gross proceeds to Canada Divia Enova, formerly known as Hitachi Zosun. As part of the sale, 5 million of the 20 million in total proceeds is directed to fund our bright loop project in Maslin, 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 energy, great technologies, and BMW's boiler technologies. We also entered into an agreement to jointly develop bright loop opportunities to leverage renewable, natural gas and other applications.

AVI is a global leader in waste 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 project 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 and 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 bright loop 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 bright loop projects. We are finalizing the financing for Masson, Ohio project for which we have already received a significant off take agreement.

When completed the plant will produce five tons 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. And we anticipate hydrogen and production from the Masson 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 climate bright 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 line 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. I'll not turn the call over to Cameron to discuss the financial details of the first quarter 2025. Cameron?

Yeah, thanks Kenny. I am pleased to review our first quarter results further details of which can be found in the 10Q that is on file with the SEC. Our first quarter of consolidated revenues were 181.2 million which is 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 parts 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 last per share from continuing operations in the first quarter of 2025 was 11 cents, compared to a lost per share of 19 cents 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 are 167 million and 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 parks and service business this quarter.

I'll now turn to the balance sheet, cash flow and liquidity. Total debt at March 31st, 2025 was 473.6 million and the company had cash, cash equivalents and restricted cash balance of 116.8 million. The company's core performance, core business is performing ahead of expectations and we continue to anticipate return to positive cash flows in 2025, excluding brightly. 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 131.8 million about standing 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 Denmark-based waste and energy subsidiary announced earlier this month. The proceeds of these sales will be used primarily to pay down existing debt and enhance working capital.

I'll now turn the call back over to Kenny.

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 and 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 environmental conscious, technology-driven solutions to our global customers.

As always, I would like to recognize in the efforts of our dedicated and talented employees around the world who focused on working hard and safely to deliver a 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-based and suppliers for their continued support of that, Dr. 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. Matt?

Yeah, we did touch on guides on the call just to kind of, it's not, we're basically just keeping it where it is or was and on it and keeping an eye out for it rather than come back with different ranges and other aspects that just said, let's leave it where it is, but not touch it. I think our, you know, the key part we got to keep an eye on is we talked about offline is the tariffs out there and the potential impact that that may have on projects. And that honestly right now is anybody's guess or clue with, you know, all that's going on, you know, in the world of these negotiations and discussions and back and forth and back and forth.

Obviously our customers keep an eye on those as well too. And you know, it relates to, I think for parks and services as we've talked about publicly, probably not a big impact overall in the business, but you know, some of the larger projects and upgrades and other aspects, you know, those are things that have potential impacts and we just have to work with our customers on timing of that. So, you know, the range is broad just cause, you know, if a project gets delayed a month or two because of Paris or other aspects, these people kind of wait through their strategies in and around those, you know, it just has an impact overall in the business.

So we just kind of didn't touch it on any update or any other conversation around the guidance on it. On the natural gas project right now, it's actually proceeding on schedule and doing, you know, it's on time on schedule for us and a customer. That's the large one in Indiana. So that's progressing, I think, well, the, you know, hopefully the the tariff aspects don't impact that at all from, you know, any kind of delays that may happen later on this year of the bulk of the shipment of of inbound technology will happen later this year, early into next year. So any impact from the tariffs on that would not be realized until then. So I think both us and the customer are just keeping a close eye on these constant negotiations and updates coming out of Capitol Hill.

And, you know, we'll make a kind of a real game time decision and strategy around those tariffs when it, when it, when we get closer to those activities, if that makes sense.

Yeah, so obviously Masson important for us to get in the ground. We have been in still working through the overall financing of that aspect of it. It's the project itself probably, you know, at the stage needs around 40 or 50 million of additional financing to complete that project.

We have, you know, as we stated, you know, we can go too much further on this, but as we're in discussions with some financing options on the company, that's clearly one of them. And we're working, you know, through those details as we speak, so that's, you know, hopefully we can complete that here in the next few months. And then just release all of the orders that we have pending.

The main bulk of that need right now is in the construction area. And we really want to get the construction teams on-site on-ground here in the fall of this year. And that's, we're trying to stay to that schedule as we speak. And then, you know, with the anticipation, depending on the winter, how light or hard it is, anticipate, you know, producing hydrogen sometime by mid-next year at this stage.

You know, I think as we move ahead with that project and move forward on that, you know, some of the other options are opportunities, not options, but opportunities that we're working on, we'll start to really move more into a serious booking mode, you know, sometime in 26. And, you know, that's the feedback we're getting as we still work through some of the pipeline aspects out there. But the pipeline of opportunities on, you know, for bright loops seem to be growing. I just, you know, this is opportunity phase clearly, but, you know, within the oil and gas industry and some other, you know, heavy gas suppliers that are still looking at, you know, utilizing natural gas to hydrogen, you know, and the value here that bright loop brings is it brings an alternative that says, hey, if you want to isolate CO2 today, great.

If you don't, fine, you know, up to the customer. But, you know, obviously if there are other mandates on CO2 in the future, that option has been built in. So there's very little costs and for that new plant to have to convert to carbon capture, it's just, it's a matter of what you want to do with the CO2, whether you, because we capture it as part of our process. So there's significant capital saving versus other natural gas to hydrogen technologies.

And that's, you know, one of the reasons for getting a lot of attention on this technology right now is as some of these larger companies are looking alternatives to steam methane reform and ATR, which clearly SMR and ATR have proven a bondable bankable technologies, right? It's been out of the marketplace for quite some time. Bright loop is new. So the Maslin plant and getting the commercial plant up is vitally important.

We also continue to have dialogue and in our end discussions with the Department of Energy and other groups on Capitol Hill to participate either in Maslin or one or two of these other projects that were involved in Wyoming and or West Virginia. And we, you know, hopefully some of that will move to a favorable outcome as well too, way too early to tell, but you know, those discussions and conversations still continue.

Appreciate the color. Yeah, thanks, sir. Thanks, sir.

Yeah. I mean, the exciting part about where we are. I mean, obviously, basal generation worldwide, right, is really increased. And so the concept of increasing utilization of some of our, you know, core technologies in and around coal plants are still vitally important to meet that basal generation. And we're just seeing some of the pickup from not only those plants, but you know, other, you know, small plants as well, too. It could be natural gas package, but it was other aspects. So, you know, overall, from a parts and services standpoint, we're just seeing the need of basal generation increase, you know, and, you know, typically Q1 for us is a little bit light. Normally our parts and services business.

So it was pretty exciting to see the demand come in. And it's, you know, global and reach. So it was international as well as in domestic North America for us on that, but permanently driven, you know, if you go back to the basic aspect of it, a lot of these plants are being used more and more some of those plants, you know, last year may have shifted some of the outage work and delayed some of the outage work, you know, as a result, they have more parts where and tear that they need to maintain. Some of these plants are placing orders trying to anticipate parts and other aspects that they're going to need later on this year.

So, you know, those combinations of all of those pieces that are happening across the board, but it's just exciting to see it translate into a very positive Q1.

Yeah, I think we'll still see a normal seasonality in the parts of services that outages obviously create some of that, you know, happening as well too. But I think we'll, you know, Q2 will be always low like Q1 is and, you know, Q3, Q4 will do better for sure. I don't, we don't anticipate seeing much difference on that, even given the current aspect around it. But, you know, it's good to be a little bit ahead of the curve from a planning standpoint on where the demand is coming in on parts and services, but in seasonality is there. I know Cameron might have a different thought on that.

No, I think that's exactly right. I think, you know, I think there's some lower disorder, but I think the seasonality is a big part of it. So, no, I agree completely.

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 at Babcock. com. Thank you.