Babcock & Wilcox Enterprises (BW) Q2 2025 earnings call transcript

Thank you.

Thank you, Jayla, and thanks to everyone for joining us on Babcock and Wilcox Enterprise's second quarter 2025 earnings conference call. As Jayla said, I'm Sharon Brooks, Director of Communications and Marketing. Joining the call today are Kenny Young, BMW's Chairman and Chief Executive Officer and Cameron Frymeyer, Chief Financial Officer, to discuss our second 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 is required by law, we undertake no obligation to update any forward-looking statement. We also provide non-cap information regarding certain of our historical and targeted results to supplement the results provided in accordance with GAP. This information should not be considered superior to or as a substitute for the comparable GAP measures. A reconciliation of historical non-GAP measures can be found in our second 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 Babcock. com. I will now turn the call over to Kenny.

Thanks, Sharon. Well, good afternoon, everyone, and thanks for joining us on our second quarter 2025 earnings call. We generated strong operating results highlighted by strong performance from our parts and services business, which posted a 31 percent increase in revenues compared to the second quarter of 2024. This growth has been spurred by the rising need for power and electricity due to the rapid expansion of AI-driven data centers, as well as increased baseload generation usage across the consumer manufacturing and industrial sectors. In fact, most of our clients expect increases in baseload generation by up to 120 gigawatts over the next 10 years from data centers alone. As a result, we continue to work with our customers to evaluate opportunities to further augment their power generation capacity with either biomass, hydrogen, natural gas, and coal.

We are working closely with our utility customers to help extend the life and improve the efficiency of their existing coal and natural gas power plants. We believe this increased demand continues to position us for sustained success across our higher margin parts and services businesses and provides BMW with a strong outlook for the second half of 2025 and beyond.

Adjusted EBITDA, including diamond power, was 21.6 million for the second quarter, which was over 70 percent greater than street expectations and primarily driven by the 31 percent increase in higher margin parts and services revenue coming from coal and fossil fuel power plants in the U. S. and internationally as well. This reflects our intent to exit from certain large new-built projects internationally and while we continue to expand our parts and services presence globally to support coal and fossil fuel customers around the world, we also are actively pursuing large upgrades and new-built in the U. S. to support power generation needs and expect to make key announcements by the end of the year. Large project revenue will remain up and down each quarter depending on timing and quarter over quarter overlap of new bookings.

Company-wide revenues with diamond power came in at 170.8 million which is just ahead of street expectations. Revenue from continued operations without diamond power for the quarter came in at 144.1 million which is roughly the same as second quarter 2024 again mainly due to slightly lower projects while parts and services however saw a dramatic increase. Overall our revenues for the first half of 2025 from continuing operations without diamond power were up year over year to just under 300 million in top line revenues. Operating income increased to 8.1 million in the second quarter of 2025 and adjusted EBITDA without diamond power otherwise called adjusted EBITDA from continuing operations was 15.1 million in the second quarter of 2025 which is a 90 increase compared to 8 million in the second quarter of 2024.

Adjusted EBITDA from continuing operations more than doubled for the first six months of 2025 to 21.2 million compared to the first six months in 2024. The company's core business continues to perform ahead of expectations and we anticipate returning to positive cash flows in 2025 when excluding bright loop. Additionally through a combination of asset sales, debt reduction and improved cash flows the company has alleviated the previous doubt about continuing as a going concern. We believe we are well positioned now to win new plant conversions, plan upgrades and behind-the-meter data center projects in North America and beyond as we are in key discussions and negotiations on several opportunities and expect continued strong performance as we move forward through the year into 2026 and beyond.

During the quarter we completed the sale of Diamond Power International for gross proceeds of 177 million or roughly about eight times EBITDA. This further improves our balance sheet and reinforces the marked market value over underlying assets as we recapitalize our business. This represents a significant improvement in our net leverage ratios as we look to continue supporting our customers' long-term power needs and position the company for the advancement of our new technologies such as bright loop. We also recently entered into a private bond exchange with a limited number of note holders. These exchanges will help to reduce our annual interest expense by a little over one million annually while reducing outstanding debt and extending debt maturity to 2030.

This privately negotiated bond exchange resulted in 131.8 million of outstanding bonds due in 2026 being replaced with new bonds in the amount of 100 million . 7 that will be due in 2030. This represents a positive step in our restructuring and refinancing efforts while demonstrating continued support from our lenders and bond holders. Moving forward, we remain intently focused on our strategic vision and continue to explore the sale of other non-strategic assets as well as potential refinancing options to reduce our current and long-term debt obligations. 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 opportunities. Our backlog of 418.1 million at the end of second quarter was a 49 percent increase compared to the same period in 2024.

This represents another extremely strong quarter for our backlog as we continue to perform based on higher baselow generation demand in North America. 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 hydrogen or steam.

We're seeing an increasing activity for our bright loop technology both for steam generation as well as hydrogen production that can produce energy with lower cost and expenditures. In fact, we are in discussions with a number of oil and gas companies and large utilities about using bright loop for a specific steam or hydrogen generation projects. I'll now turn the call over to Cameron to discuss the financial details of the second quarter of 2025. Cameron?

Thanks, Kenny. I am pleased to review our second quarter results. Further details of which can be found in the 10Q that is on file with the SEC. Our second quarter consolidated revenues were 144.1 million, which is slightly lower compared to the second quarter of 2024. The difference is primarily related to timing of closing and starting of a select few large projects offset partially by an increase in global parts and services of 15.4 million. First half 2025 revenue came in at 299.9 million, which is an increase compared to the 292.3 million in the first half of 2024.

The increase is primarily driven by larger global parts and service volume, offset partially by timing a large project revenue recognition. Global parts and service revenue in the second quarter of 2025 increased by 15.4 million compared to the second quarter of 2024 and increased to 26.9 million in the first half of 2025 when compared to the first half of 2024.

This considerable improvement is primarily due to the increasing need for electricity from fossil fuels driven by the demand from artificial intelligence data centers and expanding incomes and economies. Net loss from continuing operations in the second quarter of 2025 was 6.1 million, which is a better result compared to a net loss of 20.5 million in the second quarter of 2024.

Loss in the first half of 2025 was 20.1 million compared to a loss of 38.2 million in the first half of 2024. Our net operating income in the second quarter of 2025 was 8.1 million, exceeding our quarterly expectations and outpacing and operating loss of 4.4 million in the second quarter of 2024. Operating income in the first half of 2025 was 8.4 million compared to an operating loss of 3.5 million in the first half of 2024. Our adjusted EBITDA was 15.1 million compared to 8 million in the second quarter of 2024 and adjusted even in the first half of 2025 was 21.2 million, an increase compared to the 10.8 million in the first half of 2024.

These increases are primary the result of higher global parts and service volume as a result of higher energy demand.

I will now turn to our balance sheet, cash flow and liquidity. Total debt at June 30, 2025 was 471.3 million and the company had cash, cash equivalents and restricted cash balance of 109.1 million. However, as previously announced on July 31, BMW closed the sale of diamond power for gross proceeds of 177 million. These proceeds will be primarily be used to pay down BMW's debt.

And as of July 31, total debt is expected to be 421.3 million with a cash in cash equivalents and restricted cash balance of 217.4 million. This leaves the company with net debt of approximately 203.9 million. The refinancing and reduction of our current debt obligations continues to be one of our top priorities. We have taken strategic steps to address our debt obligations and today we are extremely pleased to announce that BMW has alleviated the previous stock about continuing as a going concern. This is a major step forward for BMW and we believe that we are well positioned to support our customers in meeting the growing need for reliable and efficient energy including opportunities for new plant conversions upgrades and behind the meter data center projects.

We continue to explore the sale of additional non-strategic assets as well as potential refinancing options to reduce our current and long-term debt obligations as mentioned earlier. The proceeds of these sales will be used primarily to pay down the existing debt and enhanced working capital. I will now turn the call back over to Kenny.

Thanks Cameron. Well in closing again we delivered strong operating results in the second quarter demonstrating the progress we continue to make as we execute our strategic plan and drive further improvements in our balance sheet. We expect continued strong financial performance throughout the remainder of the year void by a global pipeline of over 7.6 billion identified project opportunities that remains healthy across all business segments. We believe BMW is well positioned to capitalize on the growing demand for base load generation while also supporting energy security and energy transition. Also want to recognize and thank our experienced and talented employees who continue to help drive the company's success. We greatly appreciate their efforts as well as the continued support of our global customer base and suppliers and we remain excited about the growth prospect ahead of us.

We look forward to continuing to demonstrate BMW's role in a leader and innovator providing leading powered generation and environmental solutions that meet the world's need for reliable power today while advancing technologies for tomorrow. I'll now turn the call over to Jayla who will help us with a couple questions. Jayla?

Yeah no thanks Aaron. We are actually so you know as I mentioned in the US North America alone right we're seeing the overall need the next 10 years go up to by 120 gigawatts which is about a 10 percent base load generation increase. Think about that in context of a you know a base load demand in the US it's been relatively flat over the years and you know now the entire aspect of the generation plus you know the grid infrastructure has to be enhanced and upgraded to hit that kind of demand. Specifically you know without giving names we do have a handful of customers that are now looking to build out you know up to 20 gigawatts within those potential areas of new generation to support data center demand that's taking place within those specific territories and they're looking at right now you know all aspects of energy generation including as you mentioned which is exciting for us obviously the potential around new coal generation or new coal power plants here in the US.

Obviously you know a lot of supports given towards the fossil fuel aspect and coal and natural gas are key drivers to support that base load generation. Exciting to us if we took that to the next step obviously and you know a lot of work still be done but the bright loop represents an opportunity there to actually use in that particular case because we can produce steam from bright loop then have to produce hydrogen but we can just produce steam directly from coal but isolate and capture the the CO2 which can either be sequestered or used for other beneficial purposes enhanced oil recovery or you know other capabilities either now or sometime in the future. So as we're continuing to work with those customers on that specifically a few customers where we're in discussions on projects with them to actually augment their power generation as they're trying to respond to these data centers it opens the door for us on a wide variety of technologies but you know inclusive bright loop leveraging coal as well.

So we're excited about those opportunities we're you know in discussions on several on those and you know anticipate hopefully you know an announcement or two yes this year obviously so still a lot of ways to go but a lot of momentum right now taking place that also adds that you know currently you know as I mentioned we're such an increase in our parts and services because a lot of the power demands to keep the current fossil fuel plants open including coal plants is really driven right now and so those are running full good news as though a lot of them now are being extended out for a longer term period of time and so there's a lot of opportunities for us to get in and work with those customers on making them as efficient as possible continue to work on providing the parts and services on this particular plant so you know we're in a good position to support them on accomplishing both directions one keeping everything going to obviously supplant or increase base load generation.

You know too early to tell is you know always get into the size and negotiations on these but you know out there but some of these you know typically would be in the you know in the low 100s and some of those might be a little bit higher than that and the size itself so we're we continue to work on those and on those plants but they're going to vary in size depending on the on the actual outputs on those particular sites that we're working on but to send to give a too much guidance there but you know there it's a positive outcome for us all around the good news is that revenue would be spread over you know a few year period of time and you know the back side of those is that we continue to provide parts and services those plants so provides a you know a base for us to continue to grow our core business on as well.

Not yet we're still working through I mean should be we're anticipating you know a strong year obviously because the parts of service is asked back which is higher margin for us you know for the for the rest of the year but also getting ready for 2026 as well too which you know we're seeing as a potentially strong year for us too so we're we're trying to work on both right now and obviously we'll come out with guidance before the end of the year on that that's our intended way but still working through both those.

Yeah I think when you look at the second half of the year I think you know just taking the final six months will be cash positive. You know we're working on getting the what these the sale of the assets getting the interest down so that that'll help out quite a bit and as we ramp up on some of our at the the natural gas conversion project that that'll bring in some cash as Kenny mentioned to the parts and services is growing which is helping cash flow as well so yeah we have pretty good confidence that second half a year will generate positive cash.

Thank you. Thank you Rob.

Yeah so so some of these plants obviously you know they vary in all of the states that are out there in the US but you know some that may have had a shorter lifespan where they may look to convert some of those or you know perhaps close some of those started to slow down and ramp down they're buying a parts and services to work on those plants so when they extend them out for a longer period of time you know they have to go back and start looking at you know some of the bigger pieces right and as well as the efficiency of those plants and maybe we look at some of the environmental aspects and blah blah blah so there's just follow on aspects to keeping those plants running for a little bit longer term or the longer term that you know bode well for us in the short order so that's that's all a positive and clearly you know as the plants run longer on that particular path back of it it just extends out the revenues that we realize from those plants in a longer period of time so both of those are solid for us and very helpful to us but that's really the reason why in the extension is good for us short term.

On bright loop specifically or yeah correct. Yeah so so there's quite a few I'm going to give a number just as a quick range here but you know well over 10 that we're working on in bright loop but the the I think you know the exciting part and always the hardest part about a new technology is that it does multiple things so you know bright loop fundamentally can can produce sin gas such as hydrogen nitrogen other aspects that we can actually create ammonia from it as well or we can just produce steam from from bright loop. Same fuels as hydrogen doesn't matter for us it's just we have a you know less one reactor so if it's just steam we have a fuel reactor and a steam output if it's hydrogen we have three reactors to produce the hydrogen from so it just depends on the application but you know the exciting part is that bright loop by itself actually can produce steam from coal or natural gas or steam or from biomass and other fuels as well to drive a turbine for electric generation that's out there on that so when we you know look at what working with a lot of operators not only here but some on the international front you know in some cases if it's steam related just another focus on that for a second you know we are in discussions with a few utilities and power plants around the concept of just creating steam from coal or natural gas but giving the option to capture the co2 they may not need to capture the co2 today but you know under a different environmental aspect or decision to curve more co2 in the future they would have the luxury to curb capture or store or see question the co2 pretty cost effectively because it wouldn't require a lot of incremental capital or operational expense to make that happen compared to other technologies to capture the co2 so while you know we have momentum here especially in the US with the the basal generation demand you know the abilities to use more fossil fuels given the current administration aspect around it it's some of the plants and sites now or taking a close look at how bright loop either under feed studies or further engineering studies would be able to to meet or be a part of meeting that new baseload generation but allow for them to to hedge against the future if there is a point of which they needed wanted or there was some incentive or you know some other requirement to isolate the co2 they could do that in a very economical fashion so you know with with a stranded you know boiler in a coal plant or a standard combined cycle plant or whatever might be considered today you know you would have to add a post combustion technology to capture the co2 bright loop eliminates the post combustion aspect of that so you can build out a power plant today isolate co2 if you want to let co2 go in the atmosphere got it if you want to see question the co2 you can the the point of it is is that we give that optionality to the customer and not have a dramatic increase on any future CAPX nor is there an impact on the parasitic load of the plant so you keep the efficiency overall of that particular plant at bay so it's a it's a it's a very intriguing technology and you know with the momentum that we're seeing here around it that concept around bright loop is becoming realized and some of these opportunities and so we'll see where it goes but but clearly we're working with our customers on those you know we're we are seeing in parallel some opportunities around biomass to steam actually here in the u. s. some of that with an oxy combustion kind of carbon capture process where they're looking at those opportunities and we're in discussions on those and there are some other you know home waste or other aspects on power plants that are in discussions right now here in North America about providing steam for those plants drive a turbine and providing basal generation using you know alternate forms of fuel so all of those are exciting for us and we are in direct dialogue on specific projects that cross each of those areas right now great thank you alternative at this time there are no more questions where is in queue I like to pass the conference back over to our hosting team for closer remarks this concludes our conference call today our replay of the call will be available for a limited time on our website thank you for joining us that will conclude today's conference call thank you for your participation and enjoy the rest of your day