Babcock & Wilcox Enterprises, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• The company achieved significant operating margin improvement through strategic actions like avoiding lower-margin projects, improving project performance, and cost reduction. Adjusted EBITDA increased year-over-year.
• Completed the sale of SPIG and GMAB businesses for net proceeds of $33.7 million, with over $116 million raised from divestitures in 2024. Remain in negotiations for other asset sales and evaluate debt refinancing.
• Strong demand for diverse technologies supporting energy generation, with over $9 billion in project opportunities over 3 years, including $2.4 billion in BrightLoop and ClimateBright. Had 12-15 active FEED studies worth over $1 billion.
• Progress on BrightLoop projects, including a tentative $10 million forgivable loan in West Virginia for a project using local biomass and coal. Ongoing work on projects in Ohio, Wyoming, Louisiana.
• Achieved $26.5 million in cost savings in Q3, targeting over $30 million annualized cost savings.

Segment Performance

• Renewable segment: Revenues were $38.2 million in the third quarter of 2024, a decrease compared to the same period in 2023. Adjusted EBITDA was $5 million, a 51% decrease from $10.1 million in Q3 2023. Bookings in Q3 2024 were $40.8 million, exceeding Q3 2023's $32.7 million.
• Environmental segment: Revenues were $56.6 million in Q3 2024, an increase of 22% from $46.4 million in Q3 2023. Adjusted EBITDA was $4.7 million, slightly lower than the $5 million in Q3 2023.
• Thermal segment: Revenues were $119.9 million in Q3 2024, a 12% increase from Q3 2023. Adjusted EBITDA was $18.4 million, an increase from Q3 2023's figures, driven by a large natural gas project and increased parts volume.

Guidance

• Revised full-year 2024 EBITDA target to $91 million to $95 million, excluding BrightLoop and ClimateBright expenses.
• Anticipate spending $10 million to $15 million in 2024 on BrightLoop projects and technology advancement.
• Expect strong operating momentum in Q4 driven by Thermal and Environmental segments, with seasonal strong results expected.

Risks

• Onetime items: $5.8 million noncash impairment from SPIG asset sale and $4.9 million settlement for exiting a loss-generating maintenance contract affected results.
• Dependence on successful divestitures and debt refinancing to improve balance sheet. Uncertainties in timing and conversion of FEED studies into active projects.

Question and Answer

Q: Talk about the EBITDA guidance relative to past guidance.

A: The guidance was reset based primarily on the divestiture of SPIG and GMAB businesses, bridging the gap between the new target and previous projections.

Q: What's the traditional conversion rate on 12-15 active FEED studies worth over $1 billion?

A: Roughly a 40-50% conversion rate, with timing varying from within a year to 2-3 years before converting into active projects.

Q: Timing and cadence of revenue from the natural gas conversion project in Indiana?

A: Revenues will start to kick in in 2025 and continue through 2026 and into 2027, with several prospects in the pipeline for natural gas conversions.

Q: Timeline for the Massillon BrightLoop project?

A: Long lead items ordered, ramping in early 2025, with targeting to produce hydrogen by early 2026 and full commercial operation around Q2 2026.

Q: Details on the West Virginia forgivable loan project?

A: Targets a small to midsize BrightLoop facility utilizing local biomass and coal, aiming to be operational by 2030.

Q: Thoughts on free cash flow outlook for 2025?

A: Free cash flow conversion expected to be around 40% after accounting for interest expenses and approximately $10 million in BrightLoop capitalized costs, with letters of credit expected to decrease as divestitures are completed.