Babcock & Wilcox Enterprises, I Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Margin Improvement: Significant year-over-year operating margin improvement, with adjusted EBITDA, operating income, and net income up excluding BWRS revenue and onetime items.
• Asset Divestitures: Completed sale of SPIG and GMAB businesses for net proceeds of $33.7 million, with over $116 million raised in 2024 from divestitures.
• BrightLoop and ClimateBright: Progressing with projects, including BrightLoop in Massillon, Ohio targeting hydrogen production by early 2026, and a tentative $10 million forgivable loan agreement in West Virginia.
• Cost Savings: Achieved $26.5 million in cost savings in Q3 2024, working toward $30 million annualized.
• Backlog and Bookings: Implied backlog 48% higher than Q3 2023 excluding divestitures, and implied bookings over $800 million in Q3 2024.

Segment Performance

• Renewable Segment: Revenues were $38.2 million in Q3 2024, a decrease from Q3 2023 due to the divestiture of BWRS. Adjusted EBITDA was $5 million in Q3 2024, down 51% from $10.1 million in Q3 2023. Bookings in Q3 2024 were $40.8 million, up from $32.7 million in Q3 2023.
• Environmental Segment: Revenues were $56.6 million in Q3 2024, an increase of 22% from Q3 2023, driven by domestic industrial and European Environmental growth. Adjusted EBITDA was $4.7 million for the quarter, slightly down from $5 million in Q3 2023.
• Thermal Segment: Revenues were $119.9 million in Q3 2024, an increase of 12% from Q3 2023, primarily due to a large natural gas project and increased parts volume. Adjusted EBITDA was $18.4 million in Q3 2024, up $11.3 million from Q3 2023.

Guidance

• EBITDA: Revised full-year 2024 EBITDA target to $91 million to $95 million, excluding BrightLoop and ClimateBright expenses.
• BrightLoop Spending: Anticipate spending $10 million to $15 million in 2024 on BrightLoop projects and technology advancement.
• Pipeline: Over $9 billion of identified project opportunities globally, including $2.4 billion in BrightLoop and ClimateBright.

Risks

• Onetime Items: Noncash $5.8 million impairment from SPIG asset sale and $4.9 million settlement to exit a loss-generating maintenance contract.
• Letter of Credit: Letters of credit in $80 million range, with some rolling off as divestitures occur, but new letters may come with new business.
• Project Timing: Timing of FEED study conversions and project ramp-ups can vary, affecting revenue recognition.

Question and Answer

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

A: New guidance is $91 million to $95 million, adjusted for SPIG and GMAB divestitures, bridging the gap from previous targets.

Q: Traditional conversion rate on FEED studies and portion in backlog.

A: FEED studies have a high conversion rate (roughly 40-50%), but they are smaller in revenue terms and timing of conversion can vary.

Q: Timing and cadence of coal to gas order revenue.

A: Revenue will start in 2025 and continue into 2026 and 2027; several natural gas conversion prospects in pipeline.

Q: Massillon project timing and West Virginia loan.

A: Long lead items ordered, ramp-up starts early 2025, targeting hydrogen production by early 2026; tentative $10 million forgivable loan in West Virginia for BrightLoop project.

Q: Balance sheet letters of credit and free cash flow outlook.

A: Letters of credit in $80 million range, some rolling off with divestitures; free cash flow conversion around 40% after accounting for interest and BrightLoop costs.