Babcock & Wilcox Enterprises, Inc. Q3 FY2023 earnings call

Management Statement and Operational Highlights

• Broad-based revenue growth across segments, with third quarter revenue at $239 million, a 13% improvement y-o-y. Adjusted EBITDA from continuing operations was $20 million, up $7 million (54%) y-o-y.
• Bright Lube and Climate Bright updates: Progress on hydrogen projects in Ohio, collaboration with Air Products, MOU with General Hydrogen, and progress in Wyoming and West Virginia. Dr. Naomi Boness joined the board for energy sector expertise.
• Strategic business realignment: Focus on aftermarket parts and services to generate more predictable cash flows, aiming for $30 million annual cost savings, refinancing plans, and reclassifying solar business due to higher risks and margin profiles.
• 2023 adjusted EBITDA target from continuing operations: $85 million to $90 million (excluding Bright Lube and Climate Bright expenses). 2024 adjusted EBITDA target: $100 million to $110 million (excluding Bright Lube and Climate Bright expenses).

Segment Performance

• Renewable segment: Revenues were $7.1 million in the third quarter of 2023, an 11% increase compared to the third quarter of 2022. Adjusted EBITDA was $10.1 million in Q3 2023, up from $4.5 million in the same period last year.
• Environmental segment: Revenues were $46.4 million in Q3 2023, a 4% increase compared to Q3 2022. Adjusted EBITDA was $5 million in Q3 2023, up from $3.1 million in Q3 2022.
• Thermal segment: Revenues were $107 million in Q3 2023, a 17% increase compared to Q3 2022. Adjusted EBITDA was $11.3 million in Q3 2023, up from $10.8 million in Q3 2022.

Guidance

• 2023 adjusted EBITDA target: $85 million to $90 million (excluding Bright Lube and Climate Bright expenses).
• 2024 adjusted EBITDA target: $100 million to $110 million (excluding Bright Lube and Climate Bright expenses).
• Bright Lube and Climate Bright expenses expected to be under $10 million.
• Pipeline over $8.5 billion, with approximately $1 billion in Bright Lube opportunities, aiming for $1 billion in bookings by 2028 and $1 billion in revenues by 2030.

Risks

• Delays in large newbuild project negotiations due to higher interest rates and geopolitical factors, causing some projects to slip into 2024.
• Uncertainty in recovering impairment charges related to reclassified solar business (up to $40 million recovery not assured).
• Risks associated with Bright Lube and Climate Bright project financing, revenue flow, and timing of state/federal funding.

Question and Answer

Q: Can you just talk a little bit more about the exclusion of kind of Bright Lube and Climate Bright there. What those investments might look like as we think about 2024 and then maybe just elaborate a little bit you talked about some kind of project level financing and other things that you're pursuing there.

A: Sure, now be happy to. So I would think about Bright Lube and Climate Bright from a broader company expense standpoint to be, I don't know, under $10 million, but 5 to 7, perhaps somewhere in that neighborhood and just to give some transparency there. From a B&W standpoint, obviously, the project financing that we're referring to will going at the project level, versus an impact necessarily to B&W. So there'll be a timing and depending on how that project financing is set up, and the exact structure of ownership of those particular projects, how the revenue will flow back and forth to B&W, as we've mentioned in the past. But from an expense perspective, rough order of magnitude, that's how we're thinking about Bright Loop and Climate Bright.

Q: Hey, can you -- well, I just wanted to confirm the 2024 ebida target is 100 to 110 ex-Bright Lube and Climate Bright?

A: That's correct. Yep.

Q: Good afternoon. I just want to clarify a little bit more on your comments on the realignment and the and not sort of pursuing these larger projects. Sort of what kind of the -- assuming the waste energy, but are you are you then no bidding projects? Or how do you sort of go to market with that and have you changed your focus there?

A: Yeah, it's not as complicated as it sounds. We were simply twofold and I'll explain it further. We have certain opportunities in certain parts on waste energy particular international opportunities require certain security package levels. The certain security packages, i.e. LCs letters of credit, as it relates to us come with high interest rates, right. So a lot of in waste energy, the margins are not as high on newbuild, clearly not as high as our aftermarket parts and services on renewable services. But those letters of credit and the interest associated with the really compresses the margins, plus, you know, additional risks. So, as we look at going forward two aspects, there are opportunities and projects that we're in discussions and negotiations on regarding waste energy, specifically, that would have higher margin potential or targets associated with them, that are well above and beyond the interest expense associated with the letters of credits. So those are positive ones are opportunities for us to pursue that. But we want to remove the reliance of that in our forecasts so that they're more upside rather than a necessity, if that makes sense. But secondarily, we do see an expansion opportunity on licensing, we have been licensing our waste energy technology in several markets, and that typically comes at even higher gross margins, and significantly lower amounts of letters of credit. So the interest rate expenses are, or the cost of that are much more attractive to us from a margin standpoint.

Q: Thanks. Good evening, Kenny and Lou, a lot going on here. So let's get into a couple of things. First, as it relates to the $30 million in annual cost savings. Can you comment on the timing of that? And how important is that in getting to your [Indiscernible] $100 million to $110 million next year?

A: Yeah, some of that is already started. And will help out a little bit in Q4 and clearly will kick in heavily into Q1 on that. Yeah -- so that process has already begun. Obviously, we're taking steps some of the timing of that may be more in Q1 than now. But they've been identified and those are in process to be implemented, I guess, that's way to describe it.