Hello, all, and a warm welcome to Babcock & Wilcox Second Quarter 2023 Earnings Conference Call. My name is Louisa, and I’ll be your moderator for today. [Operator Instructions] I now have the pleasure of turning over to your host today, Sharyn Brooks. Sharon, please go ahead when you’re ready.

Thank you, Louisa, and thanks everyone for joining us on Babcock & Wilcox Enterprises second quarter 2023 earnings conference call. I’m Sharyn Brooks, Director of Communications. Joining the call today are Kenny Young, B&W’s Chairman and Chief Executive Officer; and Lou Salamone, 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 10-Q that was filed today and our Form 10-K 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 second quarter earnings release published this afternoon and in our company overview presentation that was filed on Form 8-K 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, Sharyn. And thanks everyone for joining us this afternoon. Well, as mentioned in our earnings release, we exceeded our company expectations in revenues and adjusted EBITDA for the second quarter of 2023, demonstrating the continued momentum we've experienced across all business segments. Revenues across all segments posted a second consecutive quarter of double-digit revenue expansion on a year-over-year basis with renewable, environmental and thermal increasing by 31% and 54% and 36%, respectively. In tandem, we recognized an underlying improvement in revenue adjusted EBITDA and net loss on a year-over-year basis, despite increased spending in support of our emerging and new technologies in our renewable energy segment. These investments include sales, marketing, engineering, research and development and back office services and are all important to support future growth from our clean energy segments. We are seeing our pipeline increasing to $9 billion of new projects over the next three years, which again, does not include our continued strong parts and services platform. In fact, we are seeing more than $1 billion in Bright Lube opportunities alone, and we'll be sharing more about that later in this call. Our bookings in renewable increased by 28% in Q2 of 2023 versus Q2 of 2022. Our Environmental segment was consistent and helped approximately the same amount of bookings and backlog year-over-year. Thermal bookings were lower quarter-over-quarter, primarily due to a large equipment supply construction project that we announced in 2022. However, thermal parts bookings increased by 17% year-over-year, quarter-over-quarter. Overall, our backlog was lower quarter-over-quarter by 6%, again due to the large thermal project mentioned previously in 2022, but our outlook for new booking opportunities remains robust, and we are projecting backlog to grow significantly to a range of $850 million to $1 billion by year-end 2023, which includes key projects in both…

Thanks, Kenny. I'm pleased to discuss our second quarter results, further details of which can be found in our 10-Q that was filed with the SEC today. Our second quarter consolidated revenues were $305.2 million, which is a 38% improvement compared to the second quarter of 2022. This is primarily attributable to higher volumes in our renewables segment due to renewable service and our solar based businesses, higher overall volume in our Environmental segment and increasing thermal segment volume due to higher levels of construction and parts activity. Our net operating income in the second quarter was -- of 2023 was $7 million as compared to an operating income of $3.7 million in the second quarter of 2022. This second quarter included a onetime gain on the sale of an asset. Our adjusted EBITDA was $21.9 million compared to $22.9 million in the second quarter of 2022, which when adjusted for the onetime sale of the asset in the second quarter of 2022, represents a significant improvement in adjusted EBITDA from $15.9 million to $21.9 million. Bookings in the second quarter of 2023 were $191 million, and we had an ending backlog of $567 million. Our loss per share in the second quarter was $0.10 compared to a loss per share of $0.07 in the second quarter of 2022 or a loss of -- in 2022, a loss per share on an underlying basis when excluding the noncash pension benefit of $7.4 million, and this also included the onetime gain on the sale of the asset, which I previously mentioned. I'll now discuss our second quarter segment results. Within our Babcock & Wilcox Renewable segment, revenues were $98.9 million for the second quarter of 2023 and which is an increase of 31% compared to the $75.2 million in the second…

Thanks, Lou. Well, in closing, we continue to position Babcock & Wilcox as the leader within the broader clean energy transition, further developing our suite of decarbonization solutions while continuing to support our thermal customers. With our line of sight into expanding new bookings, opportunities and expanded pipeline of over $9 billion in identified global projects, including our BrightLoop hydrogen generation technology, we are excited about the remainder of 2023 and the industry tailwinds in place for 2024 and beyond. Our momentum in the first half of the year wouldn't have been possible without the dedicated team of B&W employees driving these initiatives behind the scenes. I would like to thank all of our employees for your continued efforts in moving these innovations forward and also supporting our customer projects, both domestically and abroad, while working safely and providing the highest quality performance and operational success. In addition to thanking our employees, we also want to extend our appreciation to our valued customers, shareholders and trusted partners for their continued support and belief in our company. Our commitment in driving innovation forward is central to B&W's mission, and we look forward to working with you and building upon our accomplishments in the years to come. ?:

Thank you. [Operator Instructions] Our first question today comes from Aaron Spychalla of Craig-Hallum. Aaron, please go ahead when you're ready.

Hi, Kenny and Lou, thanks for taking the questions. Maybe first on my end, can you just talk a little bit about the NorthStar Clean Energy project and just kind of what the opportunity on the revenue side is there and maybe time line milestones as we look to kind of Phase 1 to Phase 2? And then is there anything else you can share there on the opportunity with this customer or other customers on like the biomass side of things?

Sure. Yes, I'd be happy to. Thanks, Aaron, first of all, for joining today. So the key kickoff project, which we announced was the -- obviously, the engineering study and phase, and that's -- it's small revenues for us, probably roughly $1 million for that phase of the project overall. The intent would be that, that's complete here in probably early fourth quarter and finalizing that by year-end with the client. We anticipate once they move past that phase when they -- if they move into the full project phase of the project, which is a 75-megawatt biomass facility, our efforts in this regard on this project will be more focused towards the decarbonization aspect of that plant and site. So the SolveBright Technologies will be positioned well there for that, and we're excited about that opportunity. Ballpark, if we were to move to a full project phase, we think about the revenues being somewhere in the $90 million to $100 million-ish range, plus or minus, depending on exact scope and finalizing that particular contract. And that probably would be something that would be if we get to that range or that step would be a booking that we would realize somewhere mid next year, third quarter, maybe something like that. So -- but that's the exciting part is one of the early opportunities around our SolveBright Technology, and we're excited to see that move forward.

Got it. Thanks for the color there. And then maybe just second, can you just -- on the backlog and kind of the guidance, can you just talk a little bit about the confidence you have in the second half and kind of reaching the guide? And then just you kind of laid out the $850 million to $1 billion. Just any color on what areas drive that?

Yes. No, that's -- I think I said $850 million to $1 billion, but I want to clarify, you're right, it's $850 million. So thanks for clarifying that. But there's obviously a number of projects that we have that we're in negotiations on that are sizable projects in both thermal as well as in the clean energy technology that we're involved in today. Some of those -- obviously, when we give a range, we're anticipating some of those to happen and some may get pushed into early next year. But we've got a number of those projects that we're in negotiations on right now. From an internal planning perspective, we thought 1 or 2 of those may move into bookings more in the Q2, Q3, but there they're slipping into Q3, Q4. But we're -- and 1 or 2 of those may slip into next year. That's why we provide the range of the $850 million to $1 billion. But we see a pathway to those opportunities, and we're in discussions and negotiations on those as we speak. So that's what gives us the confidence in those numbers. Hopefully, that helps, but happy to answer more if I can.

No. I think that's good. Thanks for taking the questions. Appreciate it.

No, no problem. Thanks, Aaron. I appreciate it.

Thank you for your question, Aaron. Our next question today comes from Rob Brown of Lake Street Capital Markets. Rob, please go ahead.

Hi, Kenny and Lou. On the Bright Lube pipeline, you've gotten -- you've gotten more bullish on the Bright Lube pipeline and sort of scoped it out a little bit more definitively here. What's sort of driving all that comment? I assume, it's a number of customer interactions, but where are the customers at? And is it driven by some of the IRA and other legislation?

Yeah. Well, combinations of all that. So it is more bullish because of the interactions that we're having, both on the Wyoming aspect and the Louisiana aspect initially on those two. There's excitement for us anyway, and I won't -- can't comment much further, but in and around discussions we're having in the oil and gas industry on potential projects using petroleum coke or pet coke as a fuel source as well to, plus a number of other projects. We're also seeing discussions and we're moving into specific long-term planning around, as I mentioned in the call, scale up from the initial medium-sized projects in both those locations, Louisiana and Wyoming, to large size units, both those locations, the need for hydrogen on both of those are much bigger than the medium units will provide, but the scale-up is in discussions right now, and we see pathways to move those forward a little bit. Further once we get the medium size up and running. So we've got pathway into large units and see visibility into those. We see visibility into other projects, like I said, in the oil and gas industry as well as a few others that are around the world. That's on, I would call it, I'm saying immediate opportunities, meaning opportunities that we're actively engaged in. We're in early discussions with on other projects potentially in Europe and elsewhere, that give us confidence in those around our ability to get to those bookings and backlog that I mentioned. I'm sorry, our bookings and revenues that I mentioned on the call associated with Bright Lube. So the uniqueness for us is we're one of the only technologies that can leverage a, a solid fuel aspect on a scale-up environment to produce hydrogen and also isolate the CO2. The…

Okay. Thanks. And then in general, on your pipeline growth or your increase in your pipeline estimate, how much of that or how is the European waste energy market at this point? Has that increased as well?

Yes. We're seeing some opportunities in waste synergies, still strong in the European market. UK, in particular, is still strong for new build projects. We're starting to see more demand, I think, which is great for our renewable services business and platform in Europe, where older plants are requiring upgrades and new services, either to expand their size or platform or just update the technologies and/or various parts and services that traditionally B&W hadn't been involved in. So we're seeing that as well, too. And we're -- obviously, I think we tried to show that excitement in the release and on the call, but our renewable services group in Europe is doing a great job and we're seeing the increase in revenues on that platform as well. So we mentioned earlier an announcement, I guess, late last year that were involved in the low stock project, which I think now is the largest in the United Kingdom presently from a plant size standpoint, there will be others, and we're involved in discussions on some other projects as well, which would be potentially part of that backlog that we talked about, but clearly in our pipeline, too.

Okay. Thank you. I’ll turn over.

I will add to that. But no, that's good, Rob. I'll just add to it because I think it's important. We're starting to see early, early on but we're starting to see a number of potential projects emerge in the US as well in the waste energy segment, and that's exciting for us, and we're in discussions with a number of partners on those projects, but we're starting to see some early demand around waste energy here in the US, and I think that's an exciting development. So nothing, I don't think we would see anything in any potential bookings until the latter part of 2024 or early 2025, somewhere in that neighborhood. But those take time, obviously, to develop, but there's a number of them beginning to develop here in the US, and I think that's exciting news for us. It's been a while. Anyway--

Thanks.

Thank you for your question. Our next question today comes from Brent Thielman of D.A. Davidson. Brent, please go ahead.

Hey great. Thanks and good afternoon or evening. I guess, Kenny, you gave us a little flavor for the financial prospects around BrightLoop, we appreciate the added color there. Since you gave us kind of the revenue opportunity, I got to ask how we ought to think about maybe the margin opportunity from the business such a unique sort of technology to you in terms of what you're offering here. I presume at least margin opportunity may be in excess of kind of the legacy B&W businesses, but any thoughts there?

Yes. No, we fully anticipate and expect it to be a strong margin uplift to B&W overall. As we mentioned, the different sized platforms, rough order of magnitude, we're fully anticipating those to be in the 20% to 30% gross margin range on those new build projects that we're involved in. The other key piece that I mentioned -- or tried to mention anyway, was that we also anticipate follow-on on an annual basis of about, call it, $200,000 to $250,000 roughly of additional revenues on per ton of hydrogen produced. So, if we deploy several, I don't know, 400, 500 tons of hydrogen, you could multiply that out times $200,000, $250,000 a year in additional incremental revenues from follow-on parts services and particle and we fully anticipate that to be a much higher margin than the initial projects. So, hopefully, that helps. But that's how we're thinking about it in terms of our future cash flows and we wanted to reflect that in the call.

Got it. Appreciate that. Just back on the visibility toward the backlog figures. You talked about potentially by year-end $850 million to $1 billion. Maybe just what stages these various opportunities are? I guess I'm getting at Kenny, are these things that you've been selected for, but not -- just not signed yet. I just wanted to understand that a little more.

Some of -- that's both. Some of those were -- we've been selected for and we're in discussions on our negotiations in contracts. Some of those are where we're down to us versus one other, and we're highly confident that, that will come our way for either technology purposes, competitive purposes. We've got strength in -- if we go to some of the thermal projects and the fact that we provide union construction opportunities combined with our technologies and we're involved in a couple of projects on the thermal side that would require both unit construction and the technology component, and we're really in a strong position to provide that. And that -- and it's with customers that we've got -- also customers that we've got strong prior history in performing services and work forward. So, those all give us the confidence that we can reach those backlog numbers if that makes sense.

It does. And maybe just lastly, the solar arena for you. I know that's a business you've been ramping up quite a bit. Maybe just an update on the progress you're seeing there?

Yeah. As we mentioned on the solar side, we're starting to see for us, not the market. The market demand has been there, but we're starting to slowly pick up our share of opportunities. And as mentioned, with what we have either been awarded just -- we just announced in July or projects that were well and part of that $850 to $1 billion, but projects that were well into discussions on, we fully intend and plan and should be able to announce at least $100 million in bookings in solar for the second half of 2023, which would double from last year. There are more opportunities than that in the solar market on the community and utility scale. Clearly, we are improving or working to improve the margins on those projects, primarily as we've expanded that business. And as I mentioned on the call, we're investing in some back-office systems as well as a critical part is more self-performance on those projects around those solar services. And so those are two areas that we're actively involved in and we'll continue to invest in. But we are seeing that growth on the solar opportunities. And as we mentioned before, the key thing that we're seeing constantly as we get into these renewable energy projects, many at the state level and some of the state funding and the IRA require solar aspects as well as clean energy aspects and/or CO2 sequestration and some of those are opportunities long term that we're starting to see that would blend some of those services where we're pulling together solar in conjunction with possible other green energy or clean energy projects in the marketplace. So we'll see that in full probably next year more as the IRA kicks in fully, but a lot of the…

Okay. Thank you.

Thank you for your question, Brent. Our final question today comes from Alex Rygiel of B. Riley Securities. Alex, please go ahead.

Thank you. Good morning, Kenny and Lou. It looks like you've got a lot of exciting things going on here long-term. A couple of questions for you first. Backlog, $567 million, your projection of $850 million to $1 billion by year-end is pretty fantastic growth. Can you just keep it simple and help us to bridge from $567 million to $850 million to $1 billion. It sounds like $100 million is coming out of solar, but maybe give us a few other bigger chunks that can help walk us there?

Yes. We have -- a great question, Alex. By the way, thanks for joining. We have a number of, I won't get specific because obviously, we're in negotiation discussions. But we have a number of projects out that we're involved in. Some of those are larger projects that are in the $150 million to $200 million range that we're involved in, both thermal and in our, I would say, thermal and renewable energy to keep it simple primarily. There's some smaller ones in environmental. But the larger ones that I'm referring to are in renewable and thermal both, and we're in discussions on those projects. But some of those are new build opportunities in waste energy and biomass energy. Some of those are continued upgrades enhancements and conversion in the thermal sector. But we have several large projects that are in the $100 million plus range. I guess, a couple that could be in the $200 million plus range that would be potentially part of that scale up from the $850 million to $1 billion.

That's very helpful. And then, with that said, can you talk about your comfort level and guidance of the $100 million to $120 million, and clearly, if backlog is at $850 million to $1 billion, I got to suspect you're going to have incrementally greater confidence in strong growth over that $100 million to $120 million this year out in 2024. So maybe talk about those two points?

Yeah. No, I mean it would -- the backlog would come in, obviously, in timing of EBITDA, adjusted EBITDA impact this year will be greatly dependent on when that backlog hits, right? Obviously, we're -- from a cost standpoint, we have to get those projects in and going. Obviously, some will happen before the end of the year and some will happen more in November, December. So there's always a timing issue there around that. It would allow us to really focus on growth opportunities for 2024. The offset to that would only be -- as we mentioned on the call, obviously, we continue to invest in these new technologies, BrightLoop as well as biomass with the carbon or oxy combustion, or carbon capture associated with that, as well as some of the new environmental Bluegrass treatment technologies we brought to marketplace. So we constantly have to balance, the expense and spend towards investing in the future growth of the platform to support those new technologies versus the run rate EBITDA in the business. But that's -- try to indicate that on the -- in the call as well that we balance those two. But clearly, one of site, we've got growth that we see, obviously, getting the backlog in would support -- some of that backlog will be spread over 2024, 2025, 2026. Some of that backlog will actually be 2025, 2026, 2027. So from a revenue timing standpoint, they'll vary depending on the specific project on the revenue impact and the timing of that revenue. But I don't know Lou.

Yes. I think you'll see, Alex, when you look at the Q, the backlog runoff is about 60% of that $560 million, $570 million runoff this year and then about 30% next year. And then as Kenny said, the rest thereafter. So that's the immediate backlog that we have literally under contract. And then there'll be additional backlog. And then we don't include a substantial amount in backlog for the parts business, because that's kind of a book-and-bill business, so we don't really put much of that -- consider that in the backlog. So that gives us the confidence of hitting these numbers for '23 and beyond.

Thank you.

Alex, thanks.

Thank you. That concludes the question-and-answer session. We have no further questions. Thank you, Kenny and Lou for your prepared remarks. I will now pass the call back to Sharyn Brooks for any closing remarks.

Thank you for joining us. That concludes our conference call. A replay will be available for a limited time on our website later today.

Thank you all for joining today's Babcock & Wilcox Second Quarter 2023 Earnings Conference Call. Have a good rest of your day. You may now disconnect your lines.