Q3 2021 Babcock & Wilcox Enterprises Inc Earnings Call
This plant is expected to be one of the largest green hydrogen hubs and south Eastern Australia.
To further enhance our bright loop offering we recently signed an exclusive global licensing agreement with the Ohio State Innovation Foundation for a chemical looping process and particle used for de carbonization and the production of hydrogen steam or syngas, which complements <unk> existing chemical looping technology.
Portfolio.
This technology was jointly researched and developed in collaboration with the Ohio State University and it's used to produce hydrogen from syngas at successfully been demonstrated at the U S national carbon capture spinner.
The joint research by OSU, and BMW has proven how fully scalable and adaptable. This technology is for both large and small installations and we are excited about its transformational potential.
We are continuing to actively work on and progress roughly 20 potential comment by projects to determine the best carbon capture solution based on customers specific needs and anticipate booking additional climate bright projects in the coming months.
We further expanded our clean and renewable energy business by announcing two acquisitions in the third quarter. We closed the acquisition of a controlling stake in leading commercial solar installation firm now called Fosler Solar services at the end of September and we are thrilled to welcome the talented <unk> team to <unk>.
<unk> and excited about the substantial opportunities to work together on solar installation and construction services in the U S. We are confident that <unk> strong presence in the energy industry will provide the synergies and scale to further accelerate fosters growth, including access to <unk> existing.
<unk> customer relationships and resources to support larger projects.
We are seeing early opportunities to combine solar with BMW long term energy storage solutions and look forward to continuing our efforts to drive these newer technologies.
We also signed an agreement to acquire vote Aaas in Denmark, a flexible scalable aftermarket parts and services business, serving renewable energy waste energy and biomass customers in conjunction with <unk> existing aftermarket service business Votable form BMW renewable services to create a <unk>.
Platform for our expanding renewable service business in Europe. This transaction is targeted to close by the end of the year. Following the satisfaction of customary closing conditions, including regulatory review in Denmark, which is currently ongoing.
We are continuing to explore additional acquisition opportunities in both emerging technologies in mature markets and aggressively pursue opportunities to further increase shareholder value through acquisitions.
I'll now turn the call over to Lou discuss key points of our financial performance in the third quarter of 2021 Blue.
Thanks Kenny.
Our third quarter consolidated revenues were $160 million. This is a 21% improvement compared to the third quarter of 2020.
This improvement is primarily due to a higher level of activity in our project business within our thermal segment as well as increased volume and higher overall project activity in our environmental segment. This was partially offset by the effects of project timing in our renewable segment due to COVID-19.
Revenues in all segments were adversely impacted.
By COVID-19, as customers delayed projects and travel restrictions limit the ability of our workforce to be at job sites.
Our GAAP operating income in the third quarter of 2021 was $14 8 million compared to operating income of $14 1 million in the third quarter of 2020.
The third quarter of 2020, however included a $26 million.
From a settlement agreement with an insurer.
This increase was primarily due to earlier referenced increases in revenue and.
Our increase in <unk> and an increase in our gross margins.
Adjusted EBITDA was $18 7 million compared to 800000 in the third quarter of 2020.
Excluding the nonrecurring insurance loss recovery of $26 million in the third quarter of 2020 as just discussed.
New bookings in the third quarter of 2021, well $194 million our backlog at September 30 was $540 million and is inclusive of a $21 million deep bookings related to our 2016 construction booking in the thermal segment and.
Importantly, keep in mind that generally speaking our backlog does not include shorter lead time parts and services.
I'll now turn to our cash flow balance sheet and liquidity.
Cash flow from operations in the third quarter of 2021 was a use of cash of $21 8 million.
We ended the quarter with total gross debt of $193 1 million and cash cash equivalents and restricted cash of $115 7 million, which is inclusive of net proceeds under our previously discussed at the market sales agreements through September 32021.
And after cash paid for the Fosler construction acquisition.
Net leverage at September 32021 was 134 times, the last 12 months adjusted EBITDA.
Net interest expense for the quarter was $8 2 million this was compared with $12 million in the prior year quarter.
The decrease was primarily driven by the reduction of our total debt.
The reduction in the interest rate on our last out term loans and the interest rate secured on our senior notes issued during the public common stock and senior notes offerings in February of this year.
As Kevin stated based on our current expectations, we're targeting at least $70 million of adjusted EBITDA for the full year 2021.
This is despite the adverse effects of COVID-19 on all segments of our business and we achieved a strong third quarter performance, including the booking of two sizable renewable newbuild projects.
We're experiencing accelerated bookings entering the fourth quarter and for the full year 2021, and we're anticipating the highest level of annual bookings since 2017.
We expect to end the year with significantly higher backlog as compared to the end of 2020, and we're confident that our strong performance in the first three quarters of this year has positioned us for a robust fourth quarter to achieve our adjusted EBITDA target for the full year of 2021.
As a result of our accelerated bookings and strong backlog and in addition to the other elements of our ongoing going growth and acquisition strategies, we're raising our 2022 adjusted EBITDA target from.
From between 95 and $105 million to between 110 and $120 million I'll now turn this back over to Kenny.
Luiz thanks for that well here's the bottom line, we have accomplished a tremendous amount this year.
So far and even more so when considering the continued challenges due to COVID-19 and global supply chain issues. We all face. We are excited about how far we have come over the past couple of years, our clean energy initiatives in our climate bright platform, our cost reduction actions our international expansion.
And our acquisition strategy all of these elements are coming together and positioning us for a strong end to 2021 and an even better 2022 and beyond are more than $6 5 billion pipeline through 2024 is propelling our.
Bookings with two renewable build opportunities awarded during the quarter and significant progress on booking two or three additional renewable newbuild bookings by the end of the year, we expect the global growing attention towards methane emissions from waste to continue to drive our waste to energy pipeline.
And interest in our climate and bright technologies is accelerating as shown by our recent announcements. In addition to the nearly 20 other potential climate bright projects, we are actively pursuing.
We further expanded our clean and renewable energy business by announcing two acquisitions and continue to aggressively pursue additional opportunities in both emerging technologies and mature markets. Looking forward. We are confident about the accelerated impact of our strategic actions on our financial performance in bookings and remain dedicated.
<unk> to our long term plans to profitably grow our business around the world in support of clean sustainable and dependable energy.
So with that I'll now turn the call back over to Charlie who can assist us with taking a few questions.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad now if you change your mind. It just stopped followed by chase.
Yeah.
Our first question comes from Rob Brown of Lake Street Capital Markets. Your line is open. Please go ahead.
Hi, good afternoon, good progress in the quarter.
Could you just some more details on waste to energy projects that you won in terms of the pipeline yes.
Sure actually.
The two in the quarter, obviously, the one in.
And Greenland and the other in Southeast Asia, I think what's interesting and fascinating let me let me briefly describe the Greenland project, where we're it's interesting for us is it's.
Obviously, our core technology for waste to energy in this case also creating steam.
Production for district heating in that particular area, but the exciting part of that and it's an area that we press on globally, obviously as it not only utilizing household waste coming directly from households, but it's also utilizing waste coming from existing landfills in Greenland itself. So it's.
Further prove the technology as can be used to reduce methane output from landfills and using waste from landfills as a fuel source to create energy obviously for for other electrical purposes or for district heating. So I think that's that's pretty exciting for us and it's also core to our technology.
Asia, and South East Asia, similar on that project actually it's complementing a couple of other sites that we've been involved in and that technology that some of the largest waste to energy facilities in the world.
In there and so it's it's a it's great that we're continuing to participate and add an augment to a couple of other sites in that particular area.
It proves I think further the value of our technology overall, so we're tremendously thrilled about those.
<unk> that we have in the projects that we.
We mentioned that we anticipate.
Yet this year or in combinations of locations. Our pipeline is global so we are working on opportunities.
North America and <unk>.
Europe Middle East and <unk>.
Asia and other parts of the World and we anticipate.
Announcing one or two more.
Yet this year and those would be.
Very key and important projects for us once they do get announced but we are in final throes of some of those negotiations. So wouldn't go too much into further comments on this call but.
We are excited about getting those are finalized and.
Obviously announced and moving forward so positive for us.
Okay. Thank you that's great and then maybe on the climate activity. I think you mentioned 20 projects has that increased lately and when do you see those projects sort of starting to be awarded.
Yeah, I think we're we're advancing those projects quite a bit I mean, there's there's even new ones that are coming in and Rob on.
As opportunities.
We announced obviously the port Anthony project, which will begin soon and I think youll see.
Some other announcements in conjunction.
Possibly with a couple of waste to energy or biomass opportunities that we're working on where carbon capture is going to be a part of those solutions.
In itself I think there is we have several that you can fully anticipate booking are announcing.
Over the coming months.
That's and then this year. The next 90 days early next year, we're working through a lot of variability is in and around those technologies from that standpoint, but the opportunities are increasing and I think it does.
To reiterate what we've talked about before.
When you look at our bright loop technology in particular.
Today globally the need for <unk>.
Utilize some different fuel sources and that fuel source could be could be call. It could be natural gas it could be pet coke it could be waste it could be food waste that can be pellet ties it could be biomass. It could be a number of different syngas and materials that can be utilized within our bright loop technology and not only Cree.
<unk> energy.
To drive either electricity or further.
Industrial processes, but bright loop also avails itself to create at the same time simultaneously hydrogen and other syngas. So it has a dual purpose output while simultaneously capturing the <unk> associated with.
That element, it's a chemical reaction rather than a.
And other type of if you will and so the combustion aspect technology and bright group is unique and that we're creating that heat energy capture your C. O two producing syngas is.
Assign a simultaneous basis and theres not an increased overhead lift that the industrial customer or the utility customer would experience. So.
As a result of that we're moving forward with that on small commercial projects and anticipate getting those book to move forward and at some time, we will move into larger commercial projects as well and we're excited about.
Moving that forward, we think that that technology is.
Is revolutionary.
When you look at the World right now trying to capture C are too and obviously fossil fuels is a key part of that this is a technology that can utilize fossil fuels, but capture the <unk> associated with that and so we think that is a true game changer.
In conjunction with its ability to use biomass and other renewable forms that are non fossil fuel as well. So we think we set.
In a very nice position from a technology standpoint, and we're actively and aggressively pursuing those.
Those opportunities to drive that going forward.
Okay. Thank you that was a great overview I'll turn it over.
Thanks, Rob.
The next question comes from Brent Thielman of D. A Davidson. Your line is open. Please go ahead.
Hey, Thank you congrats on all the progress here.
Can you I guess I just wanted to come back to it.
All of this recent momentum in bookings that you are seeing beyond the kind of renewable new build.
<unk> mhm.
Youre pursuing can you just talk a little bit more.
This recent momentum is coming from and I guess in particular.
Pushed at year end and last month or so.
Yeah, Great question I think these.
These projects have been projects that we've been working on for quite some time.
We've talked over the past year.
Around the fact that.
A lot of bookings and projects were delayed due to COVID-19 for a variety of reasons over the past couple of years. So a lot of projects that we were involved in in new bookings that were involved and had.
A lot of a lot of delays do globally to Covid I mean, those vary from region to region and location of vacation I mean in some cases it was as simple as delaying contract signing for three or four weeks because of the.
A couple of people involved in those final decisions actually came down with Covid and werent able to attend required face to face sessions. So.
The impacts of that still exists I mean, they haven't gone away, obviously on a global basis, there's still countries that are difficult to get in and so on and so forth but.
We always talked about the fact that we knew these projects are out there. We were excited the fact that we were.
Obviously in Q2 starting to renew.
Energy around the negotiations and engineering efforts in the design efforts around these projects.
Across the board. So we felt as if they were they were out there and coming and the good news I think now is that.
Worldwide people are starting to at least we're starting to learn how to work better in Covid, and I think things and projects and other aspects have to move forward, especially on renewables.
Environmental and even on thermal.
All three of those sectors for us these projects have been out there for a while and we're excited to get them now finally signed and move forward.
We've also.
So I would say that the reason it feels like there's renewed.
Energy around these projects is nothing new to US we knew they were there just a matter of getting them across the go line getting them booked and getting them going.
At the same time, though we have and I think we mentioned on a few occasions publicly that our proposal activity has increased significantly across all three segments.
So we anticipate that continuing and I think that's reflected in our.
And our increasing pipeline.
That we referred to and then clearly.
<unk>.
There is a renewed vigor I think on a global front to move forward on a number of these projects both in the thermal environmental and renewable sectors. So it just combinations of things that we've been working on for a while that are starting to accelerate and now moving to our backlog.
There are a little bit later to get into our backlog than we had originally anticipated.
Is it related to how we were looking and thinking about the year, but.
We're excited that they're happening now in and again as I mentioned in my comments I think we will have some further announcements in the coming days. So we're excited to move this forward and obviously, we have a number of projects that we will look forward to announcing next year as we keep the process growing from a growth strategy overall.
Yes, okay.
Question I guess on the thermal segment in particular, I mean, it looks still looks like a pretty good growth year on year, maybe not as strong as you might have expected earlier in the year, but.
It looks like there is some product product mix headwinds that impacted the margins maybe the overall leverage should that unwind as we get into the fourth quarter or into 2022 in terms of that mix headwind.
Yes.
The mix was primarily due again, there's two major components.
Actually I guess three we have the technology and project aspect, we have the construction aspect in the in the U S. And then we have the parts and services, which which the parts and services typically as we've always talked about as higher margins.
On that business this year what's been.
I wouldn't say unique it just I think it varies each quarter, but this year, we had a little bit more.
Wrapping up with some construction projects.
That drove a little bit more of the revenues and the thermal aspect that typically construction has a little bit lower margin.
On those projects, but that's usually followed later on by or more parts and services as we do follow on some of the technologies that we did the installation.
Another aspect for I think the other the other component this year, which is a little bit unique we had some a couple of unique.
Variances in the parts and services, especially from our installed base business. One was earlier in the year that we talked about and during quote unquote, the Texas freeze or impact where a lot of our installed base was actually operating on a full time basis to.
Provide additional power to supplement the losses that were being incurred through that such as tissue.
What we're seeing this this summer and we think it will continue into the fall is that those same installed worldwide.
Our installed base actually is operating a way more than our customers had ever plan.
Because of the high price of natural gas.
And due to that.
We do anticipate that the parts and other aspects would catch up significantly and actually grow. So this year I think our parts is in a strong position in its performance and will contribute what it normally does.
But based on the higher demand of these installed base plants that we provide parts and services for on a global basis. We think that there is good potential that we should see even higher parts and services, which would be higher margins.
Going into next year, so, we'll see if that unfolds, but we anticipate that in.
You know the early the early indications are that it's that it's a.
Thank you.
Pretty good understanding on our part.
Okay, Yes, that's helpful.
The last one for me was just the.
The upward revision in the 2022 outlook just wondering if.
There were meaningful sort of incremental contribution with your Mac was it the acquisitions, you've done baked into that whereas a lot of this just sort of related to the accelerated performance in our core business.
So I think it's always a mix.
It's primarily from the accelerated aspect of the business and we think the acquisitions will play a role in that as well too.
On that but we're.
We're looking at that increase based on a mix of all of those the parts and services will do better next year, we think because of what I talked about we have the acquisitions that will obviously help out and we have obviously a lot of renewed optimism and the fact that we're getting these accelerated bookings.
And we see a pathway to get more into next year as well too so.
There's always the impact of Covid on this thing we're trying to balance all of that out as we think about those targets and Covid morford delays just takes more time to get stuff done these days than normal, but it's quickly becoming the norm, but it's a combination of all of those elements.
Drive our optimism to increase the target for next year.
Okay very good thank you.
Yes, Thanks Brent.
The next question comes from Alex Rygiel of B Riley. Your line is open. Please go ahead.
Kenny and Louie and nice quarter.
Thanks, Alex appreciate it a couple of quick questions quick questions here.
With the expectation of $250 million to $300 million of new bookings in the fourth quarter. It would appear that your backlog could end the year around $650 million, so up maybe as much as 20% year over year I know, it's early and you know forecast backlog growth sort of in the out year, but can you help us to think about the variables that could be.
Notable catalysts to backlog expanding even further in 2022.
Sure Lou do you want to take this one we'll divide and conquer here.
I think as Kenny said earlier, a great deal of it was going to be due to the fact that we did have.
<unk> that moved out of 'twenty one into 2022, so that will increase that increases our backlog and also a number of other factors one of which we've greatly enhanced our global sales force over the past year and a half.
That's paying off with increased project sales as well as increased sales on <unk>.
On parts and services the services would be in backlog, where the parts.
And then primarily.
As Kenny indicated we've got a number of.
Waste to energy projects, we're seeing.
A very large pickup in proposals on waste to energy and renewable projects and then finally, we were expecting a good uptick from from the <unk> acquisition.
That's great and then as it relates to the two new.
Renewable projects announced in the quarter can you talk about the cadence of revenue recognition for this.
Yes, I'll cover that Kenny if that's okay. The way the way. It works obviously is you got.
The projects generally are between 18 and 24 months that we're doing.
So you'll have some revenue recognition early on.
Those projects.
Of that revenue recognition comes from.
The materials.
And setting up the projects.
Is that that is.
A significant part of the cost of the projects, but I would say, it's almost you know not a bell curve, but in the early going the first several months of your revenue and EBITDA is going to be lower because the percentage of completion, but as you get the materials on.
And the location as you get the workforce ramped up then in the latter stages from about the first quarter of the project.
Almost winding down the project is where your heaviest revenue recognition is so.
Or order of magnitude I'd say.
Fourth month of the project to the 12 to 16 come out of the project is where you pick up a significant amount of the revenue.
Very helpful. Thank you very much.
Okay.
Okay.
There are no further questions at this time, so I'll hand, the call back over to Megan.
Thank you for joining us that concludes our conference call a replay will be available for a limited time on our website later today.
That concludes today's call. Thank you for joining you may now disconnect your lines.
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