Q3 2022 Babcock & Wilcox Enterprises Inc Earnings Call
Thanks to everyone for joining us on Babcock and Wilcox Enterprises' third quarter 2022 earnings conference call.
Joining the call today are Kenny young <unk>, Chairman and Chief Executive Officer, and Lou Salamone, Chief Financial Officer to discuss our third 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 will be 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 third quarter earnings release published this.
Afternoon, and in our company overview presentation that will be filed on form 8-K. This afternoon and posted on the Investor Relations section of our website at Babcock Dot com.
I'll now turn the call over to Kenny.
Thanks, Sharon and thanks to everyone for joining us today.
While we continue to see elevated demand directly supported by an increase in our bookings and our strong backlog our results for the quarter and revised targets reflect many of the current market challenges and negative impacts.
The industry over the industry.
<unk> and the global supply chain pressures and challenges driven by geopolitical issues and the ongoing war and Ukraine, along with various lingering COVID-19 restrictions. These ongoing issues negatively impacted the timing of revenue recognition on certain projects across our business segments.
Despite these near term headwinds, we continue to execute and progress against our long term strategic growth strategy with an over 30% increase in both bookings and backlog at the end of the third quarter compared to the same period a year ago.
More importantly, our backlog is strong and increasing although certain regional backlog and inventory values are reduced by currency drops in great Britain and across Europe . We continued to have a strong improvement management team in place and it's a team that has led this company through its most do.
Difficult losses.
Over a number of years ago, followed by the challenges of a global pandemic.
By the global geopolitical issues, and the resulting impacts, especially with the within the energy sector. As a result of the war in Ukraine. Despite all that Babcock and Wilcox continues to perform has strong operational capabilities and as much faster at reacting to global and regional challenges than in the <unk>.
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In addition, we have maintained a high level of operational performance and remain on target in terms of our performance across our global projects.
We have taken a number of steps to address these challenges, including managing our projects more conservatively to smooth out various impacts from the global supply chain and project delays as well as the cost increases we continue to see importantly, we want to emphasize that our third quarter results and.
Recently revised adjusted EBIT targets is not reflective of nor a repeat of overall project performance related issues rather it reflects the timing of revenue recognition across our project portfolio.
That has been adversely impacted by the ongoing market challenges that we and so many other companies continue to face.
Despite the present supply chain headwinds, we remain optimistic about our current visibility for new booking opportunities.
Which should drive growth in 2023 across all of our business segments. As a result of the rising demand for thermal baseload generation and clean energy technology solutions.
As discussed on our prior earnings call and.
I had mentioned in our previously announced and revision to our adjusted EBIT targets. The war in Ukraine, and the global supply chain disruptions continue to present ongoing challenges to our various project timings and parts delivery, which again is similar to the experience of so many companies around the world. These challenges also.
In fact, our customers as their infrastructure suppliers are facing delays for raw materials and industrial components and labor shortages that are required to cover the balance of plant and are outside of our scope.
These have affected the timing of planned new bookings as well as deferrals on revenues and certain projects in parts and services.
We continue to work to mitigate these challenges through various supply chain efforts our customers efforts in our established global resources, we remain intently focused on minimizing these issues where possible, but recognize that we may continue to experience such adverse impacts as these global conditions persist.
As best we can.
We believe our revised targets reflect the currently known supply chain challenges and overall timing of new bookings backlog runoff invest revenues and EBITDA, our operational performance on projects remains strong and on target. Our recently revised expectations are not reflective of overall project.
Performance related issues again, and generally we have been effective at mitigating any project issues that arise from time to time appropriately.
As we look forward to the potential tailwind opportunities for our business segments as demand for energy security and alternatives to natural gas continue to emerge we remain committed to expanding our operations, both domestically and internationally as a global technology leader leader in solutions provider health.
Healthy and elevated demand trends, along with global initiatives around hydrogen and the de carbonization future continued to position the company well to be a leader in the clean energy transition.
We have over 90 patents filed around our carbon capture technology and processes as well as exclusive rights with patents shared with the Ohio State University through our joint R&D efforts over the past 10 to 15 years.
Our biomass energy solutions combined with Oxy bright our oxy combustion technology allows for green energy to be produced with negative carbon intensity, which.
It allows our customers to maximize the low carbon fuel standards, we continue to develop new technologies, such as greenstein long duration storage as well as exploring and testing various fuel alternatives for bright route.
We continue to progress our commercialization process for bright loop and are in detailed discussions to secure specific site locations feedstock and cotwo sequestration.
We are now in discussions with various industrial and utility clients regarding additional commercial opportunities and the interest in application of bright loop continues in earnest.
Throughout the third quarter, we continued to recognize increased interest in our climate bright de carbonization platform as evidenced by the recently announced contract award to study the application of BMW stall bright solvent based carbon dioxide cap.
Capture solution for console.
Dan.
Consol Energy's advanced coal and biomass based 20 <unk> century power plant project, which is currently in development. This award followed shortly after our announced $42 million contract to provide construction installation services for an environmental upgrade project here in the U S for a power plant.
Together these development speak to the increasing demand for clean power production infrastructure and validate our growth pipeline within the environmental segment. We will discuss these recent award wins in further detail on the call today and provide updates on current scale up bright with de carbonization and hydrogen syngas production technologies.
With respect to our bookings and backlog at the end of the third quarter, we experienced strong year over year growth supporting our outlook for improved fourth quarter performance and our ability to reiterate our adjusted EBIT target for the full year 2023 of $100 million to $120 million.
For the third quarter of 2022, our ending backlog was $730 million, which is an increase of 35% compared to the third quarter of 2021. Additionally, when excluding the negative impact on our existing backlog related to foreign exchange rates, we saw our backlog grow sequentially sequentially during.
In the third quarter of 2022 as compared to the second quarter of 2022.
Bookings for the third quarter 2022 were $227 million, an increase of 31% as compared to the same period a year ago, demonstrating our continued success in converting our recently expanded seven 8 billion of identified global project opportunities.
Our current visibility for new booking opportunities reflect an increase over the last quarter is seven 5 billion of identified pipeline opportunities and this is expected to drive growth through 2023.
We look forward to announcing additional contract awards wins as these prospects materialized, we anticipate an additional newbuild waste to energy announcements yet this year.
That plus our current backlog and waste to energy has significantly increased towards our goal of revenues being two thirds renewable environmental and one third thermal in the near future.
The $42 million Environmental segment contract Award I mentioned earlier to provide construction and installation services for the environmental upgrade highlights our strategic focus on providing the necessary equipment to enable clean and efficient processes for our customers operational success, we strive to provide.
<unk>, new customers with the technology required to enable a sustainable future and are excited to provide our extensive expertise and solutions.
Our recently announced contract awards to study the application of BMW salt bright solvent based carbon dioxide capture.
Capture solution for console Energy's advanced coal and biomass based 20 <unk> century power plant project is yet another great example of how we are providing our customers with transformative technology solutions.
Through this study we aimed to evaluate how our solid brake technology would be used to treat the flue gas stream from a power plant to capture cotwo and generate clean energy with near zero emissions.
We remain intently focused.
Advancing the study to show, how our advanced carbon capture technologies.
It can be used on this groundbreaking clean energy project and similar projects in the future I'll now turn the call over to Luke who will discuss some of the financial details for the third quarter. Luke. Thank you Kenny and I am pleased to review the third quarter results of the company and give you further details.
That can be found on the 10-K, which will be on file with the SEC.
Later this evening, our third quarter consolidated revenues were $214 million, which is 34 up 34% improvement compared to the third quarter of 2021, and this is primarily attributable to higher overall volumes.
Previously announced acquisitions that were done.
In the prior year and was partially offset by a lower level of construction activity in the thermal segment.
Our net operating loss in the third quarter of 2022 was $10 3 million as compared to operating income of $14 8 million in the third quarter of 2021. This variance is primarily related to the net negative impact of the global supply chain challenges and geopolitical issues Kenny mentioned above.
<unk> as well as several nonrecurring non operational items, such as the noncash impairment of goodwill, which I'll discuss in a moment.
Our solar business of $7 2 million, which was recorded this quarter.
And also gain on the sale of an asset.
For our $13 8 million and a onetime recovery of $6 3 million both of which occurred in the 2021 quarter and there are onetime items. So they would not be.
Repeated in 2022 quarter. Additionally, the impact of the tariff.
<unk> ended on June 32022 on solar panels.
Impact that our ability to get panels for.
Delivery and impacted us into the third quarter slightly as panels became available.
Plus we had higher interest costs and income taxes.
Goodwill impairment I mentioned, a moment ago was a result of several factors impacting the carrying value of the solar business, including the purchase of the minority interest at a discount the performance of certain legacy projects and the impact of the above mentioned tariff on solar panels, which also caused reduced performance.
<unk> of that.
That reporting unit.
These negatively impacted performance impacted the performance.
Cause of supply constraints.
Our adjusted EBITDA in Q2 was $13 1 million as compared to $18 9 million in the third quarter of 2021.
This variance is related primarily to the previously mentioned gain on the sale of the asset and onetime recovery both of which occurred in the 2021 quarter.
The previously mentioned tariff on solar panels, which ended June 32000 till 2022, as well as the continuing negative impact of the global supply chain challenges lingering COVID-19 issues.
Primarily in international markets NGL political issues previously mentioned.
Let me now move on to bookings.
Bookings in the third quarter of 2022 were $227 million, which is a 31% increase compared to third quarter bookings in 2021.
Ending backlog was $730 million, which is a 35% increase compared to the backlog at the end of the third quarter 2021.
Our net loss per share in the quarter was 20 <unk> compared to earnings of <unk> 12 in the third quarter of 2021 and that variance is a result of the items that I've mentioned above.
Let me now turn to our third quarter segment results within the Babcock Wilcox renewable segment the.
The revenues of this segment were $81 7 million for the third quarter of 2022, which is an increase of 115% compared to the $38 million in the third quarter of 2021.
The increase in revenue is primarily due to higher volumes of newbuild projects as well as revenues from acquisitions, which closed on September 30th in November 32021, respectively.
Adjusted EBITDA in the quarter was $4 5 million as compared to 11 4 million in the third quarter 2021.
This reduction of adjusted EBITDA was primarily due to some large project improvements achieved in the prior period and due primarily to several nonrecurring and nonoperational items.
As a noncash impairment of our solar business gain on the sale of the prior year and higher interest costs in the current year as well as a number of smaller items.
The various challenges of the renewal business resulted in certain projects being delayed into future quarters. The higher revenue levels increased shared overhead and SG&A allocations to the segments, which are made based on revenue.
The negative impacts were partially offset by the reduction of the of an earn out related to the solar acquisition.
These delays resulted not only in revenue.
Not only in revenue higher than the previous year being less than anticipated.
But negatively affected gross margins and adjusted EBITDA as a result of our higher overhead costs, which were partially offset where possible by recoveries from customers.
Within the Babcock and Wilcox Environmental segment revenues were $44 6 million in the third quarter of 2022, which is an increase of 17% compared to the $38 2 million in the third quarter of 2021.
The increase was primarily driven by higher overall volume and our system product lines, which was offset by lower service volume in the current quarter.
Adjusted EBITDA in this segment was $3 1 million for the quarter as compared to $3 5 million in the same period last year, primarily driven by a completion of some higher margin projects and the higher than the prior period, along with higher levels of share overhead and SG&A allocated to the segment.
<unk> were partially offset by the higher revenue volume described above.
Revenue and adjusted EBITDA were lower than anticipated in this segment due to the negative impact of global supply chain challenges and geopolitical issues. In these various challenges resulted in certain projects being delayed into the future quarters and higher cost all of which cannot be recovered from our customers.
Turning to our Babcock and Wilcox thermal segment revenues were $91 3 million in the third quarter of 2022, which is an increase of 9% compared to the $83 8 million in the third quarter of 2021.
This was primarily due to two acquisitions as I mentioned above.
Adjusted EBITDA in the third quarter of 2022 was $10 8 million, which is an increase of 15% compared to the $9 3 million in the third quarter of 2021 and again the increase here is again attributable primarily to the two acquisitions that were closed.
As I mentioned before and improved profit margins revenue and adjusted EBITDA were lower than anticipated in this segment again due to the negative impact of supply chain challenges and geopolitical issues. These various challenges resulted in certain projects being delayed into future quarters and the delay of this segment to deliver.
For parts and services to certain of the international markets as we anticipated those deliveries would occur.
Now, let me turn to the balance sheet cash flow and liquidity. Our total debt at September 32022 was $336 3 million and the company had cash and.
Cash equivalents and restricted cash balance of $69 5 million. Additionally.
Additionally, today, we've entered into agreements with our lenders who agreed to delay the Q3 covenant.
Granted permission to pay the dividend on preferred stock in Q4 conditioned upon approval by our board and modified and added certain maintenance covenants to future periods for the term of the loan.
I'll now turn this back to Kenny.
Lew Thanks, <unk> closing Babcock and Wilcox continues to execute and build on the significant transformation over the last couple of years with the operational improvements we have put in place in this period, we are well positioned to perform robustly in these more difficult.
Markets in times compared to our peers, who have not proactively taken such measures. Despite.
The market challenges, we have outlined that continue to impact BMW, our customers and the broader industry. We have continued to expand our bookings build our backlog and we have maintained a high level of strong operational project performance across our global operations.
We have a solid balance sheet with expanding opportunities across all of our business segments. Our robust pipeline continues to expand and we now see more than $7 8 billion of identified global opportunities over the next three years, which is an increase from the $7 5 billion figure we discussed in recent quarters.
While we remain cognizant of the near term uncertainties with the global supply chain. We are extremely excited about the level of demand, we're seeing for the business and based on our recent bookings and existing backlog, we remain confident in our ability to drive significant growth in 2023 and beyond.
I would like to highlight our team of dedicated employees remain one of the driving forces behind our ability to continue to manage through the near term challenges and drive our continued success as a company collectively their continued focus on safety.
<unk> project execution expansion of our bookings and backlog and commitment to helping us become leaders in the global <unk>.
Clean energy transition, our unmatched across the industry and.
And lastly, we continue to see BMW on the forefront of the global fight against climate change, which represents an extremely important aspect of our mission as a company. We are excited about the significant advancements within our climate bright de carbonization and hydrogen solutions platform.
And the game changing impact that they have throughout the world, we expect to be able to announce meaningful projects in that regard in the coming periods and we continue to see expanding opportunities ahead in this area and remain excited about continuing to build upon our position as an innovative leader in carbon capture de carbonization and hydrogen production.
<unk>.
We remain committed to building on our advanced technologies to meet the growing demand of our customer base for long term energy security and de Carbonization technology.
I will now turn the call back over to Megan who will support us in answering any of your questions.
Sure.
Thank you.
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Our first question comes from the line of Erin <unk> with Craig Hallum Capital Group. Your line is now open.
Thanks for taking the questions.
Okay.
<unk> Thanks for joining Tonight appreciate it.
Yeah, you bet, maybe first for me just on the supply chain can you kind of touch on some of the key parts there.
Steps, you've taken kind of a comfort that the worst is behind you there kind of sounds like youre not expecting a lot to get better there as you've kind of.
Adjusted the guidance and then just thinking about backlog margins that are in there and comfort you have as we look to fiscal 'twenty three there.
Yes, sure I think on the supply chain aspect I guess first of all when we we discussed our revised targets.
To the best again of our abilities, we tried to be conservative on.
Ensuring that we included.
A new normal if you will from a supply chain standpoint, so there's several factors that impact us one in parts and services in that.
Normally what we've always talked about that we've had of a book and bill or a book and Bill approach of about 30% to 45 days on our standard parts of the business and over the course of the year and going into the end of the year, we saw that extend out that certain parts and components or parts.
That make up our parts and services business are taking longer to obtain or taking.
We have to acquire those from different suppliers around the world.
Which creates obviously delays in shipping and so on and so forth and thats in the parts and services business on the on the project side.
We of course see delays.
On the project aspect that both from the raw materials and the infrastructures impacting our customers. So for example, we may have a customer that is happy is responsible for putting in various steel infrastructure and components.
That's proven to be challenging in certain projects at certain locations because of.
Certain supply characteristics coming out of Europe , and in some cases, our customers and us have had to shift some of the steel infrastructure and components in our project business.
European theater over to the Asian market Theater.
At time and delays and other components. We also saw a certain amount of customers that we're delaying the startup projects in order to to leverage what we're starting to see and Thats, a little bit of reduction in steel infrastructure and raw materials, those pricing coming down in <unk>.
Customers wanted to delay to see the start of that so all of those are our variability I mean theres many of those on the product and supply chain side. There is some of that on the labor side as well that we're seeing in particular in the.
The European markets, where some of the suppliers.
Labor shortages and impacts for various geopolitical reasons, and so on and so forth but.
That's an example of a lot of the areas that were seen impact us.
And both the parts and services business and the products.
Alright. Thank you. Thank you for the color there and then maybe second for me.
On.
Climate freight.
It sounds like there's some good developments coming there and you've had some good announcements can you just.
Maybe talk about timing there maybe as you think about Fidelis and some of these others is it still a kind of a 2024 event there and just what are some of those gating factors for some of those projects to move forward.
Yes, we are actively moving ahead with the commercialization project.
Particularly in the Louisiana location in Baton Rouge that we've talked about publicly.
As well that's an important step as you know.
<unk> processing and proving in the commercialization side of the project and the technology.
And we're moving ahead as rapidly as we can both on.
The early phases of the project were in discussions.
Around securing the specific site location, we're in discussions on the offtake agreements that would be.
Supported in that particular project as well as.
Early discussions around potential entrants to acquire that commercial project from us once we've completed the demonstration phase. So we're excited about how that's progressing.
We still have a ways to go obviously in and around the execution of that but we are we're well underway in our project goals around producing hydrogen sometime in the later part of 2023.
And early 'twenty 'twenty four is still there and we're still progressing towards that.
As we've also said publicly we're working diligently with various government agencies on the funding mechanism inside of that project in.
Although we havent finalized that funding aspect at this point in time, we fully anticipate that that will occur and we're working diligently behind the scenes to make sure that we have all of those pieces come in place, but things right now are progressing in <unk>.
Actually we are getting more positive.
Direction coming into that project at this point in time and as I mentioned right now our focus is on securing the specific land site in the lease accordingly on that project and Thats advancing as we even as we speak.
Good good to hear thanks for the color I'll pass it on.
Yeah.
Thank you. Thanks, guys. Our next question comes from the line of Brent Thielman with D. A Davidson your line is now open.
Hey, Thanks, Good morning, Kenny.
I guess can you I wanted to come back to the.
The outlook into 2023 call it kind of at $30 million.
Branch from 'twenty to 'twenty, three and EBITDA kidney it sounds like you.
<unk> built in some contingencies around some of these issues and bottlenecks you've had to deal with.
And it sounds like you're sort of expecting that continues.
I'm, just trying to understand where you get the incremental $30 million in EBITDA next year isn't it.
Yes, some abatement in these pressures as the stronger and stronger growth into next year, just trying to understand that bridge a little bit more just given these issues that might persist.
Yes, no it is.
Good comment we are seeing a couple of areas next year, but let me let me backup first and foremost we're trying to be as conservative as we can on the targets.
To make sure that we have loaded in again as best we can right in assuming that things stay about the same as it relates to the global supply chain and infrastructure and the timing of various parts and services and so we tried to bake that into the.
The target that we put out for obviously the rest of this year, but more importantly into next year.
Around that so so that's one aspect to start with the other piece.
From a positive perspective, now as I mentioned before.
For example in the parts and services aspect, we saw the timing from book to cash really moved from a 45 day period I am talking about book cash net book to Bill but.
Out too.
The 60, plus day rough order of magnitude I mean, there are various things that are longer than that in our parts business and so we've kind of modified the forecast have reflected that but.
But what we're seeing now is we're catching up if you will more with that timing. So as we go into Q4.
In particular within the parts and services business in North America, we're starting to see the revenue rebound.
Back and it's only because now were catching up with where our supply chain as it relates to those parts and we're able to get those parts at the site.
Some of the outage work and service work Thats starting to increase again historically for remember we always talked about the plants were running.
More full tilt because of the high cost of natural gas and so youre seeing all these little positive trends start to come forward on that and that would be.
Anticipate.
Because we're seeing it now the ability to deliver on those parts and services going into next year as we were getting better at spacing out the timing of when we have to put pressure on our customers to book the parts and then obviously when they are they will be delivered and then we can we can recognize that revenue in cash. So we're catching up with the cycle we don't.
The cycle changes in its time period. It's just now we've kind of gone through that a little bit of vacuum, where we've caught up with that and now we see that flowing into next year.
Jim holds on the project side again.
When we look at the project side of the business in particular, the new builds.
And a lot of that is in waste to energy, but.
And when you look at the timing element of that we tried to look at that from a conservative aspect and look at how we're managing those projects conservatively to make sure that.
We're able to in some cases absorbed some increased costs where applicable.
Other cases, we're able to to get supply chain out to different other areas and regions of the world and so we're seeing some of that catch up but we also know that there's going to be additional delays by our customers here and there and so we're trying to map that in to our overall management.
The company and obviously then.
Re look and adjust overhead and some other aspects around our overall businesses, but.
That's I mean, those pieces that are catching up and then having a little bit better flow on the project aspect as we go into next year.
But even on a conservative level it gives us.
Confidence in those new targets that we put out.
Okay, Yes.
Okay Brent.
Brent the only other thing this is the only other thing I'd add we don't anticipate that we're going to have in the solar business. For example, the tariff situation again, I mean, we lost four months of revenue.
In that case, so we see some.
We're projecting some growth in there.
The solar business that gives us a little more confidence in.
And being able to make make that target.
Okay, I appreciate that when Kenny and Guinea.
Phenomenon behind the book the cash.
Within the parts and services business I presume that amongst other things is what gives you that confidence in that.
Yes, the step up here.
Turning to expected in the fourth.
Yes, it does as we sit here, we're obviously, we put out the targets based on that we're seeing that unfold so yep.
Okay.
And then just another question and look it looks like you're booking new work at a healthy clip I'm just wondering sort of how these disruptions.
You've experienced changes scheduled delays so forth how has that impacted the mobility.
New projects coming to bid and book I mean, what could have been even stronger at these things as well.
Blake I'm just curious.
Well I think it's forced us to look at very deeply the overhead of the company because when we look.
We have the unique.
Challenge, obviously is a business that we're seeing the new bookings come in and we're seeing new opportunities I mean, we mentioned.
Quite often that we still anticipate.
Having a new waste energy booking yet this year, obviously, we wouldn't say that if we werent heavily involved in negotiations in other aspects around that opportunity but.
When we look at those bookings.
Out there one of the challenges we have to always maintain as the overhead associated with supporting that so we have the not only the supply chain aspects that fall through but we also have the engineering aspects and other project management aspects that we have to maintain to support those future bookings.
And that's always an area that we have to work through a challenge.
That would be perfect on an individual quarter.
Will the world obviously, it goes perfect again on supply chain, but we have to be able to manage that variability.
We set in motion I don't know I guess, a couple of years ago, now or a year ago now trying to get a little bit more outside.
Support from third party companies to be able to assist in our engineering and other efforts in the company to give us that a little better flexibility in how we manage those projects.
We saw probably doesn't show up in the numbers clearly, but we did see some of the benefit of that this quarter and going into Q4 and going into next year. So some of the activities that we've already taken this has helped us to get past some of these engineering channel or the supply chain challenges or market challenges.
And we fully anticipate that going forward, we will continue to improve but that's always the pressure point that we have to balance on the on the new technology side.
The on the parts and services side, especially in the thermal business.
As we look at that overall group plus the construction, which is part of the thermal business.
We're seeing that strong backlog now coming into place and we're starting to see mobilization of certain.
Large projects unfold.
Now that will really be more of a revenue impact of 2023 and so we enter we go into next year should go into next year with a very strong backlog to support the revenue objectives that we have and we have a.
Got better visibility now and the timing of many of those projects, especially some of the larger projects in especially some of the the ones that are happening here in North America, where we have a lot more control over the supply chain aspects of it. So I don't know if that helps but that gives us confidence overall.
Yes, I appreciate that maybe just one last one you mentioned.
Some some maintenance covenants put in place.
Any more detail on.
Kind of what what you need to hit here going forward.
Yes, we've got as I mentioned, we've got a waiver for the third quarter, we've got the relief on paying the dividend in the fourth quarter, what we've done with the new targets, we've gone back to the lenders and we've negotiated.
Other covenants than the covenants we had.
And so that gives us a little more flexibility going forward into the future.
With these revised with the revised estimates and targets that we have out there.
So that's helpful to us going forward.
Okay, Alright, thanks, guys I'll pass it on.
Thanks.
Thank you.
Our next question comes from the line of Alex Rygiel with B Riley.
Your line is now open.
Thanks for taking my question, Kenny and good evening.
Couple of questions is there a chance that.
Turnarounds that were delayed in the second half of 2022 could redevelop.
Early 2023, such that your seasonal trends are a little bit different in 2023.
It's too early to tell on the on the thermal side and the parts and services if there'll be an increased number of outages.
Think what we'll see is.
Next year, a little bit more normalization in the in the flow of the thermal parts and services, particularly here in the domestic U S.
We see that a lot from our customers right now in planning more outages and that type of work.
Natural gas pricing is still high in those plants are still running but they're not catching up with the <unk>.
Their cycle time here to be able to have those parts and services installed so.
We see that happening I think in the in the waste energy aspect.
We're seeing more bidding opportunities around.
That technology and in particular, we're starting to see the de carbonization aspect come into play.
Into next year. So so those are I think positive as it relates to the overall direction of the company overall.
Some of the.
Work Lew mentioned in the solar side, obviously that were impactful this year because of the tariff aspect. Some of those went and converted those projects into wins. So we won't see a bounce back specifically of those.
Into next year, but we're.
You guys all know, but we're seeing obviously increased demand now with.
Within solar, especially in the community solar front on smaller projects, which is what we're more focused on <unk>.
Otherwise.
In particular, we're starting to obviously move into some of the new technologies Green steam and otherwise, which require solar and so there is there are some synergistic opportunities around that that we're starting to move forward on a bid on but.
So I think we will see the thermal side continuing to go strong next year obviously.
Faced the targets and other aspects.
Into next year around some of the supply chain aspects that we've had this year.
And Thats, where we are but.
And the waste energy and the biomass energy side, we see that progressing and we'll have more opportunities to reset book going into the bookings next year and then the larger projects that the biomass in Louisiana, We anticipate that that is still being moved forward in.
Get that booked.
Next year as well part of part of what also gives US a lot of optimism, which we didn't talk too much about on the call is on the IRI Act.
And we're seeing obviously that some of our clients our customers here in the U S.
Very much a positive element as it relates to expanding their footprint in and that we're starting to see that we're also seeing developers in the international community that want to move more into the United States to leverage some of the.
The 45, <unk> 45, or some of the other.
Credits that are out there under the IRS to take advantage of those and I think all of those will give us great confidence that we will continue to build on some of those opportunities here in North America in 2023 and beyond.
And then.
Can you talk a bit about how EBITDA could exceed your 2023 guidance.
Yes.
For sure.
We tried to again be conservative on the numbers and the direction of that target next year.
Upside comes.
We think more from project timing standpoint, and we tried to be a little more conservative on project timing as it goes into next year clearly.
Some of the projects that.
We're seeing from our customers and some of the timeframe is that they are stating their planning on starting these projects and construction.
Actually happens that would be a possible pull forward of those project in revenues and that would be an increase of EBITDA on those locations.
We're starting to see also wear.
More around the decarbonization aspect and some of the IRI credits, where customers are pulling us more into some engineering opportunities that they want to progress and we're seeing some more grants and other possibilities coming in state by state those would all have positive impacts from timing as well too that would would be a driving force for us.
That would be across the board, but the upside really would come more from those pieces.
We were.
Conservative again on the parts and services. So if there is any improvement in the supply chain aspects globally, and we get we can shrink the book and Bill from back from 60 to 90 down to back to a 45 all of that would be upside for us next year as well too because we based the targets on more of that book and Bill.
60 to 90 versus the 30% to 45.
Yes.
Perfect. Thank you very much.
Yes, Thanks, Alex.
Thank you very much.
Our next question comes from the line of Rob Brown with Lake Street Capital markets. Your line is now open.
Okay.
Hi, I was wondering if you could maybe.
Can you quantify the FX impact to the backlog in the quarter.
Okay.
Thanks.
Rob We said when you when you say the impacts of the backlog in the quarter.
Just to clarify the question sorry.
Yes, I think I think.
<unk> mentioned that some of the backlog kind of came down as you re you adjusted the FX translation to the backlog number.
Just wondering how much of impact was that from.
Yes that impact was about round numbers about 17000.
<unk> million dollars $17 million on the backlog sorry about that answered a lot of questions today about my millions mixed up so about $17 million on the backlog graph.
Okay. Okay, great. Thank you.
And then maybe just wondering if you can give some more color on the pipe.
Pipeline of projects in the <unk> capture market.
I know youre in discussions with a lot of things how are those sort of.
How many of them how would you characterize the pipeline.
Projects.
Yes, well over I think we've stated publicly.
Well over 20.
I will just update on the call here and say its well over 30.
Very active.
Projects.
Clearly the large one in Louisiana, I am not talking about the bright loop I'm actually talking about the biomass facility that will put in place. There we will have oxy combustion, which is our oxy bright as our term but.
Unique.
A little bit of a unique technology, we're one of the few.
Out there.
We would never say that we're the only one but one of the few out there that actually can combine the biomass capabilities of our CFP <unk>, along with the oxy bright technology to isolate and capture the cotwo associated with that.
And thats under the IRS credits here in the U S creates negative carbon intensity for that project. In this case the customer is able to leverage the low carbon fuel standards credits that come from California, various states, Canada and others for that biodiesel.
That's out there in Europe , as well too and so the demand for as you follow that the demand for Green diesel Europe now diesel period, but the demand is quite high and other other green fuels and so we're excited about that technology.
We're in discussions that have been going back to the pipeline standpoint looking at other similar type situated opportunities where the customer is interested in the biomass combined with the oxy bright technology to isolate the <unk>, maybe different sizes and 300 megawatts.
There would be difference overall, but those are some of the opportunities I think we are equally excited about which we believe is the future growth of the company in 2020 for 2025 and beyond is around bright loop.
Its abilities to actually create hydrogen from biomass or biofuels.
We are actually in process right now of testing a number of different fuel sources within our labs and we.
We see a pathway across multiple industries.
That are pushing more towards the hydrogen economy and again, we're one of the few companies after the table to actually utilize biomass in the hydrogen production to leverage the full value of either 45, Q, where the 45 b on the tax credit standpoint under the IRA.
And that's starting to create appeal and interest across a number of different customers and where we are.
We're in discussions on testing of various aspect working with clients on pre engineering sides on the hydrogen standpoint, and working through a number of those opportunities.
And some of those we anticipate we would announce.
Sometime next year obviously.
And move forward, but the interest level around that technology has been at least in our opinion very solid and strong.
Going forward and we do see that as real breakthrough technology, and so far the feedback were getting equates to that so the the.
<unk> in Louisiana.
Actually leverage the offtake of the hydrogen because it would qualify again under the 45 Q or the 45 credit.
Louisiana and provide the customer with a.
A green or Kiel, However, you want to describe it hydrogen output that can be used again to support the low carbon fuel standards.
And further their business case, and we have again, a number of different other opportunities that would be similar to that so we're excited about that we see that as an opportunity we're seeing it in oil and gas as well as certain customers that were in discussions with around the.
Capabilities to leverage pet Coke, which is a waste product in the oil and gas industry, and we can leverage and use pet coke to create again hydrogen from that pet coke and produce hydrogen output and also isolate capture the cotwo.
And that's very much a positive.
So if we even just circle back and give you some idea how how strong this is.
The emissions and the permits to put these plans together, usually we're able to fall under a minor source.
Application.
Because of the output of this through the stack is just are a little bit of nitrogen, but are not a lot of oxygen, but it's just are so there is no cotwo or other byproducts that are that are going out of the stack. So it's a very strong application as it relates to the permits.
Obviously were very pure on the <unk> stream for sequestration or other purposes around it.
We're very pure on the hydrogen production from that and so we're.
We're excited about moving that forward and we see a lot of demand.
Coming out of that product once we get closer to commercialization.
Okay, great. Thank you for all the color and I'll turn it over.
Thank you.
Our last question comes from the line of Jamie Cook with Credit Suisse. Your line is now open.
Hi, Good evening, just I guess, a couple of quick follow up question.
One you talked about your pipeline of business growing to increasing to $7 8 billion from $7 five so.
What are the drivers behind that is it some of the acquisitions that you've done and just the performance of some of the acquisitions and then my last question just.
In terms of how youre thinking about.
The company's ability to generate cash flow like the expectations for the fourth quarter and then as we get to 2023.
Earnings or EBITDA is more normalized.
100 to 129 that you talked about.
Yes, I think on the cash flow side, Jamie our conversion of EBITDA to cash flow.
<unk> was a little behind our expectations up through now.
Starting in the last quarter and this quarter going forward.
That conversion rates much higher than where things in there such as the acquisitions and so forth, but we should get a much more normalized view of of the.
The conversion from our EBITDA to cash flow going forward, it's one of the items that.
We're really focused on is getting getting the cash in a much faster being able to two.
To utilize our balance sheet to not get as many letters of credit out there. So we can get more cash in pushing for advanced payments with fewer.
Letters of credit backing them up et cetera. So we can get the cash in faster and bring that EBITDA to cash conversion much closer.
And then on the on the pipeline Jamie we're seeing it from a couple of different sources. It is coming from.
A little bit from the acquisitions on that some of the acquisitions, our parts and services, which wouldn't necessarily be in the pipeline, but we are seeing it a little coming from some of the acquisitions on that.
Bigger driver of the.
A more sizeable I guess opportunities are from the in particular in the biomass and waste to energy.
Biomass with Akshay combustion, we're starting to see multiple opportunities for that Thats proven technology. So that's technology that we're moving into the delivery phase today, obviously, we've talked about it in Louisiana, but we're seeing that.
Unfold, where especially with the IRS credits there are two or three.
Or for more opportunities that we're adding to the pipeline.
<unk>.
Have very significant revenues coming from that particular technology and so that that's one of the reasons, we were confident enough to increase the pipeline from $75 to 78.
Okay.
Okay. Thank you.
Thanks, Jamie Thanks, Jamie.
Thank you.
There are no additional questions waiting at this time, so I'll pass the conference back over to Sharon for any closing remarks.
Thank you Megan and thank you for joining us today that concludes our conference call a replay will be available for a limited time on our website later today.
That concludes the Babcock <unk> Wilcox Enterprises' third quarter 2022 earnings conference call. Thank you for your participation you may now disconnect your line.