Babcock & Wilcox Enterprises Inc. Q1 2023 Earnings Call

May 10, 2023

The call today.

If you would like to ask a question at the end of the presentation. Please press star followed by one on your telephone keypad.

I'll hand over to your host Sharon Brooks to begin Kevin. Please go ahead.

Thank you Nadia and thanks to everyone for joining us on Babcock <unk> Wilcox Enterprises' first quarter 2023 earnings Conference call I'm, Sharon Brooks director of Communications.

Joining the call today are Kenny young BMW, Chairman and Chief Executive Officer, and Lou Salamone, Chief Financial Officer to discuss our first 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.

Thank you for your patience, everyone. The Babcock <unk> Wilcox Enterprises' first quarter 2023 earnings conference call will begin shortly if you would like to ask a question. Please press star followed by one on your telephone keypad.

[music].

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 statement.

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 first quarter earnings release published this morning.

And in our company overview presentation that was filed on form 8-K. This morning and posted on the Investor Relations section of our website at Babcock Dot Com I will now turn the call over to Kenny.

Yes.

Hello, everyone and welcome to the Babcock <unk> Wilcox Enterprises' first quarter 2023 earnings Conference call. My name is not yet and I'll be coordinating the call today.

Thanks, Sharon good morning, everyone and thanks for joining us today on our first quarter 2023 earnings call.

If you would like to ask a question at the end of the presentation. Please press star followed by one no telephone keypad I went out of holiday, but your highest seven Brooks to begin Kevin. Please go ahead.

We are pleased to report strong results for the first quarter of 2023, which exceeded our expectations.

Thank you Nadia and thanks to everyone for joining us on Babcock <unk> Wilcox Enterprises' first quarter 2023 earnings Conference call I'm, Sharon Brooks director of Communications.

And were highlighted by increases in revenues bookings and backlog on a year over year basis.

Our parts and service bookings across all of our segments were the highest.

Joining the call today are Kenny young Bmw's, Chairman and Chief Executive Officer, and Lou Salamone, Chief Financial Officer to discuss our first quarter results during.

In the past seven years, despite continued supply chain challenges.

Given our positive start to the year growing customer demand across all of our segments and visibility for new booking opportunities. We believe we are well positioned for significantly improved full year performance in 2023.

The revenues generated within our renewables environmental business segments showed significant increases of 47% and 13% respectively.

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 statement.

As compared to the first quarter of 2022.

This growth was driven by higher volumes across both segments.

Which helped drive our consolidated revenues and adjusted EBITDA above expectation.

More specifically revenues in the first quarter increased 26% compared to 2022, while our bookings and backlog increased 11% and 15% on a year over year basis, respectively.

Our strong start to the year also adds to our confidence in achieving our full year 2023, adjusted EBIT targets.

Thanks Sharon.

And during the first quarter, we generated adjusted EBITDA of $14 2 million, which was above our internal projections and compares to $12 5 million in the first quarter of 2022.

Morning, everyone and thanks for joining us today on our first quarter 2023 earnings call.

We are pleased to report strong results for the first quarter of 2023, which exceeded our expectations and were highlighted by increases in revenues bookings and backlog on a year over year basis.

As always I want to express my thanks, and gratitude to our employees for their continued dedication to achieving the highest operational performance.

Our parts and service bookings across all of our segments were the highest.

For their high focus on safety across our projects and manufacturing sites and to thank them for driving innovation and advancing the world's transition towards sustainable and secure energy, which is central to <unk> mission.

In the past seven years, despite continued supply chain challenges.

Notably the performance of our parts and services.

Business across all of our segments was particularly strong in the quarter.

The revenues generated within our renewables environmental business segments showed significant increases of 47% and 13% respectively.

Combined parts and services bookings for our thermal renewable environmental segment were $114 million, which is the strongest quarter for parts and services we've had since 2016.

As compared to the first quarter of 2022 this growth was driven by higher volumes across both segments.

This was led by $67 million in bookings by our thermal segment, which had been which has seen increased demand as customers around the world look to improve performance and extend the useful life of their facility.

Which helped drive our consolidated revenues and adjusted EBITDA above expectation.

More specifically revenues in the first quarter increased 26% compared to 2022, while our bookings and backlog increased 11% and 15% on a year over year basis, respectively.

<unk> renewable and environmental segments also booked $40 million and $7 million in parts and services orders, respectively as well.

In total we are recognizing a significant increase in customer demand stemming from the need for long term energy security and clean technology solutions.

Our strong start to the year also adds to our confidence in achieving our full year 2023, adjusted EBIT targets.

And during the first quarter, we generated adjusted EBITDA of $14 2 million.

Looking back at the quarter.

We are ecstatic with the progress our clean energy solutions have made which have been bolstered by new environmental and renewable contracts in the first quarter of 2023 totaling $103 million.

This was above our internal projections and compares to $12 5 million in the first quarter of 2022.

As always I want to express my thanks, and gratitude to our employees for their continued dedication to achieving the highest operational performance.

These projects not only demonstrate the increasing momentum in our customer adoption of our innovative technologies, but also the expanding interest in our expertise in solar projects.

Are there high focus on safety across our projects and manufacturing sites.

Throughout the first quarter, we announced for environmental and to renewable contracts.

Thank them for driving innovation and advancing the world's transition towards sustainable and secure energy, which is central to <unk> mission.

Supply various technologies and services for carbon capture waste to energy and solar installation projects.

Notably the performance of our parts and services.

This includes our collaboration with Phillips, 66, and which we will provide engineering and design services equipment and construction support for carbon capture projects in the U K.

Business across all of our segments was particularly strong in the quarter.

Combined parts and services bookings for our thermal renewable and environmental segments were $114 million, which is the strongest quarter for parts and services we've had since 2016.

This project aims to reduce carbon emissions by capturing and storing carbon dioxide emissions from our refinery.

As a company committed to promoting sustainability, we are proud to be part of this critical effort to reduce carbon emissions and support the energy transition to a low carbon future.

Our progress in the UK also includes a contract to provide engineering and advanced technology for our waste to energy plant.

<unk> renewable and environmental segments also booked $40 million and $7 million in parts and services orders, respectively as well.

Our innovative combustion system will help convert waste into clean energy for their promoting sustainable practices.

In total we are recognizing a significant increase in customer demand stemming from the need for long term energy security and clean technology solutions.

Additionally, BMW has also secured contracts to provide highly efficient cooling systems for a few ways U K waste to energy plants as well as.

Looking back at the quarter.

These cooling systems will help optimize the performance of the plants, ensuring they're able to operate efficiently and sustainably.

We were ecstatic with the progress our clean energy solutions have made which have been bolstered by new environmental and renewable contracts in the first quarter 2023 totaling $103 million.

Transitioning to our solar business, we were awarded contracts worth over $15 million by summit Ridge energy or sorry.

These projects not only demonstrates the increasing momentum in our customer adoption of our innovative technologies, but also the expanding interest in our expertise in solar projects.

To construct five community solar power installation projects in Illinois, the projects scheduled to be completed in 2023 will total approximately 15 megawatts <unk>.

Throughout the first quarter, we announced for environmental and to renewable contracts.

<unk> will manage subcontractors site coordination and supervision and electrical tie ins to the grid.

New supply various technologies and services for carbon capture waste to energy and solar installation projects.

This is the second set of contracts awarded by <unk>, which is one of the leading community solar.

This includes our collaboration with Phillips, 66, and which we will provide engineering and design services equipment and construction support for it.

Companies in the United States.

The growing market for community solar projects in the U S has been attributed to the high demand for affordable clean energy.

Project in the UK.

This project aims to reduce carbon emissions by capturing and storing carbon dioxide emissions from our refinery.

And state and federal incentives for renewable energy, including for solar power.

We are excited about the solar opportunities and continue to see.

As a company committed to promoting sustainability, we are proud to be part of this critical effort to reduce carbon emissions and for the energy transition to a low carbon future.

We continue to see emerge over the coming quarters, especially with regards to community solar and small utility projects.

Our progress in the UK also includes a contract to provide engineering and advanced technology for our waste to energy plant.

Looking forward, we remain committed to further supporting sustainable energy projects that make a positive impact on the world. These recent award wins further strengthen our position as a leading provider of energy solutions and we look ahead to exploring new opportunities to promote a cleaner more sustainable future.

Our innovative combustion system will help convert waste into clean energy for their promoting sustainable practices. Additionally.

<unk> has also secured contracts to provide highly efficient cooling systems for a few ways U K waste to energy plants as well as cooling systems will help optimize the performance of the plants, ensuring they're able to operate efficiently.

<unk>.

We also are pleased with the significant traction are bright loop technology has received to date, most notably we received announced we excuse me, we recently announced a commercial project with Black Hills energy in which BMW bright loop hydrogen generation technology was selected to produce.

And sustainably.

Transitioning to our solar business, we were awarded contracts worth over $15 million by summit Ridge energy or FRE.

<unk> hydrogen gas from coal and captured carbon dioxide emissions.

To construct five community solar power installation projects in Illinois, the projects scheduled to be completed in 2023 will total approximately 15 megawatts <unk>.

Utilizing our technology clean energy can be produced using a variety of fuels with complete <unk> retention enhancing energy security and creating local clean energy jobs in the region.

<unk> will manage subcontractors site coordination and supervision then.

This project not only highlights bmw's transformational technology, but also demonstrates utility market interest in our clean power production and carbon capture capabilities.

Electrical tie ins to the grid.

This is the second set of contracts awarded by <unk>, sorry, which is one of the leading community solar.

Companies in the United States.

We look forward to scaling this product offering and working in tandem with our customers to provide the solutions they need to enhance energy independence and deliver efficient energy to their customers. While also combating climate change.

The growing market for community solar projects in the U S has been attributed to the high demand for affordable clean energy.

And state and federal incentives for renewable energy, including for solar power.

We are excited about the solar opportunities and continue to see.

I'll now turn the call over to Lou to discuss the financial details for first quarter of 2023, Lew. Thanks, Kenny I'm really pleased to review our first quarter results and further details of which can be found in the 10-K, and our 10-Q, which has been filed with the SEC. Our first quarter consolidated revenues were 257 <unk>.

We continue to see emerge over the coming quarters, especially with regards to community solar and small utility projects.

Looking forward, we remain committed to further supporting sustainable energy project.

$2 million, which is a 26% improvement compared to the first quarter of 2022. This is primarily attributable to higher volumes in our renewable segment due to BMW renewable parts and services and our project based business as well as higher overall volume in our environmental segment an increase there.

Okay.

<unk> segment volume and a higher level of construction activity.

Operating income in the first quarter was of 2023 was $1 4 million compared to an operating loss of $6 8 million in the first quarter of 2022, our adjusted EBITDA was $14 2 million as compared to $12.

5 million in the first quarter of 2022, while bookings in the first quarter of 2023 or $206 million, an 11% increase compared to the first quarter bookings in 2022.

Our ending backlog was $663 million, which was over a 15% increase compared to our backlog at the end of the first quarter of 2022.

Our loss per share in the first quarter was <unk> 18, as compared to a loss per share of <unk> 14 in the first quarter of 2022.

I'll now turn it over to the first quarter segment results within our Babcock and Wilcox renewable segment revenues were $100 1 million for the first quarter of 2023, which is a 47% increase compared to the $68 million in the first quarter of 2022. This.

This increase in revenues, primarily due to the higher volume of Newbuild projects and the increase in revenues associated with our renewable parts and services business. The adjusted EBITDA in the quarter for this segment was $4 9 million compared to $2 million in the first quarter of 2022, and this was primarily due to the higher volume as described.

Yeah.

Yes.

Okay.

Yes.

Okay.

Abid above offset somewhat by increases in expenses to support the growth of this business.

Okay.

The higher revenue levels also increased share overhead and SG&A allocations to this segment, which are based on revenue.

Okay.

Within the Dod Kotkin Wilcox environmental segment revenues were $39 4 million in the first quarter of 2023, which is a 13% increase compared to the $34 9 million in the first quarter of 2022.

Thank you.

Okay.

This increase is primarily driven again by higher overall volume of dry cooling technology projects across the environmental segment.

Okay.

Our adjusted EBITDA for the segment was one 9 million in the quarter as compared to $1 4 million in the same quarter last year again, primarily driven by the higher revenue volume described evolve and offset by higher levels of shared overhead and SG&A that's allocated to this segment.

Okay.

Turning to our Babcock and Wilcox thermal segment revenues were $119 2 million in the first quarter of 2023, and this is a 17% increase compared to the $102 million in the first quarter of 2022 again. This is primarily attributable to higher volume levels above volume on our construction.

Okay.

Yeah.

Okay.

<unk> business and the inclusion of Optimus industries.

Okay.

Adjusted EBITDA in the first quarter of 2023 was $13 7 million, which is a decrease of 3% compared to $14 2 million in the first quarter, primarily attributable to higher expenses that we incur which are related to the growth of this business.

Okay.

Now turn to our balance sheet cash flow and liquidity. Our total debt at March 31, 2023 was $351.7 million and the company had a cash cash equivalents and restricted cash balance of $91 1 million.

Okay.

Yeah.

Okay.

Finally, based on our strong bookings and backlog in the first quarter of 2023, we are reiterating our full year 2023 target of between $100 million $120 million and adjusted EBITDA I'll now turn the call back over to Kenny.

Okay.

Yeah.

Thanks.

Okay.

Well in closing I would like to emphasize the continued progress and growth Babcock and Wilcox has achieved over the past several years.

Okay.

We have taken proactive steps to improve our operations and qualify additional suppliers, which has reinforced our own supply chain and positions us well to navigate challenging market conditions compared to our competitors.

Okay.

Despite the ongoing market challenges, we face we have strong and growing customer demand across all of our segments.

Okay.

Spanning our bookings and backlog, while maintaining the highest operational and project performance across our global operations.

Okay.

Leveraging our strong balance sheet, and our expanded pipeline of more than $8 billion and identify global opportunities. We are excited about our growth prospects and diversification initiatives within our renewable.

Okay.

And environmental and thermal business segments looking ahead to the rest of 2023, we're excited to continue enhancing our climate bright de carbonization platform and executing our bright group commercialization strategy with the aim of deploying our transformative technology at scale, we are at the forefront of.

Okay.

Yeah.

Okay.

Yes.

Okay.

Our global efforts.

To combine combat climate change and are excited about the growing industry tailwind that support our clean energy initiatives.

Okay.

As the year unfolds, we anticipate announcing meaningful projects that align with seasonality of the business and revenue ramp that is back half weighted for the full year.

Okay.

Finally, we would like to thank our employees again and our customers for their continued efforts and dedication to the company, which ultimately has driven our success as an organization together, we're focused on driving innovation supporting the global transition to sustainable energy solutions and delivering strong <unk>.

Okay.

<unk> growth for our shareholders.

I will now turn the call back over to <unk>, who will assist in taking your questions.

Okay.

Thank you if you would like to ask a question. Please press star followed by one telephone keypad.

Okay.

Hello, a question. Please press star followed by <unk>.

Okay.

On the <unk> to ask a question. Please ensure your statement that each bank Lee.

Okay.

Our first question today guys.

Okay.

Alan. Please go ahead your line is open.

Okay.

Yes, good morning, Kenyan Lou Thanks for taking the questions.

Okay.

Hey, good morning.

First for me on it.

Okay.

Good morning, Yes, you bet.

Okay.

First maybe on Black Hills can you just kind of talk a little bit more about.

Okay.

Kind of that project, what it looks like some of the next steps and timeline.

Okay.

Anything on contribution and then just you talked about scaling up can you just talk about confidence in the supply chain and kind of manufacturing as that progresses.

Okay.

Yeah. So.

Okay.

The <unk> project the initial phase will be.

Okay.

I guess as we describe a BLA its 15.

Okay.

On that project the first phase of that our approach there will be to fire. The project up on natural gas to creating hydrogen from natural gas.

Okay.

Yes.

On the on the initial aspect and then we will introduce the coal. So the plan in that project specifically is the state of Wyoming wants to utilize PBR or call that in the call is available actually very near the plant.

Okay.

Coal will be used in a bright moved system to produce hydrogen in this particular case.

Yes.

Okay.

The hydrogen will then be entered into the combined cycle plant.

Okay.

Turbine thats.

Okay.

The turbine that Black hills will be putting in as will support up to 30% hydrogen and 70% natural gas.

Okay.

Involved in that so, but the incentives obviously using the coal to create the hydrogen and then in that particular case, we will either sequester this year too.

Okay.

Yes.

Although we're having some conversations about potentially some other beneficial use of the tier two but either way it will be retained captured in.

Okay.

Not emitted into the atmosphere in the long run so.

Yeah.

Okay.

We're excited about that all of those elements and that moving it into an early adopter in the utility sector, which we think is very exciting for us as well on that.

Yes.

Thank you.

Okay.

In the long run Black Hills will need.

Okay.

Several hundred tons of hydrogen per day.

Okay.

To feed the turbine.

Okay.

To drive Baseload generation and.

Okay.

They do have the capacity there from a feedstock standpoint to support that so that project would move into the next phase of it which is a natural progression.

Okay.

At that point in time.

Okay.

That's that's on one on the supply chain sustainability aspect.

Okay.

If you're specifically talking about bright loop or just in general sorry.

Okay.

Just really on the on the bright loop as we think about.

Okay.

How that ramps over the next couple of years.

Yes.

Okay.

Yeah. So.

Yeah.

Okay.

We'll begin ramping up.

The ability to develop the particle.

We have limited aspects of capacity right now, but that will be developed out.

Okay.

To build up the particle aspects the fabrication side of the modules the reactors.

Okay.

Is is the long.

Okay.

Long pole in the tent so to speak.

Okay.

I would say some of the others are in and around some of the air compression and other components and pieces that we need.

Okay.

And that technology out there so those are.

Okay.

Running nine to 12 months typically in lead time so.

Okay.

Those are the areas that we look at supply chain and bright Lou.

Okay.

In that regard when we plan out the timing of the projects, we take all of that into consideration overall so that.

Okay.

We're not too far over our skis as it relates to the abilities to get the fabrication in the steel and the other components into the plant in the site but.

Okay.

So that we know that we anticipate that and thats.

Okay.

Just normal course, the good news is I think.

Okay.

Sure.

Okay.

There is short of the protocol here there is not a lot of new tech.

Okay.

We've talked about before that's growing into this or when you think about the reactor bw's have been involved in reactors for many years.

Okay.

The pressurization the heating aspect of that inside the reactors BMW has been involved in that for many years.

Okay.

The other construct on all of the other feed handling systems fuel handling systems, obviously coal in this case.

Okay.

The ability to pull the right to call everything you need to get done all of that is very common accord BMW. So.

Okay.

Yes.

Okay.

The newer piece here is really around the particle aspect on it and.

Okay.

Thank you.

Okay.

So we're excited to get that going as well too.

Okay.

Thanks.

Great Good to hear and then maybe as a follow up you guys touched on it a little bit, but just can you give a little more color on the solar business and.

Okay.

What that business looks like this year versus maybe 2022 some of the initiatives in the pipeline where.

Okay.

Are you starting to see the impact from the IRA and just anything on module availability.

Okay.

Yes, so so far module availability is.

Okay.

Fairly good actually so we typically wouldn't get involved in a project of the owner operator, who didn't have access to the modules.

Kind of a red flag, if you will.

Okay.

But module availability seem to be very strong right now in the marketplace with all of the work and effort.

Okay.

The number of projects both on utility.

Okay.

Im sorry, both like community solar and small scale utility are.

Okay.

A very significant.

Okay.

The marketplace in the U S and a lot of it is being driven by.

Okay.

The IRI credits.

Okay.

And Illinois.

Okay.

State incentives that exist as well to support.

Okay.

Community solar projects.

Okay.

You see a number more in more and more of these.

Okay.

Developers are out raising of tremendous by the capital too as well some of the companies we've talked to.

Okay.

To position themselves in building out these solar projects.

Okay.

That take place so the demand is clearly there.

Okay.

For Us obviously, we're we're.

Okay.

Now entering kind of a growth phase of that from a BMW perspective.

Okay.

And we're as we continue to grow that particular business the advent of us self performing more and more of that work.

Okay.

We will help improve the margins in the long run.

Okay.

The other aspect is we're hiring a number of different resources to come in from materials estimation and project management capabilities.

Okay.

But to work not only in solar but in our renewable energy sector. So we're in a very much in a hiring mode. At this point in time.

Okay.

In that marketplace, but as we bring on new resources and individuals we see nothing but more opportunities start to grow on the on the solar side.

Okay.

In the U S alone I don't know.

Okay.

I'd have to pull up the staff I've got them somewhere in.

Okay.

In the marketplace, but there are.

Okay.

Billions of dollars of opportunities of solar being built in the U S and the module are all available to support that kind of size of a marketplace. So very significant right now.

Okay.

Great great. Thanks for taking the questions I will turn it over.

Okay.

Great. Thanks.

Thank you. The next question guys, Hey, Bob Brown of Lake Street Lake Street Capital Markets. Please go ahead. Your line is open.

Yeah.

Okay.

Yeah.

Hi, good morning.

Okay.

Just wanted to follow up on the Black Hills project, what sort of the revenue opportunity in phase, one and I guess phase II that project.

Okay.

Yes.

Okay.

Sort of is the timeline for that to be awarded.

Okay.

Yes, so phase one will be small.

Okay.

On that project.

Okay.

Exact numbers, yet, but it'll be it'll be small.

Okay.

Under phase one.

Okay.

The important piece is just.

Okay.

He is getting the commercial aspects of that.

Okay.

Obviously, using the local feedstock and moving that forward.

Okay.

In terms of moving it into into the larger units out there.

Okay.

Which would be 100 200 kind of approach.

Okay.

In the marketplace.

Okay.

Just a rough range broad range on that would be anywhere from 250 to 300 million or.

Okay.

Four of $500 million on a on a unit depending on it.

There are different variables that will exist on that obviously.

Okay.

It's still TBD on that size of a unit those locations but.

Okay.

If you thought about them in terms of.

Okay.

We are building new technology to support a power plant that's producing a few few $100 million.

Okay.

Watts of power, it's roughly in that kind of a similar category as far as size and revenues and Thats just a broad scale thought process on it.

Okay.

Yes.

Okay.

Okay, great. Thank you that's very helpful and then on the.

Okay.

Kind of parts and services.

Sure.

Okay.

<unk> in the business I know there was some pent up demand, but could you just sort of give us some color on what's driving that improvement and how much.

Okay.

How should that continue I guess.

Okay.

So there is there is.

Okay.

Improvement and increased demand.

Okay.

Its really unique income.

Okay.

Yes.

If we divide it into three conversations here on the thermal side.

Okay.

We saw a little bit of.

Okay.

Catch up where people were catching up on parts and services from the past couple of years, because we've always talked about the plants are running.

Okay.

That was delayed.

Okay.

So we're seeing a little of that we're also seeing.

Okay.

The fact.

That a lot of these fossil fuel plants are.

Okay.

Now.

Gearing up to run a little bit longer than maybe the public announcements were are as it relates to when those might be shutting down.

Okay.

Or we have a number of customers that are or that are in Europe for example, China recommissioned.

Okay.

Some of those facilities and plants in.

That will add a little bit to the volume in that particular area. So you kind of have a twofold wanted a little bit of catch up you have a little bit of.

Okay.

Where these plants have to run longer than they normally have plan for them to do.

Okay.

Which is a good thing from us from a parts and services standpoint, and Youre seeing a few of these plants re emerge.

In Europe .

And we as we've talked about in the past, we keep expanding our international presence in Asia Pac and other markets. So.

Okay.

You see a little bit of a gravitation and more adoption of parts and services coming from Middle East and the Asia Pac region as well too.

Okay.

[noise].

<unk>.

So overall, we think.

Okay.

The levels of activity or <unk>.

Okay.

Back to rough order of magnitude back to where they were before COVID-19.

[noise] [noise].

At this point in time.

We still have those supply chain challenges, where things take longer to get in then that before but.

It's not part of the new norm and we've kind of caught up with that cycle.

Within the thermal segment.

Thank you.

The other part of the growth on the parts and services within the company.

We've seen an increase because we've actually been putting in cooling towers over the past couple of years.

And so a lot of that embedded base customers out there now are getting past the warranty period, and so we're starting to see parts and services come from.

Okay.

Thank you.

Okay.

Our environmental business in that regard the other the other piece is we.

Okay.

Obviously with intent, but invested in a small company in Europe that was strong parts and services company and waste to energy.

Okay.

And we've seen that expandable.

And grow with in that base so.

Okay.

All of those are combinations and elements on the parts and services aspect.

Okay.

We're excited about where it is but.

Okay.

Overall, we see we don't see anything out there that says hey, this is a onetime clip and we go back down there as well.

Okay.

We have to do with quarter by quarter, obviously on all these things, but the outlook is pretty strong.

Okay.

Yeah.

Okay.

Okay. Thank you I'll turn it over.

Okay.

Thank you. The next question go to Alex Slagle of B Riley Alex. Please go ahead. Your line is open.

Okay.

Yeah.

Okay.

Good morning, Kenny and thank you for taking my questions. A couple quick ones here first can you comment on your confidence in guidance and maybe talk about the variables that would lead to either the low end or the high end of that EBITDA guidance for 2023.

Okay.

Yes.

Okay.

Sure.

Okay.

Well.

The low end, it's always typically around two things one is if there are customer delays or delays.

Okay.

On project or.

Okay.

Other things that were unanticipated R b.

Yes.

Okay.

Beyond our control.

So on the lower <unk> I would say the other aspect that always.

Dark data of our projects so if the customer.

Okay.

Yeah.

Was supposed to start a project, let's say in July but it started.

[laughter].

The start date now.

Okay.

Let's say September .

Okay.

Our yes. Our October then we missed the quarter on that revenue.

Okay.

Even going even going from last quarter. So the first month of the new quarter, we missed a quarter revenue.

Okay.

On that so that's always the challenging piece for us and so if there is lower end aspects is typically comes from those kinds of pieces and components.

Okay.

The upside is also kind of the opposite of that if the projects started a little earlier than we anticipated in our planning cycle than there is upside opportunities there.

Yeah.

Okay.

If.

The energy security. Thank you.

Going on the equipment is growing and we're actually driving more parts of services from the thermal aspect.

Okay.

That that could give upside to because that's obviously a high margin.

Okay.

Yeah.

Revenues for us as well in the long run.

Okay.

Then just new bookings.

Yeah.

And getting those in executing on those.

Across the board most of the new booking upside will be in renewables, so either coming from solar or <unk>.

Okay.

<unk> waste to energy.

Okay.

Technologies that would be the bigger driver of the upside aspects and there are clearly out there but.

[laughter].

We have to get them booked and obviously executed or start doing the work this year in order to gain that particular piece, but they're all out there.

Okay.

On that regard, it's just we wouldn't at this point right off Q1 changed anything as it relates to our targeted guidance, we put out but there are those upsides that exist.

Okay.

And then any update on the Fidelis Patrick.

Okay.

Yes, they're working through their final funding on the power plant for the fuel aspect.

Okay.

Hopefully that gets announce relatively soon.

Okay.

We will begin working towards the other the other pieces of that both the biomass plant that we talked about and also for the bright loop facility.

Okay.

At that location. So there are a lot of discussions on that there is we're back and forth and looking at.

Okay.

Thank you.

Okay.

Yes.

The evolve their power needs a little bit some we look at adjusting certain things here and there as it relates to the two projects but.

[laughter].

Okay.

Overall, the change of events as waiting for them to get their final funding completed and then things will then start to move forward from there so.

Okay.

I hate to put a timeline out publicly on that but do anticipate that they are able to get stuff done here in the next.

Okay.

Yes.

One to two months, but we'll see how that shakes up.

Yeah.

Okay.

That's very helpful nice quarter. Thank you.

Okay.

Thanks, Alex.

Thank you. The next question guys, Hey, Brent Thielman of D. A davidson.

Okay.

Yes.

Yeah, Thanks, Hey, good morning.

Okay.

Thanks.

Hi, good morning.

Okay.

I guess Ken year Lou.

Okay.

You all made several references to the parts and services backlog and booking strength I guess I just wanted to take a step back maybe you could just share some views on.

Okay.

Yes.

Okay.

Sort of why this is such a relevant metric for us to be focused on what does it say about your customer's position right now maybe how it informs your view.

Okay.

You have guidance for the year from here.

Okay.

Well I think the number one aspect.

Okay.

On parts and services for us overall.

Okay.

It's a very high margin part.

Okay.

New project builds are by definition in the marketplace is usually a little lower in margins.

Okay.

But parts and services that Tom following those are.

Okay.

Obviously, yes.

Okay.

Following that are much higher margin I think we've talked publicly.

Okay.

Parts and service.

Okay.

35% to 40% gross margin.

Okay.

Overall in the company. So if we we can see improvements there.

Okay.

<unk>.

On that above and beyond our plan then that helps to accelerate pull in margin.

Okay.

In the outer months once those parts and services are shipped and billed so.

Okay.

The importance of it is really around that rate.

A healthy parts and services platform is very strong cash flows for us.

Okay.

Due to the high margin nature of it and more or less and which we've talked about in the past normally it's a short book and bill.

Okay.

It's roughly about 60 days now ish.

In the marketplace.

Where it used to be 30, but.

With the new supply chain, that's extended out there a little bit, but that's that's kind of the way that we think about it in terms of that I think the other.

Okay.

Just from a company strategy perspective, the important piece here is that by expanding parts of services beyond thermal.

Okay.

Yeah.

Okay.

[laughter].

And in renewable and environmental is very much a positive for us because that was part of our strategic plan was to increase our presence in parts and services in those groups, which didn't seem kind of high margins.

Okay.

[laughter].

And margin activity, but we needed to we needed a broader presence. So we're seeing the benefit of that because it's a it's been a very strong quarter for our renewable sector in particular on parts and services.

Okay.

Okay. Thanks for that.

Okay.

All three business segments.

Looks like based on pretty good improvement in volume I.

Okay.

I guess by the commentary.

Yes.

Where I think youre getting the benefits and better operating leverage here, but I guess I just wanted to better understand how.

Okay.

The supply chain issues or anything else, maybe holding your margins back whether it's comments by segment Guinea or just the company overall.

Okay.

Yes.

Okay.

Yeah.

Yes.

Okay.

It's a give and take.

Okay.

Each quarter there is.

We in some cases.

Okay.

We're allowed to pass along.

[laughter].

The cost increases sort of the supply chain aspect and overall goes up in price.

Okay.

And obviously, we're dealing with thousands of object here, so it's hard to.

Okay.

The exact percent, but when do parts and services do go up for the most part in most cases, we're allowed to pass that increase under our customer.

Okay.

Yes.

Okay.

Those occasionally a project or two where we have to absorb it for initial period of time, but then.

Okay.

On a quarter or two later, we're able to increase price at that point in time right. So there is ebb and flow and.

Okay.

As it relates to that in our parts business.

Okay.

Depending on who the customer is and who the parties are but if you thought about it in terms of.

Okay.

Yeah.

At this point I think our supply chain pricing is fairly stable those few things still going up because we've seen some stuff come down a little bit.

Okay.

On that but.

The bigger impact that we still probably overall in the business then we adjusted our targets accordingly.

Okay.

Thank you.

Okay.

It's just the length of getting certain items in.

Okay.

Fitch thing if you go back to the solar side talk about that when you. When you think about our solar side. Obviously one of the first things. We do is qualify whether or not the customers got the panels on hand, because if they don't that's a long lead time item.

Okay.

Yeah.

[laughter].

Okay.

And secondly, if that transformers.

Okay.

On the supply aspect or.

Thanks.

Who is responsible for the transformer side of it because those are.

Very much a long lead time item.

Okay.

Out in the marketplace.

Extra caveat some things that we go through when we try to qualify opportunities to make sure that that's all available.

Okay.

But those are the longer lead time items and the parts services aspect or.

Okay.

We've kind of baked in that timeframe.

Okay.

And our targets, but that improves thats, great we haven't seen it.

Okay.

I would say over the past six months I guess at this point something like that we haven't seen it get worse and I think that's an important consideration.

Yeah.

Okay.

So it's almost like we're operating kind of in a new norm and that's what it feels like anyway.

Okay.

Okay. Thank you.

Okay.

Thank you we have no further questions I will now hand back to Shannon for any closing comments.

Okay.

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

Okay.

Thank you. This now concludes today's call. Thank you so much for joining you may now disconnect your lines.

Okay.

Yeah.

Okay.

Yes.

Okay.

Yes.

Okay.

Babcock & Wilcox Enterprises Inc. Q1 2023 Earnings Call

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