Q2 2025 Babcock & Wilcox Enterprises Inc Earnings Call

Speaker #1: And in ur company, overview presentation filed on Form 8K this afternoon and posted on the Investor Relations section of our website at babcock.com. I will now turn the call over to Kenny.

Speaker #2: Thanks, Sharyn. Well, good noon, everyone, and thanks for joining us on our second quarter 2025 earnings call. We generated strong operating results, highlighted by strong performance from our parts and services business, which posted a 31% increase in revenues.

Speaker #2: Compared to the second quarter 2024, this growth has been spurred by the rising need for power and electricity due to the rapid expansion of AI-driven data centers, as well as increased baseload generation usage across the consumer manufacturing and industrial sectors.

Speaker #2: In fact, most of our clients expect increases in baseload generation by up to 120 gigawatts over the next 10 years from data centers alone.

Speaker #2: As a result, we continue to work with our customers to evaluate opportunities to further augment their power generation capacity with either biomass, hydrogen, natural gas, and coal.

Speaker #2: And we are working closely with our utility customers to help extend the life and improve the efficiency of their existing coal and natural gas power plants.

Speaker #2: We believe this increased demand continues to position us for sustained success across our higher margin parts and services businesses and provides BMW with a strong outlook for the second half of 2025 and beyond.

Speaker #2: Adjusted EBITDA including diamond power was 21.6 million for the second quarter, which was over 70% greater than street expectations and primarily driven by the 31% increase in higher margin parts and services revenue coming from coal and fossil fuel power plants in the US and internationally as well.

Speaker #2: This reflects our intent to exit from certain large new build projects internationally and while we continue to expand our parts and services presence globally to support coal and fossil fuel customers around the world.

Speaker #2: We also are actively pursuing large upgrades and new builds in the U.S. to support power generation needs, and we expect to make key announcements by the end of the year.

Speaker #2: Large project revenue will remain up and down each quarter depending on timing and quarter over quarter overlap of new bookings. Company-wide, revenues with diamond power came in at 170.8 million which is just ahead of street expectations.

Speaker #2: Revenue from continued operations without diamond power for the quarter came in at 144.1 million. Which is roughly the same as the second quarter of 2024.

Speaker #2: Again, mainly due to slightly lower projects, while parts and services, however, saw a dramatic increase. Overall, our revenues for the first half of 2025 from continuing operations without Diamond Power were up year over year to just under $300 million in top-line revenues.

Speaker #2: Operating income increased to 8.1 million in the second quarter of 2025 and adjusted EBITDA without diamond power, otherwise called adjusted EBITDA from continuing operations, was 15.1 million in the second quarter of 2025 which is a 90% increase compared 8 million in the second quarter of 2024.

Speaker #2: Adjusted EBITDA from continuing operations more than doubled for the first six months of 2025 to 21.2 million compared to the first six months in 2024.

Speaker #2: The company's core business continues to perform ahead of expectations and we anticipate returning to positive cash flows in 2025 when excluding BrightLoop. Additionally, through a combination of asset sales, debt reduction, and improved cash flows, the company has alleviated the previous doubt about continuing as a going concern.

Speaker #2: We believe we are well positioned now to win new plant conversions, plant upgrades, and behind-the-meter data center projects in North America and beyond. As we are in key discussions and negotiations on several opportunities, and expect continued strong performance as we move forward through the year into 2026 and beyond.

Speaker #2: During the quarter, we completed the sale of diamond power international for gross proceeds of 177 million, or roughly about eight times EBITDA. This further improves our balance sheet and reinforces the mark-to-market value of our underlying assets as we recapitalize our business.

Speaker #2: This represents a significant improvement in our net leverage ratios as we look to continue supporting our customers' long-term power needs and position the company for the advancement of our new technologies such as BrightLoop.

Speaker #2: We also recently entered into a private bond exchange with a limited number of noteholders. These exchanges will help to reduce our annual interest expense by a ittle over $1 million annually, while reducing outstanding debt and extending debt maturity to 2030.

Speaker #2: This privately negotiated bond exchange resulted in 131.8 million of outstanding bonds due in 2026, being replaced with new bonds in the amount of 100 million 0.7, that will be due in 2030.

Speaker #2: This represents a positive step in our restructuring and refinancing efforts while demonstrating continued support from our lenders and bondholders. Moving forward, we remain intently focused on our strategic vision and continue to explore the sale of other non-strategic assets as well as potential refinancing options to reduce our current and long-term debt obligations.

Speaker #2: We continue to see strong global demand for our diverse portfolio of technologies and are making progress in converting our 7.6 billion global pipeline of identified project opportunities.

Speaker #2: Our backlog of $418.1 million at the end of the second quarter was a 49% increase compared to the same period in 2024. This represents another extremely strong quarter for our backlog as we continue to perform based on higher baseload generation demand in North America.

Speaker #2: We believe these results affirm our strong foundation while underpinning our pipeline and outlook for the year ahead. Our efforts to progress BrightLoop are moving forward as we further the commercial development of existing projects and continue working to improve the overall operational effectiveness of these technologies to produce low-cost hydrogen or steam.

Speaker #2: We're seeing an increasing activity for our BrightLoop technology, both for steam generation as well as hydrogen production, that can produce energy with lower costs and expenditures.

Speaker #2: In fact, we are in discussions with a number of oil and gas companies and large utilities about using BrightLoop for specific steam or hydrogen generation projects.

Speaker #2: I'll now turn the call over to Cameron to discuss the financial details of the second quarter of 2025. Cameron?

Speaker #3: Thanks, Kenny. I am pleased to review our second quarter results, further details of which can be found in the 10-Q that is on file with the SEC.

Speaker #3: Our second-quarter consolidated revenues were $144.1 million, which is slightly lower compared to the second quarter of 2024. The difference is primarily related to the timing of closing and starting a select few large projects.

Speaker #3: Offset partially by an increase in global parts and services of 15.4 million. The half of 2025 revenue came in at 299.9 million, which is an increase compared to the 292.3 million in the first half of 2024.

Speaker #3: The increase is primarily driven by larger global parts and service volume, offset partially by timing large project revenue recognition. Global parts and service revenue in the second quarter of 2025 increased by 15.4 million, compared to the second quarter of 2024.

Speaker #3: And increased to 26.9 million in the first half of 2025, when compared to the first half of 2024. This considerable improvement is primarily due to the increasing need for electricity from fossil fuels, driven by the demand from artificial intelligence data centers and expanding incomes.

Speaker #3: Economies. Net loss from continuing operations in the second quarter of 2025 was 6.1 million, which was a better result compared to a net loss of 20.5 million in the second quarter of 2024.

Speaker #3: Loss in the first half of 2025 was $20.1 million, compared to a loss of $38.2 million in the first half of 2024. Our net operating income in the second quarter of 2025 was $8.1 million, exceeding our quarterly expectations and outpacing an operating loss of $4.4 million in the second quarter of 2024.

Speaker #3: Operating income in the first half of 2025 was $8.4 million, compared to an operating loss of $3.5 million in the first half of 2024.

Speaker #3: Our adjusted EBITDA was 15.1 million compared to 8 million, in the second quarter 2024, and adjusted EBITDA in the first half of 2025 was 21.2 million, an increase compared to the 10.8 million in the first half of 2024.

Speaker #3: These increases are primarily the result of higher global parts and service volume as a result of higher energy demand. I will now turn to our balance sheet cash flow and liquidity.

Speaker #3: Total debt at June 30th, 2025 was 471.3 million, and the company had cash, cash equivalents, and restricted cash balance of 109.1 million. However, as previously announced on July 31st, BMW closed the sale of diamond power for gross proceeds of 177 million.

Speaker #3: These proceeds will be primarily used to pay down BMW's debt, and as of July 31st, total debt is expected to be 421.3 million, with a cash and cash equivalents and restricted cash balance of 217.4 million.

Speaker #3: This leaves the company with net debt of approximately $203.9 million. The refinancing and reduction of our current debt obligations continue to be one of our top priorities.

Speaker #3: We have taken strategic steps to address our debt obligations, and today we are extremely pleased to announce that BMW has alleviated the previous doubt about continuing as a going concern.

Speaker #3: This is a major step forward for BMW, and we believe that we are well positioned to support our customers in meeting the growing need for reliable and efficient energy including opportunities for new plant conversions, upgrades, and behind-the-meter data center projects.

Speaker #3: We continue to explore the sale of additional non-strategic assets as well as potential refinancing options to reduce our current and long-term debt obligations as mentioned earlier.

Speaker #3: The proceeds from these sales will be used primarily to pay down the existing debt and enhance working capital. I will now turn the call back over to Kenny.

Speaker #2: Thanks, Cameron. Well, in closing, again, we delivered strong operating results in the second quarter and demonstrating the progress we continue to make as we execute our strategic plan and drive further improvements in our balance sheet.

Speaker #2: We expect continued strong financial performance throughout the remainder of the year, buoyed by a global pipeline of over $7.6 billion in identified project opportunities that remains healthy across all business segments.

Speaker #2: We believe BMW is well positioned to capitalize on the growing demand for baseload generation while also supporting energy security and energy transition. Also, I want to recognize and thank our experience and talented employees who continue to help drive the company's success.

Speaker #2: We greatly appreciate their efforts, as well as the continued support of our global customer base and suppliers. We remain excited about the growth prospects ahead of us.

Speaker #2: We look forward to continuing to demonstrate BMW's role in a leader innovation and leader and innovator providing leading-powered generation and environmental solutions that meet the world's need for reliable power today while advancing technologies for tomorrow.

Speaker #2: I'll now turn the call over to Jayla, who will help us with a couple of questions. Jayla?

Speaker #4: At this time, if you'd like to ask a question, it is star followed by 1 or your telephone keypad. If for any reason you would ike to remove that question, it is star followed by 2.

Speaker #4: Again, to ask a question, it is star 1. As a reminder, if you're using a speakerphone, please remember to pick up your headset before asking a question.

Speaker #4: I'll pause briefly here as questions are registered. Our first question comes from Aaron Spicello with the company Craig Hollom. Aaron, your line is now open.

Speaker #5: Yeah. Hi, Kenny and Cameron. Thanks for taking the estions. maybe first, you know, can you just talk about the the current demand for for energy energy that you're eing on the thermal side of the business with with everything going on?

Speaker #5: you kind of talked about some potential large upgrades and and new builds later this year, and sounds like you're hearing of the the possibility of some new coal-fired generation being built.

Speaker #5: So can you just maybe give an update there, ase?

Speaker #6: Yeah. No. Thanks, Aaron. we we are actually so, you know, as I mentioned, in the US and North America alone, right, we're we're seeing the the overall need the next 10 years go up to about 120 gigawatts, which is about a 10% baseload generation increase.

Speaker #6: Think it that in context of a a, you know, a baseload demand in the US that's been relatively flat, over the years, and, you ow, now the entire aspect of the generation plus, you ow, the the grid infrastructure has to be enhanced and upgraded to to hit that kind of and.

Speaker #6: Specifically, you know, without giving names, we we do have a handful of customers that are now looking to build out you know, up to 20 gigawatts within their potential areas of new generations support data center demand that's taking place within those specific territories.

Speaker #6: And they're looking at right now, you know, all aspects of energy generation. including as you ioned, which is exciting for us, obviously, the potential around new coal generation or new coal power plants here in the US.

Speaker #6: Obviously, you know, a lot of support's given towards the fossil fuel aspect and coal and natural gas are are key drivers. to support that baseload generation.

Speaker #6: Exciting to us, if we took that to the next step, obviously, and, you know, a lot of work's still to be done, but the the BrightLoop represents an opportunity there to actually use in that particular case because we can produce steam from BrightLoop that has to produce hydrogen, but can just produce steam directly from coal, but isolate and capture the the CO2, which can either be sequestered or used for other beneficial purposes.

Speaker #6: Enhanced oil recovery or, you know, other capabilities. either now or sometime in future. So as we're continuing to work with those customers, on on that specifically a few customers where we're in discussions on projects with them to actually augment their power generation as they're trying to respond to these data centers, it opens the door for us on a wide variety technologies, but, you know, inclusive of BrightLoop leveraging coal as well.

Speaker #6: So we're excited about those opportunities. We're, you know, in discussions on several of those, and you know, anticipate hopefully, you know, an announcement or two yet this year, obviously.

Speaker #6: So still have a ways to go, but a lot of a lot of momentum right now taking place. That that also adds that, you know, currently, you know, as I mentioned, we're such an increase in our parts and services because a lot of the power demands are to keep the current fossil fuel plants open, including coal plants, is really driven right now.

Speaker #6: and so those are are running full. Good news is, though, a lot of them now are being extended out for a longer-term period of time.

Speaker #6: And so there's a lot of opportunities for us to get in and work with those customers on making them as efficient as possible. We will continue to work on providing the parts and services for those plants.

Speaker #6: So you ow we're in a good position to support them on accomplishing both directions. One, keeping everything going. Two, obviously, supplant or increase baseload generation.

Speaker #5: Thanks for that. And then you know just any thoughts on on what that might look like from a from a size or you know an order perspective?

Speaker #6: Yeah. Too early to to tell. As you know, I always get into the the size of negotiations on these, but you ow out there, but some of these you know typically would be in the you know in the low 100s and some of those might be a little bit higher than that.

Speaker #6: And the you know size itself. So we're we continue to work on those and on those plants, but they're going to vary in size depending on the on the actual outputs on those particular sites that we're working on.

Speaker #6: But too too soon to give a too much guidance there, but you know they're it's a positive outcome for us all around. The good s is that revenue would be spread over you know a few-year period of time.

Speaker #6: And you ow the backside of those is that we'd continue to provide parts and services to those plants. So it provides a you know a base for us to continue to grow our core business on as well.

Speaker #5: No. appreciate that. And then you know just any thoughts on on the second half? I know you have you know you had some guidance out there before the sale of diamond power and and you noted you know improvements expected in the back half.

Speaker #5: Just any other color there?

Speaker #6: Not yet. We're still working through the... I mean, it should be... we're anticipating a strong year, obviously, because of the parts and services aspect, which is higher margin for us.

Speaker #6: You know, for the rest of the year, but also getting ready for 2026 as well, too. Which, you know, we're being seen as a potentially strong year for us, too.

Speaker #6: So we're we're trying to work on both right now. And obviously, we'll come out with guidance before the end of the year on that.

Speaker #6: That's our intent anyway, but we're still working through both of those.

Speaker #5: Understood. And then you know maybe last question, just on on free cash flow. you noted continuing to expect a return to positive free cash flow in 2025.

Speaker #5: Can you speak to confidence there you know with the ramp that that would be needed there in the back half?

Speaker #6: Yeah. I I ink when you look at the second half of year, I think, yeah, just taking the the final six months will be cash positive.

Speaker #6: Oh, you know we're working on getting the interest down with the sale of the assets, so that'll help out quite a bit.

Speaker #6: And as we ramp up on some of our natural gas conversion project, that will bring in some cash. As Kenny mentioned too, the parts and services are growing, which is helping cash flow as well.

Speaker #6: So, yeah, we have pretty good confidence that the second half of the year will generate positive cash.

Speaker #5: All right. Thanks for taking the estions. I'll turn it over.

Speaker #2: Thanks, Aaron.

Speaker #4: Our last question comes from Rob Brown with the company Lake Street Capital Markets. Rob, your line is now open.

Speaker #7: Good afternoon. Encourage listeners to all the ess. Thank you. Thanks, Rob.

Speaker #5: On the

Speaker #7: the parts and service business, yeah, on the parts and service business, you ow, as you kind of get these plants running longer, maybe you could explain a little bit the dynamic how the extending the life, helps your parts and service business and what that kind of incremental opportunity is.

Speaker #6: Yeah. So, so some of these plants, obviously, you know, they vary in all over the states. that are out there here in the US.

Speaker #6: But, you know, some that may have had a shorter lifespan where they may have looked to convert some of those, or, you know, perhaps close some of those.

Speaker #6: started to slow down and ramp down their buying of parts and services to work on those plants. So when they extend them out for a longer period of time, you know, they have to go back and start looking at, ou know, some of the the bigger pieces, right?

Speaker #6: and as well as the efficiency of those plants and and maybe relook at some of the environmental aspects and lah, blah, blah. So there's there's follow-on aspects to keeping those plants running for a little bit longer term.

Speaker #6: or a longer term that, you know, bode well for us. in the short order. So that's that's all a positive. And and clearly, you know, as the plants run longer, on that particular aspect of it, it just extends out the revenues that, we realize from those plants on a longer period of time.

Speaker #6: So, both of those are solid for us and very helpful to us. But that's really the reason why the extension is good for us short term.

Speaker #7: Okay. Got it. Thank you. And then on the, on BrightLoop, pipeline, out there, I think you ked about some steam projects, but but could you sort of give a sense of of, a number of projects in the pipeline and some of the, potential there?

Speaker #6: On BrightLoop specifically? Or?

Speaker #7: Yeah. Correct.

Speaker #6: Yeah. So so there's, it's quite a few. I'm going to give a just as a a quick range here. But, you know, well over 10.

Speaker #6: That we're working on. in BrightLoop, but the the I think, you know, the exciting part, and always is the hardest part about a new technology, is that it does multiple things.

Speaker #6: So you ow BrightLoop fundamentally can can produce syngas, such as hydrogen and rogen and other aspects. We can actually, create ammonia from it as well.

Speaker #6: or we can just produce steam. from from BrightLoop. Same fuels, as hydrogen doesn't matter for us. It's just we we have a a, you know, less one reactor.

Speaker #6: So, if it's just steam, we have a fuel reactor and a steam output. If it's hydrogen, we have three reactors to produce the hydrogen from.

Speaker #6: So, it just depends on the application. But, you know, the exciting part is that BrightLoop by itself can actually produce steam from coal, natural gas, or biomass and other fuels as well.

Speaker #6: to drive a turbine for electric generation. That's out there on that. So, when we, you know, look at, what working with a lot of operators, not only here, but some on the international front, you know, in some cases, if it's steam related, just another's ocused on that for a second, you ow, we we are in discussions with a few utilities and and power plants around the concept of just creating steam from coal or natural gas but giving the option to capture the CO2.

Speaker #6: they may not need to capture the CO2 today, but, you ow, under a different, environmental aspect or decision to curb more CO2 in the ure, they would have the luxury to, curb capture or store sequester the CO2 pretty cost-effectively because wouldn't require a lot of, incremental, capital or operational expense to make that happen.

Speaker #6: compared to other technologies to capture the CO2. So, while you know we have momentum here, especially in the US with the the, the baseload generation demand, you know, the abilities to to use more fossil fuels, given the current administration aspect around it, it's some the plants and sites now are taking, a close look at how BrightLoop, either under feed studies or further engineering studies, would be able to to meet or be a part of meeting that new baseload generation.

Speaker #6: But allow for them to to hedge against the future if there was a point at which they needed, wanted, or there was some incentive or, you know, some other requirement to to isolate the CO2, they could do that in a very economical fashion.

Speaker #6: So, you know, with a stranded, you know, boiler in a coal plant or a standard combined cycle plant or whatever it might be considered today, you would have to add a post-combustion technology to capture the CO2.

Speaker #6: BrightLoop eliminates the post-combustion aspect of that. So you can build out a power plant today, isolate CO2 if you want to let CO2 go into the atmosphere, got it.

Speaker #6: If you ant to, sequester the CO2, you can. the the point of it is is that we give that optionality to the customer and and not have a dramatic increase on any future capex, nor is there an impact on, the parasitic load of the plant.

Speaker #6: So you keep the efficiency overall of that particular plant. at bay. So it's it's a it's a very intriguing technology and, you ow, with the momentum that we're seeing here, around it, that concept around BrightLoop is is becoming, realized and and some of these opportunities.

Speaker #6: And so we'll see where it goes, but but clearly, we're working with our ustomers on those. you know, we're we are seeing in parallel, some opportunities around, biomass to steam, actually, here in the US.

Speaker #6: Some of that with, an oxycombustion kind carbon capture process where they're looking at those opportunities and we're in discussions on those. And there are some other, you know, home waste or other aspects on, power plants that are in discussions right now.

Speaker #6: Here in North America, about, providing steam for those ants to drive a turbine and providing baseload generation using, you know, alternate forms of fuel.

Speaker #6: So all of those are exciting for us, and we are in direct dialogue on specific projects across each of those areas, right now.

Speaker #7: Great. Thank you. I'll turn it .

Speaker #4: At this time, there are no questions raised in the queue. I'd like to pass the conference back over to our hosting team for closing remarks.

Speaker #1: This concludes our conference call today. A replay of the call will be available for a limited time on our website. Thank you for joining us.