Q3 2025 Babcock & Wilcox Enterprises Inc Earnings Call
Speaker #1: Good afternoon. Thank you for attending the Babcock & Wilcox Enterprises third-quarter 2025 conference call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end.
Speaker #1: I would now like to turn the conference over to our host, Sharyn Brooks, B&W's Director of Communications. Thank you. You may proceed Ms. Brooks.
Speaker #2: Thank you, Victoria. And thanks to everyone for joining us on Babcock & Wilcox Enterprises' third-quarter 2025 earnings conference call. Joining the call today are Kenneth Young, B&W's Chairman, and Chief Executive Officer, and Cameron Frymyer, Chief Financial Officer, to discuss our third-quarter results.
Speaker #2: 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 this afternoon, as well as our Form 10-K that is on file with the SEC.
Speaker #2: And provide further detail about the risks related to our business. Additionally, acceptance required by law, we undertake no obligation to update any forward-looking statement.
Speaker #2: 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.
Speaker #2: A reconciliation of historical non-GAAP measures can be found in our third-quarter earnings release published last week and in our company overview presentation filed on Form 8K this afternoon and posted on the Investor Relations section of our website at babcock.com.
Speaker #3: Thanks, Sharyn. Well, good afternoon, everyone, and thanks for joining us today on our call. We continue to execute on our strategy to expand our global parts and services business while also focusing on large opportunities within North America and reducing a majority of our debt obligations.
Speaker #3: The increasing demand for power in North America drives our growth and aligns well with our strategy to divest certain non-core assets to significantly reduce our debt while positioning B&W to play a pivotal role in supporting AI data center expansion and increased baseload generation needs.
Speaker #3: We are pleased to report a number of positive developments this quarter at Babcock & Wilcox, both in relation to our quarterly financials as well as our recent projects and partnerships that we have completed.
Speaker #3: Adjusted EBITDA and operating income significantly outperformed company and consensus expectations this quarter, adjusted EBITDA was 58% higher compared to third quarter of 2024, while operating income was up 315% when compared to the same period of 2024.
Speaker #3: Our improved margins directly reflect the record quarter results for our parts and services business. During the third quarter, our global parts and services achieved the highest quarterly and year-to-date bookings revenue and gross profit in recent company history.
Speaker #3: Our growing backlog continues to benefit from increasing demand across projects, upgrades, and construction, as power generation needs for industrials and utilities in North America continue to accelerate.
Speaker #3: In total, we saw our backlog rise 56% quarter over quarter to a total of over 393 million. Through a combination of disposition of non-core assets and equity raises, we have paid or will pay down the February 2026 notes by end-of-year 2025.
Speaker #3: We also have the With this improvement, along with the tailwinds from baseload generation demands in the market, we have positioned B&W for a substantial growth in 2026.
Speaker #3: 2026 bonds. A process that we plan to begin by end of year. Over the course of the past several months and with key equity raises last week, our balance sheet has significantly improved.
Speaker #3: We are currently projecting a range of $70 million to $85 million in EBITDA from our core business in 2026, which represents 80% growth year over year from 2025.
Speaker #3: And this does not include any revenues or margin from our recently announced AI data center projects. We have been in discussions on several opportunities within the AI data center space, and we are seeing a Genetic AI as a new catalyst for higher power demands in the US and around the world.
Speaker #3: We are pleased to announce that we have signed a limited notice to proceed with Applied Digital to begin work for the delivery and installation of natural gas technology that will provide 1 gigawatt of efficient energy for an AI factory and data center project.
Speaker #3: The total project valued at full notice to proceed will be over $1.5 billion in total, once finalized, and we anticipate that full notice to proceed to be released in the next few months.
Speaker #3: As a part of this deal, B&W plans to design and install four 300-megawatt natural gas-fired power plants consisting of proven boilers and associated steam turbines to support applied digital's AI factory.
Speaker #3: The plant is targeted to begin operation in 2028. This technology carries equal efficiency as simple cycle turbines and can be operational much faster than combined or simple cycle power plant options.
Speaker #3: The impact from this deal on B&W is profound, adding three to five billion in AI data center opportunities in our pipeline. We are also pursuing other projects and opportunities, which brings our total global pipeline to 10 to 12 billion in totality.
Speaker #3: Including ClimateBright and BrightLoop. Taking a look at our BrightLoop technologies, our efforts to progress BrightLoop are moving forward as we further the commercial development of our existing projects and continue working to improve the overall operational effectiveness of these technologies to produce low-cost hydrogen or steam.
Speaker #3: We're seeing increasing activity for BrightLoop technology, both for steam generation and hydrogen production, that can produce energy with lower costs and expenditures. In fact, we're in discussions with a number of oil and gas companies and large utilities about using BrightLoop for specific steam or hydrogen generation projects.
Speaker #3: From a ClimateBright perspective, we are seeing an increased demand to leverage carbon credits both in waste energy and cold energy as optional offtake revenues for our customers.
Speaker #3: We also are in discussions on several opportunities and believe we can announce a significant carbon capture project utilizing our solid bright technology very soon.
Speaker #3: I'll now turn the call over to Cameron to discuss the financial details for the third quarter of 2025. Cameron?
Speaker #2: Yeah. Thanks, Kenny. I am pleased to review our third quarter results further details of which can be found in the 10Q that is on file with the SEC.
Speaker #2: Our third quarter consolidated revenues were $149 million, which was roughly in line with the third quarter of 2024. Global parts and service remained strong in the third quarter of 2025, with revenues of $68.4 million, compared to revenues of $61.7 million in the third quarter of 2024.
Speaker #2: The improvement is primarily due to the increasing need for electricity from fossil fuels, driven by the demand from artificial intelligence, data centers, and expanding economies.
Speaker #2: Our net operating income in the third quarter of 2025 was $6.5 million, compared to operating income of $1.6 million in the third quarter of 2024.
Speaker #2: Loss from continuing operations in the third quarter of 2025 was $2.3 million, compared to a loss of $7.9 million in the third quarter of 2024.
Speaker #2: And our adjusted EBITDA was $12.6 million, compared to $8 million in the third quarter of 2024, beating street expectations. As Kenny stated earlier, we have announced our 2026 full-year adjusted EBITDA target range of $70 to $85 million, stemming from our core business, which does not take into account any growth related to data centers.
Speaker #2: I'll now turn to our balance sheet, cash flow, and liquidity. Total debt at September 30th, 2025, was $379.3 million, consisting of $98.4 million of February 2026 bonds, $90.9 million of December 2026 bonds, and $121 million of bonds due in 2030.
Speaker #2: With the remaining debt being related to our letters of credits. As of September 30th, we had zero drawn on our asset-based loan. The company had cash, cash equivalents, and restricted cash balance of $201.1 million, giving us a net debt as of September 30th, 2025, of $178.2 million.
Speaker #2: On October 2nd, B&W paid down $70 million of bonds due in February 2026. We recently announced that the remaining outstanding February 2026 bonds will be paid down fully in December 2025.
Speaker #2: Another notable development took place last week when the company was able to raise an additional $65 million of equity, which has further strengthened our balance sheet and demonstrates the ability to pay down the remaining of the 2026 bonds that are due in December 2026.
Speaker #2: When factoring in our recent equity raise, this will leave us with a pro forma net debt of $113.2 million, which will be between 0.8 to 1.6 times targeted 2026 EBITDA.
Speaker #2: Lastly, although we said on Friday that we would be pausing sales under the ATM program, we've decided to resume ATM sales and intend to sell shares under the ATM program opportunistically based on market conditions and our share price.
Speaker #2: I'll now turn the call back over to Kenny.
Speaker #3: Cameron, thanks. Well, in closing, as always, I would just like to recognize the efforts of our dedicated and talented employees that are around the world who focus on working hard every day to meet the challenges in supporting our customers while meeting the energy demands of today.
Speaker #3: I will now turn the call back over to Victoria, who will, and I think we have time for about three questions. So, Victoria, I'll turn it back over to you.
Speaker #3: Thanks.
Speaker #4: Of Of course. As he said, for today's call, we will only have time for three questions. Our first question comes from the line of Aaron Spicella with Craig Hallam.
Speaker #4: Your line is now open.
Speaker #5: Yeah.
Speaker #6: Yeah. Hi, Kenny and Cameron. Thanks for taking the questions. Maybe first on the $1.5 billion project, can you just talk a little bit about the next steps that are needed and how you see potential contribution from a timing and margin perspective moving forward?
Speaker #6: And then just thoughts on the supply chain and kind of working capital needs as that ramps.
Speaker #3: Sure. No, I appreciate that, Aaron. Thanks for jumping on the call today. So first of all, we're actually right now working with Applied, obviously, to finalize the exact location, where this will take place.
Speaker #3: And so we can finalize the full notice to proceed, which again, as you mentioned in the comments, we anticipate being done here in the next couple of months.
Speaker #3: As part of that, we're also behind the scenes working with a few of the steam turbine generators at this point in time. And have secured some verbal commitments that we have the ability to make these time frames.
Speaker #3: And so we'll look to finalize those details on that, as well as our own manufacturing of these particular boilers. The great news, I think, in this case, is that we're using—I'm going to use the term "off-the-shelf."
Speaker #3: So these are at least 300 megawatt boilers or designs that we have installed at several locations prior to this event. So this is a proven technology and architecture.
Speaker #3: And so there's very little if any engineering that needs to be performed in order to get these to a manufacturing state. We already have the construction drawings of each of these with application diagrams and layouts, the header layouts, the tubing, everything associated with this type of a boiler, to meet the specs and standards here in the US.
Speaker #3: And so it's an easy method for us to move that right into the manufacturing process. And that's the exciting part here; it's a rare opportunity for us to do and utilize a design that we have implemented in many locations prior so we're obviously very comfortable with the standards and the performance of those boilers.
Speaker #3: Easy to move into manufacturing and leveraging the fact that we have access to the steam turbines in a much faster go-to-market model than trying to leverage a combined cycle or simple cycle turbine plant.
Speaker #3: Today. So that's the benefit here on that. But we're working through all of those in parallel with Applied and, again, plan to have the full notice to proceed signed here in the next couple of months and we're working diligently behind the scenes to move the project full forward.
Speaker #3: As it relates to working capital aspects on it, we'll work with Applied on the timing of that and how we move that forward. That'll be part of the full notice to proceed process here over the next couple of months.
Speaker #3: Typically, for us, we typically keep the working capital on projects like this at a neutral to positive. So down payment requirements that we have with manufacturers or subcontractors are typically collected upfront on these projects and have no reason to believe it would be any different here.
Speaker #3: So we're moving forward under that direction and Applied understands that as well. So we think that will help minimize this a little bit overall and any impacts to working capital on the company.
Speaker #3: And we should remain cash flow positive on this, as we typically do on projects like this, at this point in time. So that's the overall plan.
Speaker #3: As far as revenue recognition goes, and margin recognition, obviously, we're a POC shop under that. It will depend on timing of when we can apply the cost to the project into next year.
Speaker #3: Some of that will be based on the final notice to proceed and the time frame there. So it's a little bit vague and it won't be terribly much, I would say, in 2026.
Speaker #3: I don't know. I'm just throwing out a number, maybe 10, 15 percent of the value would be realized then. The bulk of it would, based on the accounting methods, would be realized more in the 2027 and obviously 2028.
Speaker #3: So we've based on the fact that we're still finalizing that NTP and our guidance for next year; we have not included this project or any other data center projects in that $70 million to $85 million range.
Speaker #3: So this would represent complete upside and probably significant upside to any number that we would be putting out right now. Cameron, I don't know if there's anything you want to add to that, but otherwise, I'll turn it back to you.
Speaker #2: No, no. I think it all the points, Kenny.
Speaker #6: That's very helpful. Thanks. And then maybe just second, on the additional pipeline, it sounds like last week it was a billion and a half.
Speaker #6: Today, it sounds like maybe three to five billion. So maybe some growth there. Can you just talk about how mature some of those opportunities are and potential timing of when you could see some of those move forward as well?
Speaker #3: We are obviously in talks with several, as it relates to this, and have been—I want to emphasize that—have been prior to this announcement in talks with several on this particular solution.
Speaker #3: In different sizes, right? Meaning some would be smaller in a maybe a half-gigawatt range, and some are perhaps even a little larger, in the 1.5 to 2-gigawatt range.
Speaker #3: So there's a number of these opportunities where this solution makes the most sense. From both a cost standpoint as well as delivery and time frame standpoint.
Speaker #3: Some of that would be subject to complete availability in the manufacturing and the steam turbine side. And again, the early indications are we've got some real positive capacities there to meet this entire demand.
Speaker #3: And so it's on some of those that'll be working with them to move forward, hopefully on a couple of other opportunities if we can get them to commit.
Speaker #3: I would say those would be in the next year's time frame to announce. On that regard, but we're obviously involved with these other opportunities that are out there and fully intend to push those across the goal line.
Speaker #3: That's on this solution. The other ones that we're heavily working with are related to our denim partnership. We are working very closely with Denim Capital right now on a number of locations to convert some coal plants to natural gas.
Speaker #3: And that's also in the works as well too. So I think we have those opportunities are within that opportunity and pipeline as well as the other natural gas and steam turbine combination that we're proposed for Applied, would also be in that opportunity as well.
Speaker #3: So the combinations of all that and the sizes of those, we decided to take the pipeline up even a little bit further from last week.
Speaker #2: That's great. Thanks for the color and best of luck. I'll turn it over.
Speaker #3: Thanks.
Speaker #1: Thank you for your questions. Our next question comes from the line of Rob Brown with Lake Street Capital Markets.
Speaker #7: Hi, good afternoon. Good afternoon. I'm the ability or your capacity for that pipeline. What is your capacity sort of in this power gen segment and how do you sort of think about capacity kind of limits there?
Speaker #3: So the main—so there's two main components to that capacity aspect, Rob. And thanks for jumping on, by the way. There's two aspects to that.
Speaker #3: One is the manufacturing of the boiler fabrication of the boiler. For us, that's par for the course, right? That's what we do. And we have been looking and evaluating our own internal capacities that we have today.
Speaker #3: As well as our external partners that we use in various places around the world to manufacture these kinds of systems. So all of those companies are on board with this and quite frankly, it's a volume—many of these manufacturing and fabrication groups are comfortable and used to dealing with projects of this size.
Speaker #3: So it's just a matter of how much we can put into each location on that. And we're going through that right now. So within, I would say within the pipeline that we have today, again, depending on the exact timing of some of this, we feel pretty comfortable that we can complete the manufacturing and have the capacity to do that on the boiler fabrication and manufacturing.
Speaker #3: On the steam turbine aspect of this, the good news is there's a lot more steam turbine companies than there are combined cycle and simple cycle companies.
Speaker #3: Out there, we're in, can't give names right now, but we're in discussions with several and are quickly trying to move into a relationship with them that we have this capacity secured.
Speaker #3: And we believe just based on a lot of the early conversations that we're having with these particular groups that that capacity does exist. Maybe across a couple of different manufacturers and we'll have to—we'll work through that.
Speaker #3: But from a steam turbine perspective, we think these opportunities do exist. They’re obviously very excited because this is a way for them to get involved in a high-growth area.
Speaker #3: For them as well too. So far, it's been full energy if you will across both the manufacturing side and on the steam turbine side as well.
Speaker #7: Okay. Thank you for that. On the switching to kind of the climate projects, I think you mentioned the CO2 capture opportunity that's developing. Could you kind of give a little more color there on when that might happen and what the size could be?
Speaker #3: Yeah. So there are a few projects that we're in dialogue and discussions on. Some of these are feed studies that we always talk about feed studies out there, feed studies meaning front-end engineering design studies.
Speaker #3: And we have several of those. Going on at this case. So we're in discussions right now to finalize an opportunity and feel like that can happen fairly soon.
Speaker #3: Hopefully, not days or weeks at max. On a project that we can put out. And order of magnitude would be in I'll just call it 72, 100 million-ish in that category.
Speaker #3: I'll be a bit kind of a little bit of a range there as we finalize it. But on the initial project itself and then there's probably more opportunities and upside on that.
Speaker #3: But we are seeing in the U.S. from some of these operators in the hyperscalers and other aspects, there are a few occasions where they would like to have the Carbon Dioxide Removal (CDR) credits from the carbon offtake. The groups that are building out these power plants are looking at how they can capture CDRs or carbon to be able to sell those as additional revenue for the plant owners, as it relates to building out the infrastructure to support the hyperscalers.
Speaker #3: And we've seen that with a few developers and we've got I think a pathway here to hopefully announce a project or two, but one specifically in the next days if not weeks.
Speaker #7: Okay. Thank you. Congratulations on all the progress.
Speaker #3: Yeah. Thanks.
Speaker #1: Thank you for your questions. Our next question comes from the line of Brent Bailman with BA Davidson. Your line is now open.
Speaker #8: Hey, thank you. Hey, Kenny, I want to ask just back on the Applied Digital contract that billion and a half dollars. Is that all within BMW's scope?
Speaker #8: I know this is all getting worked out, but obviously, it's a massive potential uptick to the backlog that you have today. So, I just wanted to kind of understand what's all in there.
Speaker #3: Yeah. No, this is that billion and a half would anticipate and represent BW's scope as associated with this project, right? BMW would bring all of the aspects and elements of the boiler and the steam capabilities plus the construction aspect, right?
Speaker #3: We have our own construction company here in the US. So it'd be blended with construction, the steam turbines, and the boiler aspect of it.
Speaker #3: And then we'll work through some of the other elements to complete the plant on time and on schedule. We'll work with Applied on that.
Speaker #3: So we put it as over a billion and a half at that site. The total value could be higher depending on final scope. And we'll just have to work through that.
Speaker #3: But wanted to give some idea and indication of what it looks like from a BMW perspective. So we intended that to be our scope.
Speaker #3: The scope of the project would be a little bit larger, but under that scenario. But we'll work with them to complete that once we have the NTP finalized.
Speaker #8: Okay. Yeah. I appreciate that, Kenny. And then I guess just as a follow-up, anything you can say in terms of just risk sharing associated with it?
Speaker #8: Is this all fixed price in terms of execution? And I noticed there's an equity component that Applied Digital gets in BW. Maybe you can just talk about that and whether that's going to be something that's ongoing as you look to maybe some of these other opportunities out there.
Speaker #3: Hard to say whether that same model would exist elsewhere. It's too early. Not saying it won't, but hard to say right now. On it. We've viewed it as a very positive thing.
Speaker #3: We think having those warrants out there, obviously there's incentive for Applied to get the NTP done sooner and complete. Obviously, but also there's buy-in, if you will, or support for BW overall.
Speaker #3: Not only as a potential customer and client, but as a shareholder as well too. And we think all of that's very much positive. And obviously, we've seen that throughout some of the data center and other aspects as well too.
Speaker #3: So we view that as overall very, very positive. As far as the risk share, we're working through that right now. On how that would appear to be.
Speaker #3: And obviously, with the outside manufacturers and feed turbine companies would share a part of that risk overall as well too. And as we always do, we look to balance it.
Speaker #3: I think the biggest piece here is that, and this is what greatly reduces the risk overall to us, is that this is these are projects and technologies that we have performed on a multitude of other occasions.
Speaker #3: So there's no new technology being designed or installed here or implemented here. This is well-proven technology that has been installed in tens, if not dozens, of locations where BMW has actually constructed these.
Speaker #3: Obviously, we have the, I think, advantage in the US having our construction company and leveraging the Boilermakers who are a great welder and fabrication aspect of this on-site.
Speaker #3: But again, these are all boilers that have been built previously. So we know the performance. We know the complexity that's involved in these, the timeframe that's involved in these.
Speaker #3: And as well as we've gone through all of the risk aspect of overseeing the manufacturing processes of these and understand how to manage that manufacturing process effectively.
Speaker #3: And we've got all the best practices and everything from each of these that we've implemented in prior periods. So this is unlike any other large project that BMW has been in historically.
Speaker #3: This one, I think, is extremely unique and opportunistic because it is something that has been done many, many times before and there is absolutely no new technologies being implemented here.
Speaker #3: So to us, that's a significant reduction in risk in that case. The terms and conditions will all be detailed in the final notice to proceed.
Speaker #8: Okay. Got it. Thanks, Kenny.
Speaker #1: Thank you for your questions. That will conclude our question and answer session today. I would now like to pass the call back to Sharon for any final remarks.
Speaker #9: Thank you for joining us. This concludes our conference call. A replay will be available for a limited time on our website later today.