Babcock & Wilcox Enterprises, Inc. (NYSE:BW) Q4 2023 Earnings Call Transcript
Babcock & Wilcox Enterprises, Inc. (NYSE:BW) Q4 2023 Earnings Call Transcript March 14, 2024
Babcock & Wilcox Enterprises, Inc. misses on earnings expectations. Reported EPS is $-0.18 EPS, expectations were $0.01. Babcock & Wilcox Enterprises, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good evening. My name is Joel and I will be your conference operator today. At this time, I would like to welcome everyone to the conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. [Operator Instructions] Thank you. Sharyn, you may begin your conference call.
Sharyn Brooks: Thank you, Joel, and thanks to everyone for joining us on Babcock & Wilcox Enterprises Fourth Quarter and Full Year 2023 Earnings Conference Call. I'm Sharyn Brooks, Director of Communications. Joining the call today are Kenny Young, B&W's Chairman and Chief Executive Officer; and Lou Salamone, Chief Financial Officer, to discuss our fourth quarter and full year 2023 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 in our annual report on Form 10-K that will be filed with the SEC tomorrow, March 15, 2024.
Additionally, except as required by law, we undertake no obligation to update any forward-looking statements. We also provide non-GAAP information regarding serving 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 fourth quarter and full year earnings release published this afternoon and in our company overview presentation filed on Form 8-K tomorrow, March 15, 2024, and posted on the investor relations section of our website at babcock.com. I will now turn the call over to Kenny.
Kenny Young: Thanks Sharon, and thanks Joel. And good afternoon, everyone. Thanks for joining us on our fourth quarter and full year 2023 earnings call. We're very excited to be here today as we enter 2024 and believe this year will prove to be a very strong year for Babcock and Wilcox in terms of performance and continued execution of our strategic plans. Last quarter, we announced a series of strategic actions that would reduce costs and increase focus on our higher margin core businesses, as well as continue our efforts around Bright Loop and Climate Bright. As such, we are expanding and revamping our presence and seeing new opportunities in waste to energy, specifically in the United States, as well as in Europe and Australia through an improved pipeline of selective and higher margin opportunities.
With the recent EPA announcements, we are also seeing waste to energy environmental opportunities as facilities in the United States are required to improve emission controls and flue gas treatments. We are also expanding our thermal segment higher margin parts and services and seeing more opportunities around gas conversions. We are growing our renewable services presence in Europe and see growth opportunities over the next several years. We are seeing increased activities and have doubled the amount of our paid carbon capture feed studies. And some of those should eventually lead to full project engagements to deploy our carbon capture technologies. We are also continuing our efforts to deploy our Bright Loop technology, and we'll discuss that a little bit more later.
Looking at our full-year financial performance, we continue to display year-over-year improvement in adjusted EBITDA, which held drive our full-year results in line with our 2023 adjusted EBITDA target range. We achieved double-digit revenue growth across all business segments, driven by increased activity and expansion into our key end markets, particularly in our environmental segment, which saw a 31% year-over-year increase. We also continue to make progress in converting our now over 9 billion global pipeline of identified project opportunities to bookings as shown in our consolidated top line improvement when compared to last year. Our pipeline includes over 1.5 billion of Climate Bright and Bright Loop opportunities as well. And we are confident and have reason to believe that our bookings in 2024 will be one of the highest in recent history.
In fact, we expect to announce a large gas conversion project on Monday morning. The underlying industry trends resulting from strong global demand for clean power production and energy security underpin our pipeline and outlook for sustained growth in 2024 and beyond. Our year-end backlog was short of our expectations, but this is largely due to longer than anticipated negotiations on a few new opportunities. The majority of the delays were due to an increased scope for B&W's aftermarket services, as many utilities and large energy companies are re-evaluating projects due to higher interest rates. However, we have seen continued interest from utilities in North America and around the world on extending the life of their thermal generating assets and replacing coal or oil with cleaner burning fuels like natural gas, biofuels or hydrogen.
With increased visibility into our near-term booking opportunities, we are reiterating our full year 2024 adjusted EBITDA target of $100 million to 110 million, which excludes Bright Loop and Climate Bright. We continue though, to invest in our Bright Loop opportunities and anticipate spending around $5 million to $9 million in 2024 on our Bright Loop projects and technology advancements. Reflecting on what was another year of challenging macroeconomic conditions, primarily due to the higher interest rate environment of today, we remain focused on delivering strong execution across our parts and services business, which continue to perform above our expectations and contribute meaningfully towards our cash flow and revenue generation. We see this focus as an instrumental next step to de-leverage the balance sheet and improve the liquidity profile of our business.
As a part of our announced strategic business realignment, we have taken significant steps to realign the company for improved financial performance in 2024, driven by several key initiatives that are expected to deliver more predictable cashflow generation and improved financial performance through higher margin opportunities. As a result, we will continue to reduce our reliance on high-cost, low-margin, new-build projects which in turn will allow us to reduce the associated overhead and interest costs. In parallel, we remain on track to realize our expected annualized cost savings target of over $30 million and reduce our interest expense. Today, we have successfully realized more than $19 million in cost savings and established a new $150 million senior secured credit facility and received a reaffirmed credit rating of a BB+ from Egan Jones.
These developments not only enhance our liquidity profile and provide an additional annual interest cost savings of approximately $5 million, but also allow for more flexibility in our use of capital to support letters of credit, drive renewable energy growth, and deliver on other potential accretive business initiatives. The reaffirmation of our credit rating and our new senior secured credit facility reflect the stability of our business model and our continued commitment to our long-term growth capabilities. Additionally, it bolsters our efforts to support multi-year projects and capitalize on future growth through our evolving Bright Loop and Climate Bright technology opportunities. With our recent strategy changes, we are confident in realizing stronger cash flows from our thermal operations as we continue to expand and implement our new renewable technologies, including hydrogen production and carbon capture.
Looking forward, we anticipate 2024 to be a pivotal year for our decarbonization platform and deployment of our Bright Loop technology at commercial scale. We have doubled our activity around carbon capture feed studies and are optimistic these efforts will translate into potential projects in 2024 for utility scale carbon capture technology. On Bright Loop specifically, we've achieved several key milestones to date across this project portfolio with respect to financing and offtake arrangements. As mentioned, we have increased our investment in Bright Loop and Bright Loop projects in 2024 and continue our development activities as each project is at various stages. As discussed previously, we are developing a small hydrogen production plant in Massillon, Ohio, not too far from our headquarters in Akron.
In addition to the previously announced letter of intent for project-level financing, we are also negotiating final offtake agreements and working diligently to finalize the construction cost estimates for this project. With respect to our medium and larger platforms, we've been awarded a $16 million grant from the Energy Matching Funds program of the Wyoming Energy Authority to fund the permitting, engineering, and initial construction activities for our Black Hills project. We have a great partner with Black Hills Energy and we are working together to further progress this project, which will utilize local coal to produce low-carbon intensity hydrogen, while sequestering the carbon dioxide. This award is a testament to the progress we've made in our efforts to develop a clean hydrogen generation facility with CO2 capture.
We also continue to progress our Louisiana Bright Loop project and have signed a memorandum of understanding with Air Products and General Hydrogen to enter into a definitive offtake agreement for what could be up to 215 tons of carbon negative hydrogen offtake per day, as well as the CO2 produced at the facility. We are in discussions around fuel availability and fuel supply agreements, and we are engaging with several potential investors who are attracted to the project's net negative carbon intensity characteristics. Based on our experiences and interactions, we've received to date and continue progress with prospective new-build project opportunities. It has become clear that the demand for commercial solutions that address carbon neutral targets is continuing to grow.
Additionally, we continue to see potential for new projects related to waste to energy in the United States and expect higher margin opportunities to arise for our broader Climate Bright technologies. To reiterate, our updated pipeline is over $9 billion across all three segments with approximately $1.5 billion in Bright Loop and Climate Bright opportunities alone. We believe this puts us on a pathway to reach $1 billion in bookings by 2028 with combinations of small, medium, and large Bright Loop projects. We feel confident that could lead to $1 billion in revenues by 2030, which still only represents roughly 1% of the market share for total hydrogen spend by 2030. We look forward to deploying these technologies at scale and further developing our suite of carbon capture solutions and ultimately leveraging our Climate Bright decarbonization platform and supportive industry legislation to further diversify our environmental and renewable businesses.
I'll now turn the call over to Lou, who will discuss the financial details of the fourth quarter and full year 2023. Lou?
Lou Salamone: Thanks, Kenny. First, I'll review our full year 2023 results and then I'll turn to our fourth quarter 2023 results. For further detail, I call your attention to the fact that we will file our 10-K with the SEC tomorrow, March 15, 2024, and you can refer to it for further details beyond what we discussed in this call. Consolidated revenues for 2023 were $999.4 million. That's an 18% improvement compared to 2022. This improvement was primarily due to higher level of activity across all of our segments. Our net loss in 2023 was $78.6 million as compared to a net loss of $20 million in 2022. And this is related primarily to the overall increase in cost and expenses, our higher interest expense, an increase in foreign exchange losses, and goodwill impairment expense.
GAAP operating income in 2023 was $19.9 million compared to operating income of $2.3 million in 2022. We achieved our revised 2023 adjusted EBITDA target, excluding Bright Loop and Climate Bright expenses with an adjusted EBITDA of $84.1 million as compared to $71.8 million in 2022. Total bookings in 2023 were $878 million, an increase of 2% compared to the full year 2022. Backlog at December 31, 2023 was $530 million, which is a slight decrease compared to the prior year end. Let me now turn to our fourth quarter results. Fourth quarter consolidated revenues were $227.2 million. This is a 4% decline compared to the fourth quarter of 2022. This decline was primarily attributed to lower volumes in our renewable segment as a result of completion of some lower margin new build work and the combination of our strategic shift away from these lower margin new build businesses.
The net loss in the fourth quarter of 2023 was $54.3 million as compared to a net income of $2.5 million in the fourth quarter of 2022. And this was primarily due to non-cash adjustments for pension accounting. Our GAAP operating income in the fourth quarter of 2023 was $700,000 as compared to operating income of $6.3 million in the fourth quarter of 2022. Adjusted EBITDA was $19.5 million in the fourth quarter of 2023 compared to $21 million in the fourth quarter of 2024. Bookings in the fourth quarter of 2023 were $250 million, a 44% increase compared to the bookings of $174 million in the fourth quarter of 2022. I'll now turn to our cash flow, balance sheet, and liquidity. We ended the year with total debt of $379.5 million and combined, cash equivalents and restricted cash balances of $71.3 million for a net debt of approximately $308.2 million.
Additionally, as Kenny mentioned, subsequent to December 31, 2023, we entered into a new three-year senior secured credit agreement with Axos Bank, under which Axos has provided an asset-based revolving credit facility of up to $150 million that can be used to support letters of credit, renewable energy growth initiatives, and potential accretive businesses. The new revolver provides for reduced interest rates on letters of credit and much greater flexibility with overall use of up to $150 million versus the previous facilities that were limited to $50 million revolver and a separate letters of credit facility. The new finance arrangements have a maturity date of January 18, 2027, and all obligations under the company's prior credit agreement with PNC Bank NA as administrative agent have been discharged.
The credit agreement has also been terminated. Layers of credit issued under the previous facility with PNC are expected to transition to the Axos facility over the next several months. We faced liquidity challenges arising primarily from losses recognized on our B&W solar loss contracts. We are actively evaluating certain actions to address our liquidity needs. Based on our ability to raise funds through such actions, we've concluded that it is probable that we will have sufficient capital to meet our operating debt service and capital requirements over the next 12 months. We expect 2024's quarterly profile to follow our normal cyclical performance of increasing profitability from the first quarter through the fourth quarter. As Kenny's highlighted, we're reiterating our 2024 target of between $100 and $110 million of adjusted EBITDA, excluding Bright Loop and Climate Bright expenses and are confident in an improved financial performance underpinned by a robust pipeline of more than $9 billion of opportunities and expected backlog growth beginning in the first quarter of 2024.
I'll now turn the call back over to Kenny.
Kenny Young: Thanks, Lou. Well, briefly and in closing, our strategic business realignment is expected to drive predictable cash flow generation and provide higher margin performance across all business segments in 2024. Our deep industry expertise with clean energy and carbon capture technologies, coupled with our experience in traditional energy sources, gives us a unique advantage in delivering sustainable solution to our customers and stakeholders. As we move forward, we're both passionate and extremely enthusiastic about further developing our Climate Bright platform and the many opportunities ahead to deploy this innovative and game-changing technology at scale. As always, I want to express my gratitude to our employees around the world, our customers and shareholders and partners for the continued support and confidence in our company.
We remain steadfast in our commitment to become a front-runner in the global energy transition and continue to drive our strong profitable growth and create more sustainable energy for future generations to come. So with that, Joel, I'll turn it back over to you for questions and answers.
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