Babcock Q2 2025 Earnings Call Transcript

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August 11, 2025

Key Takeaways

  • Positive Sentiment: Parts and services revenues grew 31% year-over-year, driven by AI data center demand and extended baseload plant operations, bolstering higher-margin business growth.
  • Positive Sentiment: Adjusted EBITDA reached $21.6 million in Q2, exceeding Street expectations by over 70% on strong fossil fuel plant parts and services performance.
  • Positive Sentiment: Sale of Diamond Power International for $177 million (about eight times EBITDA) was completed, significantly paying down debt, improving net leverage and alleviating going-concern doubts.
  • Positive Sentiment: Backlog rose 49% to $418.1 million and the global project pipeline now totals $7.6 billion, underscoring robust demand for baseload generation upgrades and conversions.
  • Neutral Sentiment: BrightLoop technology is advancing through over ten project discussions with utilities and oil & gas firms, offering flexible steam and hydrogen production with optional CO₂ capture.
AI Generated. May Contain Errors.
Earnings Conference Call
Babcock Q2 2025
00:00 / 00:00

There are 6 speakers on the call.

Operator

Good afternoon, and thank you for attending today's Babcock and Wilcox Enterprises Second Quarter twenty twenty five Conference Call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to turn the conference over to our host, Sharon Brooks, BNW's Director of Communications. Thank you. You may proceed, Mrs.

Operator

Brooks.

Speaker 1

Thank you, Jayla, and thanks to everyone for joining us on Babcock and Wilcox Enterprises second quarter twenty twenty five earnings conference call. As Jayla said, I'm Sharon Brooks, Director of Communications and Marketing. Joining the call today are Kenny Young, B and W's Chairman and Chief Executive Officer and Cameron Frymeier, Chief Financial Officer to discuss our second 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 this afternoon and our Form 10 ks that is on file with the SEC and provide further detail about the risks related to our business.

Speaker 1

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 second quarter earnings release published this afternoon and in our company overview presentation filed on Form eight ks 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, Sharon. Well, good afternoon, everyone, and thanks for joining us on our second quarter twenty twenty five earnings call. We generated strong operating results highlighted by strong performance from our parts and services business, which posted a 31% increase in revenues compared to the 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 base load generation usage across the consumer, manufacturing and industrial sectors. In fact, most of our clients expect increases in base load generation by up to 120 gigawatts over the next ten 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. 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. We believe this increased demand continues to position us for sustained success across our higher margin parts and services businesses and provides B and W with a strong outlook for the 2025 and beyond. Adjusted EBITDA, including Diamond Power, was $21,600,000 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 U. S.

Speaker 2

And internationally as well. 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, We also are actively pursuing large upgrades and new builds in The U. S. To support power generation needs and 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 $170,800,000 which is just ahead of Street expectations. Revenue from continued operations without Diamond Power for the quarter came in at $144,100,000 which is roughly the same as second quarter twenty twenty four, again mainly due to slightly lower projects, while parts and services, however, saw a dramatic increase. Overall, our revenues for the 2025 from continuing operations without Diamond Power were up year over year to just under $300,000,000 in top line revenues. Operating income increased to $8,100,000 in the 2025 and adjusted EBITDA without Diamond Power otherwise called adjusted EBITDA from continuing operations, was $15,100,000 in the 2025, which is a 90% increase compared to $8,000,000 in the 2024.

Speaker 2

Adjusted EBITDA from continuing operations more than doubled for the first June of 2025 to $21,200,000 compared to the first six months in 2024. 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. 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. During the quarter, we completed the sale of Diamond Power International for gross proceeds of 177,000,000 or roughly about eight times EBITDA.

Speaker 2

This further improves our balance sheet and reinforces the mark to market value of our underlying assets as we recapitalize our business. This represents a significant improvement in our net leverage ratios as we look to continue supporting customers' long term power needs and position the company for the advancement of our new technologies such as BrightLoop. 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 little over $1,000,000 annually, while reducing outstanding debt and extending debt maturity to 02/1930. This privately negotiated bond exchange resulted in $131,800,000 of outstanding bonds due in 2026 being replaced with new bonds in the amount of $100,000,000 that will be due in 02/1930.

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. We continue to see strong global demand for our diverse portfolio of technologies and are making progress in converting our $7,600,000,000 global pipeline of identified project opportunities. Our backlog of $418,100,000 at the end of 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 Bright Loop 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. We're seeing an increasing activity for our Bright Loop technology, both for steam generation as well as hydrogen production that can produce energy with lower cost and expenditures. 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. I'll now turn the call over to Cameron to discuss the financial details of the 2025.

Speaker 2

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. Our second quarter consolidated revenues were $144,100,000 which is slightly lower compared to the 2024. The difference is primarily related to timing of closing and starting of a select few large projects, offset partially by an increase in global parts and services of $15,400,000 First half twenty twenty five revenue came in at $299,900,000 which is an increase compared to the $292,300,000 in the 2024. The increase is primarily driven by larger global parts and service volume, offset partially by timing of large project revenue recognition.

Speaker 3

To Global parts and service revenue in the 2025 increased by $15,400,000 compared to the 2024 and increased $26,900,000 in the 2025 when compared to the 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 economies. Net loss from continuing operations in the 2025 was 6,100,000.0 which was a better result compared to a net loss of $20,500,000 in the 2024. Loss in the 2025 was $20,100,000 compared to a loss of $38,200,000 in the 2024. Our net operating income in the 2025 was $8,100,000 exceeding our quarterly expectations and outpacing an operating loss of $4,400,000 in the 2024.

Speaker 3

Operating income in the 2025 was $8,400,000 compared to an operating loss of $3,500,000 in the 2024. Our adjusted EBITDA was $15,100,000 compared to $8,000,000 in the 2024, and adjusted EBITDA in the 2025 was $21,200,000 an increase compared to the $10,800,000 in the 2024. 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. Total debt at 06/30/2025, was $471,300,000 and the company had cash, cash equivalents and restricted cash balance of 109,100,000.0 However, as previously announced on July 31, BMW closed the sale of Diamond Power for gross proceeds of $177,000,000 These proceeds will be primarily be used to pay down BMW's debt.

Speaker 3

And as of July 31, total debt is expected to be $421,300,000 with a cash and cash equivalents and restricted cash balance of $217,400,000 This leaves the company with net debt of approximately 203,900,000.0 The refinancing and reduction of our current debt obligations continues to be one of our top priorities. We have taken strategic steps to address our debt obligations. And today, we are extremely pleased to announce that B and W has alleviated the previous doubt about continuing as a going concern. This is a major step forward for B and W 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. 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 of these sales will be used primarily to pay down 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 demonstrating the progress we continue to make as we execute our strategic plan and drive further improvements in our balance sheet. We expect continued strong financial performance throughout the remainder of the year, buoyed by a global pipeline of over $7,600,000,000 identified project opportunities that remains healthy across all business segments. We believe B and W is well positioned to capitalize on the growing demand for baseload generation while also supporting energy security and energy transition. Also want to recognize and thank our experienced 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, and we remain excited about the growth prospect ahead of us. We look forward to continuing to demonstrate B and W's role in a leader of innovate 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. I'll now turn the call over to Jayla, who will help us with a couple of questions. Jayla?

Operator

Our first question comes from Aaron Spicella with the company Craig Hallum. Aaron, your line is now open.

Speaker 4

Yeah. Hi, Kenny and Cameron. Thanks for taking the questions. Maybe first, can you just talk about the current demand for energy that you're seeing on the thermal side of the business with everything going on? You kind of talked about some potential large upgrades and new builds later this year.

Speaker 4

And sounds like you may be hearing of the possibility of some new coal fired generation being built. So can you just maybe give an update there, please?

Speaker 2

Yes. No. Thanks, Aaron. Actually. So as I mentioned, in The U.

Speaker 2

S. And North America alone, right, we're seeing the overall need in the next ten years go up to by 120 gigawatts, which is about a 10% baseload generation increase. Think about it in of a baseload demand in The U. S. That's been relatively flat over the years.

Speaker 2

And now the entire aspect of the generation plus the grid infrastructure has to be enhanced and upgraded to hit that kind of demand. Specifically, without giving names, we do have a handful of customers that are now looking to build out up to 20 gigawatts within those potential areas of new generation to support data center demand that's taking place within those specific territories. And they're looking at right now all aspects of energy generation, including, as you mentioned, which is exciting for us, the potential around new coal generation or new coal power plants here in The U. S. Obviously, a lot of support is given towards the fossil fuel aspect and coal and natural gas are key drivers to support that baseload generation.

Speaker 2

Exciting to us if we took that to the next step, obviously, and a lot of work still be done, but BrightLoop represents an opportunity there to actually use in that particular case because we can produce steam from BrightLoop, doesn't have to produce hydrogen, but we can just produce steam directly from coal, but isolate and capture the CO2, which can either be sequestered or used for other beneficial purposes, enhanced oil recovery or other capabilities either now or sometime in the future. So as we're continuing to work with those customers 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 of technologies, but inclusive of BrightLoop leveraging coal as well. So we're excited about those opportunities. We're in discussions on several on those and anticipate, hopefully, an announcement or two yet this year, obviously. So still have a ways to go, but a lot of momentum right now taking place.

Speaker 2

That also adds that currently, as I mentioned, with such an increase in our parts and services because a lot of the power demands to keep the current fossil fuel plants open, including coal plants, is really driven right now. And so those are running full. Good news is though a lot of them now are being extended out for a longer term period of time. 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, continue to work on providing the parts and services on this particular plant. 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 4

And then just any thoughts on what that might look like from a size or an order perspective?

Speaker 2

Too early to tell. I always get into the size of negotiations on these, but out there, but some of these typically would be in the low 100s and some of those might be a little bit higher than that and the size itself. So we continue to work on those on those plants, and but they're going to vary in size depending on the actual outputs on those particular sites that we're working on. But too soon to give too much guidance there, but it's a positive outcome for us all around. The good news is that revenue would be spread over a few year period of time.

Speaker 2

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

Speaker 4

No, I appreciate that. And then just any thoughts on the second half? I know you have you had some guidance out there before the sale of Diamond Power, you noted improvements expected in the back half. Just any other color there?

Speaker 2

Not yet. We're still working through I mean, should be we're anticipating a strong year, obviously, because of the parts and services aspect, which is higher margin for us for the rest of the year, but also getting ready for 2026 as well too, which we're seeing as a potentially strong year for us too. So 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. That's our intended way, but still working through both of those.

Speaker 4

Understood. And then maybe last question. Just on free cash flow, you noted continuing to expect to return to positive free cash flow in 2025. Can you just speak to confidence there with the ramp that will be needed there in the back half?

Speaker 3

Yes. I think when you look at the second half of the year, I think, yes, just taking the following six months, we'll be cash positive. We'll work on getting the sale of the assets, getting the interest down, So that will help out quite a bit. And as we ramp up on some of our the natural gas conversion project, that will bring in some cash. As Kenny mentioned too, the parts and services is growing, which is helping cash flow as well.

Speaker 3

So yes, we have pretty good confidence that second half of the year will generate positive cash.

Speaker 4

All right. Thanks for taking the questions. I'll turn it over.

Speaker 2

Thanks, Aaron.

Operator

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

Speaker 5

Good afternoon. Congratulations on all the progress.

Speaker 3

Thank you. Rob.

Speaker 4

On the

Speaker 5

parts and service business, as you kind of get these plants running longer, maybe you could just explain a little bit the dynamic of how the extending the life helps your parts and service business and what that kind of incremental opportunity is?

Speaker 2

Yes. So some of these plants, obviously, they vary in all of the states that are out there here in The U. S. But some that may have had a shorter lifespan where they may look to convert some of those or perhaps close some of those started to slow down and ramp down their buying of parts and services to work on those plans. So when they extend them out for a longer period of time, they have to go back and start looking at some of the bigger pieces, right, and as well as the efficiency of those plants and maybe relook at some of the environmental aspects and blah, blah, blah.

Speaker 2

So there's follow on aspects keeping those plants running for a little bit longer term or longer term that bode well for us in the short order. So that's all a positive. And clearly, as the plants run longer on that particular aspect of it, it just extends out the revenues that we realized from those plants in a longer period of time. So both of those are solid for us and very helpful to us, but that's really the reason why an extension is good for us short term.

Speaker 5

Okay. Got it. Thank you. And then on the Bright Loop pipeline, Alper, you talked about some steam projects, but could you sort of give a sense of the number of projects in the pipeline and some of the potential there?

Speaker 2

On BrightLoop specifically?

Speaker 5

Or Yes. Correct.

Speaker 2

Yes. So there's quite a few. I'm gonna give a number just as a a quick range here, but, you know, well over 10 that we're working on in BrightLoop. But the the I think, you know, the the exciting part and always the hardest part about a new technology is that it does multiple things. So, BrightLoop fundamentally can produce syngas such as hydrogen, nitrogen, other aspects that we can actually create ammonia from it as well.

Speaker 2

Or we can just produce steam from BrightLoop. Same fuels as hydrogen, doesn't matter. For us, it's just we we have a a, you know, less one reactor. 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 2

So it just depends on the application. But, the exciting part is that BrightLoop by itself actually can produce steam from coal or natural gas or steam from biomass and other fuels as well to drive a turbine for electric generation that's out there on that. So when we look at working with a lot of operators, not only here but some on the international front, in some cases, if it's steam related, just and I'll just focus on that for a second, we are in discussions with a few utilities and power plants around the concept of just creating steam from coal or natural gas, but giving the option to capture the CO2. They may not need to capture the CO2 today, but under a different environmental aspect or decision to curb more CO2 in the future, they would have the luxury to curb capture or store sequester the CO2 pretty cost effectively because it wouldn't require a lot of incremental capital or operational expense to make that happen compared to other technologies to capture the CO2. So while we have momentum here, especially in The U.

Speaker 2

S. With the baseload generation demand, the abilities to use more fossil fuels given the current administration aspect around it. Some of 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 meet or be a part of meeting that new baseload generation, but allow for them to hedge against the future if there is a point at which they needed, wanted or there was some incentive or some other requirement to isolate the CO2, they could do that in a very economical fashion. So with a standard boiler in a coal plant or a standard combined cycle plant or whatever might be considered today, you would have to add a post combustion technology to capture the CO2. BrightLoop eliminates the post combustion aspect of that.

Speaker 2

So you can build out a power plant today, isolate CO2 if you want to let CO2 go in the atmosphere, got it. If you want to sequester the CO2, you can. The point of it is that we give that optionality to the customer and not have a dramatic increase on any future CapEx nor is there an impact on the parasitic load of the plant. So you keep the efficiency overall of that particular plant at bay. So it's a very intriguing technology.

Speaker 2

And with the momentum that we're seeing here around it, that concept around BrightLoop is becoming realized in some of these opportunities. And so we'll see where it goes. But clearly, we're working with our customers on those. We are seeing in parallel some opportunities around biomass to steam actually here in The U. S, some of that with an oxy combustion kind of carbon capture process where they're looking at those opportunities and we're in discussions on those.

Speaker 2

And there are some other home waste or other aspects on power plants that are in discussions right now here in North America about providing steam for those plants to drive a turbine and providing baseload generation using alternate forms of fuel. 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 4

Great. Thank you. I'll turn it over.

Operator

At this time, there are no more questions registered in 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.

Operator

Will conclude today's conference call. Thank you for your participation, and enjoy the rest of your day.

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