Babcock & Wilcox Enterprises, Inc. (NYSE:BW)

is a global leader in energy and environmental technologies and services for power and industrial markets. With over 155 years of experience, the company has evolved from a manufacturer of steam-generating equipment to a diversified provider of innovative solutions for renewable, environmental, and thermal applications.

Company History and Evolution

Established in 1867 as The Babcock & Wilcox Company, the company initially specialized in the design and manufacture of steam generating equipment. Over the decades, Babcock & Wilcox expanded its product portfolio and geographic reach, establishing itself as a global player in the power generation industry. The company's growth trajectory led to its becoming a leader in energy and environmental technologies, serving a broad range of industrial, electrical utility, municipal, and other customers.

A significant milestone in the company's history occurred in 2015 when Babcock & Wilcox Enterprises, Inc. was spun off from The Babcock & Wilcox Company as an independent, publicly traded entity. This strategic separation allowed the company to focus more intensively on its renewable, environmental, and thermal technology solutions, serving customers across diverse end markets.

Challenges and Resilience

Throughout its history, Babcock & Wilcox has faced and overcome various challenges. The company has navigated industry downturns and overcapacity in certain markets, demonstrating its resilience and adaptability. A particularly challenging period occurred in 2018 when the company experienced significant losses in its BW Solar business, resulting in a goodwill impairment charge of over $56 million. This setback prompted a period of restructuring and operational optimization.

Despite these obstacles, Babcock & Wilcox has consistently leveraged its deep technical expertise and diverse portfolio of technologies to remain competitive and relevant in the evolving energy landscape. The company has strategically expanded its offerings in crucial areas such as emissions control, carbon capture, and hydrogen production to meet the changing needs of its global customer base. Through a series of strategic acquisitions and divestitures, Babcock & Wilcox has solidified its position as a leader in renewable, environmental, and thermal solutions.

Strategic Transformation

In recent years, Babcock & Wilcox has undergone a strategic transformation, shifting its focus towards renewable energy, environmental technologies, and decarbonization solutions. The company's three reportable segments - Babcock & Wilcox Renewable, Babcock & Wilcox Environmental, and Babcock & Wilcox Thermal - reflect this diversified approach to addressing the evolving needs of its customers.

Babcock & Wilcox Renewable

The Babcock & Wilcox Renewable segment specializes in efficient and environmentally sustainable power and heat generation, including waste-to-energy, biomass-to-energy, and black liquor systems for the pulp and paper industry. The company's innovative technologies, such as its BrightLoop hydrogen production and OxyBright biomass-to-energy solutions, support the global transition towards a circular economy and decarbonization.

The BW Renewable segment focuses on the company's innovative hydrogen generation technology BrightLoop™, which supports global climate goals including the decarbonization of industrial and utility steam and power producers. BrightLoop™ offers significant advantages over other hydrogen generation technologies as it generates competitively priced hydrogen from a wide range of fuels including solid fuels such as biomass and coal with a high rate of carbon captured resulting in low or even negative carbon intensity hydrogen.

To date, the company has installed approximately 500 waste-to-energy and biomass-to-energy units at more than 300 facilities in approximately 30 countries which serve a wide variety of utility, waste management, municipality and investment firm customers.

In the three months ended September 30, 2024, revenues in the BW Renewable segment decreased 56% or $48.91 million to $38.16 million compared to $87.08 million in the same period the prior year. This was primarily attributable to the sale of the BW Renewable Service AS (BWRS) business, which accounted for $34.20 million of the decrease, as well as fewer waste-to-energy projects performed in the current year, which accounted for $4.80 million of the revenue decrease. Adjusted EBITDA in the BW Renewable segment decreased $5.15 million to $4.99 million in the three months ended September 30, 2024 from $10.15 million in the same period the prior year, driven by the $7.40 million impact from the sale of BWRS, partially offset by favorable project closeouts in the current quarter.

For the nine months ended September 30, 2024, revenues in the BW Renewable segment decreased 41% or $105.02 million to $151.40 million compared to $256.42 million in the same period the prior year. This was primarily attributable to performing fewer waste-to-energy projects, which accounted for $46.50 million of the revenue decrease, as well as the sale of BWRS which accounted for $30.50 million. Adjusted EBITDA in the BW Renewable segment decreased $4.85 million to $14.34 million in the nine months ended September 30, 2024 compared to $19.19 million in the same period the prior year, primarily due to the impact from the sale of BWRS.

Babcock & Wilcox Environmental

The Babcock & Wilcox Environmental segment offers a comprehensive suite of emissions control and environmental technology solutions for utility, waste-to-energy, biomass-to-energy, carbon black, and industrial steam generation applications. The company's expertise in areas like ash handling, particulate control, and carbon capture technology positions it as a leader in providing environmentally conscious solutions to its customers.

The BW Environmental segment provides a full suite of best-in-class emissions control and environmental technology solutions for utility, waste-to-energy, biomass-to-energy, carbon black, and industrial steam generation applications around the world. The segment's broad experience includes systems for ash handling, particulate control, nitrogen oxide and sulfur dioxide removal, dioxin and furan control, carbon dioxide capture, mercury control as well as other acid gas and pollutant control.

The company's ClimateBright™ family of products including SolveBright™, OxyBright™, BrightLoop™ and BrightGen™, places it at the forefront of hydrogen production and decarbonization technologies, with many of the aforementioned products already commercially available and others ready for commercial deployment. These technologies position the company to compete in the bioenergy with carbon capture and sequestration market, and the portfolio of clean power production solutions continues to evolve to reach customers at all stages of their energy transition.

In the three months ended September 30, 2024, revenues in the BW Environmental segment increased 22% or $10.16 million to $56.58 million compared to $46.42 million in the same period the prior year. Approximately $7.70 million of the increase is attributable to growth in the domestic environmental and electrostatic precipitator business and $1.00 million is due to growth in the European environmental business. Adjusted EBITDA in the BW Environmental segment was $4.72 million in the three months ended September 30, 2024 compared to $5.02 million in the same period the prior year, remaining relatively flat.

For the nine months ended September 30, 2024, revenues in the BW Environmental segment increased 20% or $26.61 million to $161.16 million compared to $134.55 million in the same period the prior year. Approximately $20.50 million of the increase is attributable to growth in the domestic environmental, ash projects and electrostatic precipitator business and $2.20 million is due to growth in the European environmental business. Adjusted EBITDA in the BW Environmental segment was $14.80 million in the nine months ended September 30, 2024 compared to $10.32 million in the same period the prior year, an increase of $4.47 million primarily driven by the increased revenue and reductions in selling, general and administrative expenses.

Babcock & Wilcox Thermal

The Babcock & Wilcox Thermal segment continues to leverage the company's vast installed base of steam generation equipment and related auxiliaries, providing aftermarket parts, construction, maintenance, and field services to customers in a variety of end markets, including power generation, oil and gas, petrochemical, and others. This stable and recurring revenue stream helps fund the company's investments in its clean energy initiatives.

The BW Thermal segment provides the company's vast installed base of steam generation equipment and related auxiliaries that spans the globe and includes customers in a variety of end markets including power generation, oil and gas, petrochemical, food and beverage, metals and mining, and others. The segment provides aftermarket parts, construction, maintenance, engineered upgrades and field services for its installed base as well as the installed base of other OEMs. The substantial and stable cash flows generated from these businesses help to fund the company's investments in new clean energy initiatives.

In addition to the aftermarket offerings, the BW Thermal segment also provides complete steam generation systems including package boilers, watertube and firetube waste heat boilers, and other boilers to medium and heavy industrial customers. The company's unique range of offerings, coupled with the strength of its brand, provides a competitive advantage in existing and emerging markets.

In the three months ended September 30, 2024, revenues in the BW Thermal segment increased 12% or $12.93 million to $119.91 million compared to $106.98 million in the same period the prior year. The increase is primarily the result of a large natural gas project which accounted for $4.20 million and an increase in volume of parts which accounted for $4.80 million. Adjusted EBITDA in the BW Thermal segment increased $7.06 million to $18.38 million in the three months ended September 30, 2024 from $11.32 million in the same period the prior year. The revenue drivers and favorable project closeouts in the construction business resulted in the increase in Adjusted EBITDA.

For the nine months ended September 30, 2024, revenues in the BW Thermal segment decreased 9% or $33.94 million from $384.23 million to $350.29 million compared to the prior year period. This was primarily driven by a $48.10 million decrease in the U.S. construction business as a result of a large construction project finishing in 2023 that was not fully replaced in 2024, partially offset by a $9.60 million increase from a large natural gas project starting execution in 2024. Adjusted EBITDA in the BW Thermal segment decreased $4.36 million from $49.42 million to $45.06 million in the nine months ended September 30, 2024 compared to the prior year period, with the lower revenue in the U.S. construction business accounting for $9.60 million of the decrease, partially offset by the contribution from the large natural gas project.

Financials

Babcock & Wilcox's financial performance has been impacted by the challenges of the COVID-19 pandemic, macroeconomic headwinds, and strategic divestitures in recent years. In the third quarter of 2024, the company reported revenues of $209.9 million, a decrease compared to the same period in 2023, primarily due to the divestiture of the BWRS asset. However, the company's adjusted EBITDA, excluding BrightLoop and ClimateBright expenses, came in at $23.3 million, ahead of expectations for the quarter.

The company's strategic actions to reduce its reliance on lower-margin projects and improve project performance, coupled with its cost-saving initiatives, have contributed to the improved margin performance. Babcock & Wilcox has also made significant progress in executing its divestiture strategy, raising over $116 million from asset sales in 2024, which has been used to reduce debt and strengthen the company's balance sheet.

For the most recent quarter, Babcock & Wilcox reported a net loss of $5,332,000. The net loss was due to a $5.8 million impairment related to the sale of the SPIG asset and a $4.9 million settlement to exit a long-term maintenance contract. Excluding these one-time items, the company would have improved operating income and net income by $10.3 million. Operating cash flow for the quarter was negative $69,673,000, while free cash flow was negative $71,830,000.

The company's debt-to-equity ratio stands at -2.6192180427504, reflecting the impact of recent strategic actions on the balance sheet. The current ratio is 1.7797018071480357, while the quick ratio is 1.3883052281088049, indicating the company's ability to meet its short-term obligations.

Liquidity

Babcock & Wilcox has taken steps to improve its liquidity position through asset sales and debt reduction. The company's divestiture strategy has raised significant funds, which have been used to strengthen its balance sheet. This improved liquidity position provides the company with greater financial flexibility to pursue growth opportunities and invest in its innovative technologies.

As of September 30, 2024, the company had $30.63 million in cash and cash equivalents and $63.36 million in current restricted cash. They have a $150 million asset-based revolving credit facility with Axos Bank, with $124.2 million drawn as of September 30, 2024.

Future Outlook

Looking ahead, Babcock & Wilcox is well-positioned to capitalize on the growing demand for clean energy solutions and decarbonization technologies. The company's pipeline of over $9 billion in identified project opportunities, including $2.4 billion in BrightLoop and ClimateBright opportunities, underscores the strong demand for its innovative offerings.

The company's BrightLoop hydrogen production technology and ClimateBright decarbonization solutions are expected to drive higher margins and position Babcock & Wilcox as a leader in the global transition to a low-carbon future. The company's recent $10 million forgivable loan agreement with the state of West Virginia for a BrightLoop project further demonstrates the strong support and interest in its advanced technologies.

Babcock & Wilcox has revised their full year 2024 EBITDA target to a range of $91 million to $95 million, excluding BrightLoop and ClimateBright expenses. This revised guidance is due to the divestiture of the SPIG and GMAB businesses, which were previously included in the $105 million to $115 million guidance range.

The company expects to spend $10 million to $15 million on their BrightLoop projects and technology advancement, including CapEx, in 2024. Additionally, Babcock & Wilcox expects to reach $1 billion in BrightLoop bookings by 2028.

The company noted increasing demand for power and electricity fueled by demand from artificial intelligence, electric cars and expanding economies, which it believes will be key drivers for growth across its broad range of technologies.

Despite the challenges faced in recent years, Babcock & Wilcox remains committed to its strategic transformation and is poised to capitalize on the growing demand for sustainable energy solutions. With its diversified portfolio, strong technological capabilities, and focus on innovation, the company is well-equipped to navigate the evolving energy landscape and create long-term value for its shareholders.