Babcock & Wilcox Enterprises, Inc. (BW-PA): Navigating the Energy Transition with Innovative Technologies

Published on September 24, 2024 | Ticker: BW-PA

Business Overview

Babcock & Wilcox Enterprises, Inc. (BW-PA) is a globally-focused renewable, environmental, and thermal technologies provider with over 155 years of experience delivering diversified energy and emissions control solutions to a broad range of industrial, electrical utility, municipal, and other customers. The company's innovative products and services are organized into three market-facing segments: Babcock & Wilcox Renewable, Babcock & Wilcox Environmental, and Babcock & Wilcox Thermal.

The Babcock & Wilcox Renewable segment offers innovative hydrogen generation technology (BrightLoop™), which supports global climate goals including the decarbonization of industrial and utility steam and power producers. BrightLoop™ 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. The segment also provides best-in-class technologies for efficient and environmentally sustainable power and heat generation, including waste-to-energy, oxygen-fired biomass-to-energy (OxyBright™), and black liquor systems for the pulp and paper industry.

The Babcock & Wilcox Environmental segment offers 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. The segment's broad experience includes systems for cooling, ash handling, particulate control, nitrogen oxide and sulfur dioxide removal, dioxin and furan control, carbon dioxide capture, mercury control, and other acid gas and pollutant control. The ClimateBright™ family of products, including SolveBright™, OxyBright™, BrightLoop™, and BrightGen™, places the company at the forefront of hydrogen production and carbon dioxide capturing technologies.

The Babcock & Wilcox Thermal segment provides a vast installed base of steam generation equipment and related auxiliaries spanning the globe, serving 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.

Financials

For the full year 2023, Babcock & Wilcox reported annual net income of -$197,208,000, annual revenue of $999,354,000, annual operating cash flow of -$42,270,000, and annual free cash flow of -$52,070,000.

In the first quarter of 2024, the company generated consolidated revenues of $207.6 million, a 14% decrease compared to the first quarter of 2023. This decrease was primarily driven by a $31.8 million decline in the Babcock & Wilcox Renewable segment due to fewer waste-to-energy projects, as well as a $9.0 million decrease in the Babcock & Wilcox Thermal segment due to the completion of a large construction project in 2023.

However, the company's net operating income for the first quarter of 2024 was $4.3 million, compared to $1.3 million in the first quarter of 2023. Adjusted EBITDA, excluding Brightloop and Climate Bright expenses, was $13.2 million in the first quarter of 2024, compared to $14.7 million in the same period of 2023. The loss per share in the first quarter of 2024 was $0.22, compared to a loss per share of $0.18 in the first quarter of 2023.

Segmental Performance

In the Babcock & Wilcox Renewable segment, revenues decreased 38% to $52.3 million in the first quarter of 2024, compared to $84.1 million in the first quarter of 2023, primarily due to the company's strategic shift to reduce reliance on lower-margin new build projects. Adjusted EBITDA in this segment was $1.7 million, down from $4.3 million in the prior-year period.

The Babcock & Wilcox Environmental segment saw a 23% increase in revenues to $48.4 million in the first quarter of 2024, compared to $39.4 million in the first quarter of 2023. This increase was driven by higher volume related to flue gas treatment projects, cooling technology projects, and the parts business. Adjusted EBITDA in this segment was $3.3 million, up from $1.9 million in the same period last year.

In the Babcock & Wilcox Thermal segment, revenues decreased 8% to $110.2 million in the first quarter of 2024, compared to $119.2 million in the first quarter of 2023, due to the completion of a large construction project in 2023. Adjusted EBITDA in this segment was $13.7 million, consistent with the first quarter of 2023.

Liquidity

As of March 31, 2024, Babcock & Wilcox had total debt of $441.6 million and cash, cash equivalents, and restricted cash balances of $102.5 million. The company has entered into advanced negotiations related to the sale of one of its non-strategic businesses, with expected proceeds of approximately $40 million. Additionally, Babcock & Wilcox is initiating a process to sell certain other non-core businesses and assets, with the proceeds to be used primarily for debt repayment and working capital.

The company's lenders have increased its borrowing capacity under the current senior debt facility by increasing the advance rate on inventory, providing additional liquidity. Babcock & Wilcox is confident that these actions have overcome previous liquidity concerns.

Outlook

Babcock & Wilcox is reiterating its recently revised higher full-year 2024 adjusted EBITDA target of $105 million to $115 million, excluding Brightloop and Climate Bright expenses. The company continues to invest in its Brightloop opportunities and anticipates spending in the range of $7 million to $10 million in 2024 on Brightloop projects and technology advancement, excluding any spending on capital expenditures.

The company remains excited about the prospects and outlook for the Brightloop platform, with a visible pathway to reach $1 billion in bookings by 2028 through a combination of small, medium, and large Brightloop projects. Babcock & Wilcox believes this level of activity has the potential to lead to $1 billion in revenues by 2030, which would still only represent roughly 1% of the market share for total global hydrogen spend by 2030.

Risks and Challenges

Babcock & Wilcox faces several risks and challenges, including:

Macroeconomic conditions, such as inflation, higher interest rates, and supply chain disruptions, which could impact the company's ability to meet customer demands
Successful execution of its strategic realignment plan, including the sale of non-strategic businesses and assets
Timely development and commercialization of its Brightloop and Climate Bright technologies
Maintaining sufficient liquidity and managing its debt obligations

Conclusion

Babcock & Wilcox Enterprises, Inc. (BW-PA) is a well-established provider of innovative renewable, environmental, and thermal technologies, positioning the company to capitalize on the growing global demand for clean energy solutions. The company's strategic focus on higher-margin core business opportunities, coupled with its investments in Brightloop and Climate Bright technologies, suggest a promising outlook for the future. However, Babcock & Wilcox must navigate various risks and challenges to achieve its growth objectives and deliver consistent, profitable results for its shareholders.

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