Good afternoon. Thank you for attending today’s Babcock & Wilcox Enterprises Q1 2022 Earnings Conference Call. My name is Bethany and I will be your moderator for today’s call. I would now like to pass the conference over to our host, Sharyn Brooks with Babcock and Wilcox. Please go ahead.

Thank you, Bethany, and thanks to everyone for joining us on Babcock & Wilcox Enterprises first quarter 2022 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 first 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 will be filed today and our Form 10-K that is on file with the SEC and provide further detail about the risks related to our business. Additionally, except as required by law, we undertake no obligation to update any forward-looking statements. 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 first quarter earnings release published this afternoon and in our company overview presentation that will be filed on Form 8-K this afternoon and posted on the Investor Relations section of our website at babcock.com. I will now turn the call over to Kenny.

Thank you, Sharyn, and thanks to everyone for joining us this afternoon, what continues to be in an extremely exciting time for all of us at Babcock and Wilcox. As a company, we have a very long and successful history as a technology leader and solutions provider throughout the world and across the power generation industry. That is something our employees are extremely proud of, not only because of what the company has accomplished and the strong relationships we’ve built with our customers and suppliers and others, but also because it puts us in a truly unique position to support the world’s energy transition and drive innovation forward. I do want to recognize and thank our employees around the world for their continued tireless efforts in driving our company forward. In fact, with their help in the 12 months ended March 31, 2022, we have reached approximately USD75 million of adjusted EBITDA, which is a significant accomplishment. Today, we’re working hard to support our customers’ needs for clean energy with an extensive range of proven technologies, including our climate right suite of decarbonization technologies and our innovative hydrogen production technology solutions for solar power construction and installation and market-leading waste energy and biomass energy systems. We have mission controls and cooling systems and next-generation energy storage solutions and aftermarket parts and services to help our customers keep their plants running at peak performance. We continue to support our fossil fuel customers globally as the need to provide power from fossil fuels has increased due to limited supply and higher prices for natural gas. We’ll talk more about some of the progress we’re making in those areas a little bit later on today, but first, I’m very pleased to share that we ended the quarter ahead of our plan. And with…

Thanks, Kenny. I’m pleased to review our first quarter results further details on which can be found in the 10-Q that will be on file with the SEC. Our first quarter consolidated revenues were USD204 million, which is a 21% improvement compared to the first quarter of 2021. This is primarily due to higher volume by new build projects and the impact of the acquisitions we completed in the fourth quarter of 2021 and the first quarter of 2022. In addition to a higher level of activity in the Environmental segment and was partially offset by a lower level of construction activity in the Thermal segment. Our operating loss in the first quarter was USD6.8 million as compared to an operating loss of USD6.5 million in the quarter of 2021. Our adjusted EBITDA was USD12 million compared to an USD8.6 million adjusted EBITDA in the first quarter of 2021. While bookings in the first quarter of 2022 were USD239 million, which is a 41% increase compared to the first quarter bookings of 2021. Our ending backlog was USD721 million, which is a 35% increase compared to backlog at the end of the first quarter of 2021 and as Kenny stated, is the highest backlog for several years. I’ll now turn to our first quarter segment results. Within the Babcock and Wilcox Renewables segment, as Kenny mentioned earlier, revenues were USD68 million for the first quarter of 2022, which is an increase of 136% compared to the USD28.8 million in the first quarter of 2021. This was primarily driven by higher volume of new build projects, as well as acquisitions in the fourth quarter of 2021. Adjusted EBITDA in the quarter was USD1.5 million as compared to USD200,000 in the first quarter of 2021, again, primarily due to the increase in…

Thanks, Lou. Well, BMW has come a long way over the last couple of years. And today, we have a strong balance sheet, solid performance across all three of our business segments, outstanding technology and a robust pipeline of potential opportunities. We also have a tremendous team of dedicated employees who continue to be focused on safety, on strong project execution, on growing bookings and our backlog and on really stepping up to drive forward and support the world’s climate objectives, while also providing the products and services our customers need to meet the energy demands not only just today, but also in the future. It took a lot of hard work, perseverance and commitment to get where we are today, and we’re excited about the opportunities ahead of us across our businesses. We see continued growth in our renewable newbuild waste energy and biomass energy business, opportunities for our renewable aftermarket parts and services. We see new opportunities for our thermal business with increased need for equipment, upgrades and services as our customers work to keep their plants operating efficiently and cleanly, so they can supply needed power to their customers and as energy security takes a more prominent place and is prioritized in the current geopolitical climate. We also see increased opportunities for our environmental business in the areas of emissions control, ash handling and cooling systems and construction and installation services. Perhaps most importantly, we continue to see B&W on the forefront of the global fight against climate change. As we’ve said before that we expect 2022 to be a milestone year for our ClimateBright decarbonization and hydrogen solutions platform and that remains true today. We are enthusiastic about the opportunities ahead in this area and about being a leader, an innovator in carbon capture, decarbonization and hydrogen production as we drive forward with our advanced technologies and demonstrate the solutions we can provide to help our customers address the world’s urgent climate objectives. With that, now I’ll turn the call back over to Bethany who will assist taking your questions.

Our first question is from the line of Rob Brown with Lake Street Capital.

My first question is on the Fidelis project. And I just wanted to get a sense of sort of how that rolls out into the business? And then maybe some further color on the CO2 reduction component. Is that the first commercial scale of that project? And I just want to get a sense of how that’s developed in the market?

Yes. No, I appreciate the question. So, the Fidelis project is very exciting for us. Obviously, we announced the partnership to be on that project. We are obviously in full engineering mode and in discussions in and around the configuration of that particular technology. I believe Fidelis has already started the groundbreaking associated with the grown fuels portion of that particular plant facility in Baton Rouge or will be shortly. But -- so there’s two parts to that. One is the Gron facility, which actually is the creator of the jet fuels. We’re not involved in that. The second part of that is the biomass plant facility that will actually power that grown fuels and that’s obviously where we’re focused on from our boiler technology and providing our OxyBright combustion technology. We’ve actually done small scale-up work on the OxyBright previously. And so this will be a further move of that. But it’s ready for commercial implementation and that’s what this will represent on that plant. It will be a 200-megawatt as we’ve talked about in there or larger still to be determined. In conjunction, on top of that with the OxyBright technology to sequester the CO2. But Fidelis plans to isolate CO2 and sequester that as part of their carbon initiatives associated with that jet fuel. So, we’re excited about that. As I mentioned in the remarks, it’s not in our backlog. We’re still working through details on that, but it’s obviously groundbreaking in its size and groundbreaking and utilizing the decarbonization and sequestering that here in the U.S. So we’re excited about that. And obviously, the long-term relationship that we develop with Fidelis is great as well too. So, it’s a good relationship all the way around on that particular piece. So that -- it’s -- well more to follow on that. Obviously, we’ll put out public statements when we can on that particular plan as it continues to move forward, but it clearly is a milestone for us and especially on the -- getting the oxy-combustion into a large commercial implementation to get that going. So we’re excited about that.

Okay, great. And then on the pipeline, you had good order activity, which I also mentioned some project timing shifts around. Could you give us a sense of how much you’re shifting around? And do you sort of pick that up this year? Or are things getting shifted out further?

Yes, it’s shifted. I’ll let Lou comment more, but some of the order delays, which are obviously factored in the numbers overall by this point in time, but -- it’s been an implementation -- about two months of delays. I think you can think about it in that terms. I mean, there’s pluses and minuses, there are some delays that are a few weeks and some may be a little bit longer. But on average, it’s around that particular area. I mean, most of our customers, if not all of our customers have been very supportive of shifting supply of steel and other components from Europe to, say, Asia associated with their particular projects. we haven’t had any difficulty so far with any customer around making those changes, obviously, in supply chain coming out of Europe and shifting it overseas. There’s -- as we get into specific components and a few things here and there on the parts aspect, it delayed a little bit on some of the revenues. But we’ve also -- as you can see in the balance sheet, we increased inventory by I think roughly USD10 million-ish, somewhere in that category, but we increased inventory to help compensate for some of those lagging parts, so that we were in a position to leverage our parts business, in particular, in the fossil fuel sector when a lot of our clients have been running those plants 24/7. It put a delay on when we could go in and do -- take advantage of that and put new parts in, services in, field services and the like. So that afforded us the opportunities to kind of figure out some of the global supply chain aspects around it and we feel pretty confident now that once we get into this, that we’ll be in a pretty good position to provide those fundamental parts and services, and we’re starting to see that happen already. So it’s -- to us, I think we’re in a good position there. But Lou, anything you want to add to that?

Yes. I would -- we’ve tried to estimate, for example, what the Ukraine situation did for us. And I don’t want to give specific numbers because it’s just an estimate. You can’t tell sometimes whether it’s COVID or the Ukraine war, but I’d say right now in that quarter, we were impacted less than about the USD10 million range for revenue that move that was strictly timing, not a loss of revenue, and that impacted our gross profit by a couple of million dollars. But as I said, most of that will happen in the next couple of quarters, if not this quarter we’re in. And about USD800,000 of it was about prices that we had to pay for supply. So, some impact, not tremendous, but enough that we paid attention to it. And as Kenny said, the supply chain team did a great job of purchasing ahead for needs to increase our inventory and also have gone around and we have a global supply chain. So, we’re obviously able to be a lot more nimble in seeking ultimate suppliers for any of these purchases, but we continue to monitor it daily.

Our next question comes from the line of Brent Thielman with D.A. Davidson.

A couple of things here. Just recognized the business is very seasonal and the back half is obviously pretty consequential to the kind of your full year expectations. But it does seem like you’re seeing an awful lot of growth momentum here. So, just with respect to the guidance, are there any elements of increasing concern just regarding margins for the rest of the year or timing of projects, other contingent fees you’re just trying to factor in way in here just in regard to maintaining the outlook.

No, good question. I’ll chime in and let Lou jump in as well too. But I think the biggest impact we had on margins in Q1 was a little bit lower in the parts and services, again, mainly because our customers’ plants were running at full tilt because of the high price of natural gas. And then obviously, parts and services, we talked about publicly and historically is in the high 30% in the gross margin level. So, we had a shift more towards some of the project aspects in Q1, but obviously, thrilled on the fact that we were able to produce numbers primarily for all the cost cutting and all the measures that we took over the past couple of years to produce solid numbers in Q1 and building up a backlog. So we -- it’s never predict -- things are jumping back to normal, but we are seeing already some of the parts and services business pick back up because clients are now at a point where they’ve got to start repairing and fixing some of these plants that have been running full tilt again, 24/7 that normally don’t. So, we’ll see how that shakes out over the next several months, but we’re entering into some of the parts season. We will continue to be cyclical. I think our project business and even some of the parts business because we’re going to obviously get through spring and hit summer and then the demand for these power plants will pick back up again. And so we often see the fall as being one of the stronger parts season for us. And I don’t think there’s any surprise this year that will be any different. We fully anticipate that happening. And I think we’ll stay with the cyclical aspect around it at this point in time. But I think the margins will always shake out as parts and services fluctuates versus the project aspect that you saw in Q1. But Lou, anything you want to add there?

Yes. Just if you compare where we were gross profit-wise ‘21 quarter to ‘22, we’re a little under -- a little over -- I’m sorry, 2% delta from about 22% to 20% gross profit. And as Kenny mentioned and I mentioned before, most of that is due to the parts business being a little slower than we would have liked, but for a good reason, these power plants stayed open. So, I think that we’ll recover those -- that gross profit mix later as the parts start increasing. So, a couple of percent this quarter, we should start recovering as the parts orders flow in because these plants have to -- they have to start replacing the parts that are wearing out. So we’re -- and it’s also evidenced by the very high backlog that we have. So we’re pretty comfortable that the gross profit will continue to recover.

Okay. I appreciate that. I guess second question is just what sort of contingencies and other things are you doing? Just with respect to new bids and contracts, you’ve obviously got a very big backlog. You’ve been picking up a lot of work. How are you guys kind of protecting yourselves in some of the inflationary and sort of logistical procurement challenges out there, particularly on a contractual basis?

Yes. No, good question, Brent. So most of our contracts, we have the ability to readjust pricing if there’s -- especially, obviously, in times like this that the pricing is unprecedented. And because of the situation in Ukraine and as well as COVID, but most of our contracts, we do a really good job of making sure, and obviously, over the past couple of years because everything has been gone with COVID, even more so to make sure that we’ve got flexibility if we have to redirect supply chain or pricing goes up on some of the core materials and parts, so that the impact isn’t necessarily borne by -- on B&W, is passed along to our customer base. Not always the case, but we do, I think, a really good job of pushing on that and forcing that. Obviously, we also, as Lou mentioned, have done a fabulous job managing the global supply chain to help with our vendors and suppliers to get ahead of the curve. And it’s been, I will say, a lot of our global supply vendors that provide some of our larger cost items, especially in steel manufacturing production fabrication have done a really good job of working through -- helping us work through some of those issues as well too. So it’s a combination of a lot of work by a lot of people on a global basis, but we try to do the best we can to be ahead of the contractual language to make sure that it minimizes the impact on us. But Lou anything?

Yes, I think you covered it well. We -- as you saw, there’s an increase in our inventory. That was planned. We used our balance sheet to be -- we had cash so we could go out and purchase at a better cost. Many supplies that we knew were going to be sold in the next six months to a year. And then as I mentioned earlier, we’ve got a global supply chain, so we can be more nimble and flexible with our suppliers and go to other parts of the world where pricing might be a little better. So it’s just -- it’s a combination of things you have to do every day. And obviously, that’s what our supply chain people have been very successful at.

Okay. Really helpful. Maybe just the last one on the ClimateBright platform and you continue to make really good inroads here. I guess, to all of the things that you’ve seen over here over the past quarter and what you’ve got sort of up and coming reaffirm the view this can become more of a contributing business next year? Is it sooner? Just maybe the pace of success you’ve had here, how that compares to those expectations? I appreciate it.

Yes. No. Yes, it’s -- we’re obviously excited by getting this project off the ground on the commercial demonstration and that’s necessary to proven the scale up. We’re doing a 20 -- I think it’s close to 21x scale up on the technology and the commercial demonstration, which will then put us into position to be able to move it into bigger and broader applications. And we have a number of customers that -- or potential customers, I guess, let me say, on the BrightLoop in particular, where they’re following the engineering and the progress we’re making in this commercial demonstration very closely. We’re working with a number of governments, we’re working with a number of -- even including the Department of Energy here in the U.S., but we’re working with a number of groups and entities that are following this aspect because there is demand and application for this technology. It probably doesn’t feel like it’s sometimes from an investor standpoint, but we are accelerating the commercial demonstration process on BrightLoop, specifically in that regard to move this into the marketplace. And we’ve got a lot of excitement by a lot of people that want to see us move this into the next phase in order to broaden the appeal for this. So we’ll -- we’re working -- and we’ve isolated the group inside the company, so that we’ve got dedicated resources that are focused on this commercial demonstration and working through those details now. We’re also obviously working with a few customers. I think we mentioned in the notes, I don’t want to get into the names of that yet, a little premature. But we -- obviously, I think we put in the press release, Fidelity is also looking at helping and looking and evaluating some of the…

And our last question is from the line of Alex Rygiel with B. Riley.

A very nice quarter. A few questions here. First, backlog growth of 35% was really solid, but you haven’t even yet included Fidelis. Sort of excluding Fidelis for the moment, it sounds like you’re really bullish on expanding backlog between now and year-end. First, is that a fair conclusion? And then secondly, from a geographic standpoint, do you see an acceleration in your international markets? Or do you see an acceleration in your U.S. markets?

No, we are bullish on the increase of backlog going into the rest of the year, which obviously sets us up very strongly for 2023 and beyond. It is interesting we are, and I don’t want to get in too much into some of the details because they’re sensitive. But in Europe, right now, we’re in discussions with a number of customers around obviously twofold. One is how to move quicker in renewable energy and some of these newer technologies or even our existing technology. So we’re under a lot of discussions there as they’re trying to figure out how to obviously obtain a broader set of energy security away from -- because of the Ukraine situation award. The other aspect is we have a lot of customers in Europe now that are looking to revamp some of their fossil fuel plants to continue burning a little bit longer than they had planned because of the response to high natural gas or even the lack of natural gas, has forced those customers to relook at some of those capabilities. And so we’re early in those and it’s hard to predict right now exactly how much impact that will have on our business and revenues. But we’re seeing an uptick in activity overall. So, we think there could be some potential upgrades and enhancements in our parts and services platform coming from that. Along a larger scale, though, we are in talks about accelerating some of the waste energy projects and things that could be happening there as well too. And so, we’re trying to be in a position to support our customers best we can across all of those goals. And at the same time, we’re -- because of the BrightLoop and what it’s capabilities are, we’re getting some interest to further some testing, especially in biomass -- the hydrogen or biomass, the energy using BrightLoop as a potential source that we’re in discussions with a few customers there as well too. So, yes, I would say we’re bullish on the backlog increasing by the end of the year based on what we’ve discussed so far and we’ll see how things unfold here for the rest of the summer based on all of the geopolitical situation that’s occurring and we’re in a position there. We’ll see how we can move forward.

That’s helpful. And turning to M&A being somewhat of a kind of a core pillar to your growth strategy. Are you starting to see pricing or should we say seller expectations improve here a little bit with some of the market turmoil across the street? And any sort of segment in particular that is catching your attention the most these days?

Alex, you cut out on my end. I apologize. Can you repeat that? You went completely blank when I started to say something. So could you repeat that?

Sorry, as it relates to acquisitions, clearly a core pillar to your future growth. Can you talk a little bit about seller expectations and whether or not the pricing out there has improved for you all? And then maybe identify sort of what’s catching your eye the most as it relates to which segment do you think in the near term, you could see some expansion?

Yes. I think it’s -- obviously, nothing has -- I don’t think the geopolitical situation or COVID hasn’t really changed too much, I would say the multiples or what we’re seeing from a seller expectation standpoint. It’s still a little bit variable out there. We continue to look at -- we look at a lot of different opportunities. Again, some of those are not necessarily 100% acquisitions. Some of those are actually even minority investment aspects that may be on emerging technologies that could be in different areas that might help accelerate certain IP for us to take to the marketplace and further -- or improve upon CO2 absorption and some other things that we’re trying to do. So, we constantly look at those opportunities that are out there. We still continue to look at opportunities where -- especially on the thermal side of the business that might complement our parts and services platform and on those purely want to drive further cash flows from those acquisitions because we think that those are -- would be high synergistic type opportunities as well too. And there are several out there across that whole range. And we’ll look at those and respond accordingly and obviously keep looking at what we think are investments that really can move the needle. Obviously, we put out the target of the USD110 million to USD120 million. So, as we look at acquisitions, I think we would look at acquisitions that would increase that range. And we’re keeping -- obviously, unless it’s a brand new technology that I mentioned, won’t move that needle. But as we look at things that might add synergies and cash flows, clearly, we would look to move that target up on anything that we pick up going forward. So, that’s kind of how we’re thinking about it and that’s how we’re focused on it right now. So, we’re keeping flexibility across the board there and we’re looking at lot of things that can cross both those barriers. But that’s kind of how we feel about the acquisitions right now.

And then lastly, as it relates to BrightLoop, when might we hear more as it relates to location, property, customer, so on and so forth?

We are working diligently right now on some -- a couple of specific locations and sites and opportunities. So, I hope it’s in the not-too-distant future, whether it’s days or weeks, it’s not months or quarters. But we’re working diligently on that to move those forward. We’re working behind the scenes, 100% on the engineering and working with EPC partner as well that would do part of the construction aspect around that. So, a lot of things going on in parallel. As we mentioned, we’re also working with some federal funding aspects that would be associated with that and some other ways to offset some of the cost on that particular piece, even with a potential customer who might be willing to acquire or buy the facility as well from us. So we’re in discussions with all of that very real time. But I would think, hopefully, Alex, it’s a week here from getting further announcements out around that demonstration, not too much longer than that. Well, operator, I’ll turn it back over to you.

Thank you. That concludes the question-and-answer session. I would like to pass it back to Sharyn Brooks for any closing remarks.

Thank you, Bethany, and thanks to everyone for joining us today. That concludes our conference call. A replay will be available on our website for a limited time later today.

That concludes the Babcock & Wilcox Enterprises Q1 2022 earnings conference call. I hope you all enjoy the rest of your day. You may now disconnect your lines.