Good evening. Thank you for attending today's Babcock & Wilcox Enterprises Third Quarter 2022 Earnings Conference Call. My name is Megan, and I'll be your moderator for today's call. [Operator Instructions] I would now like to pass the conference over to your host, Sharyn Brooks, Director of Communications. Sharyn, please go ahead.

Thank you, Megan, and thanks to everyone for joining us on Babcock & Wilcox Enterprises third quarter 2022 earnings conference call. Joining the call today are Kenny Young, B&W's Chairman and Chief Executive Officer; and Lou Salamone, Chief Financial Officer, to discuss our third 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 third 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.

Thanks, Sharon, and thanks, everyone, for joining us today. Well, while we continue to see elevated demand directly supported by an increase in our bookings and a strong backlog. Our results for the quarter and revised targets reflect many of the current market challenges and negative impacts of industry - of the industry worldwide and the global supply chain pressures and challenges driven by geopolitical issues in the ongoing war in Ukraine, along with various lingering COVID restrictions. These ongoing issues negatively impacted the timing of revenue recognition on certain projects across our business segments. Despite these near-term headwinds we continue to execute and progress against our long-term strategic growth strategy with an over 30% increase in both bookings and backlog at the end of the third quarter compared to the same period a year ago. More importantly, our backlog is strong and increasing. Although certain regional backlog and inventory values are reduced by currency drops in great Britain and across Europe, we continue to have a strong and proven management team in place, and it's a team that has led this company through its most difficult losses in over a number of years ago, followed by the challenges of a global pandemic, followed by the global geopolitical issues and the resulting impacts, especially with the - within the energy sector as a result of the war in Ukraine. Despite all that, Babcock & Wilcox continues to perform, has strong operational capabilities and is much faster at reacting to global and regional challenges than in the past. In addition, we have maintained a high level of operational performance and remain on target in terms of our performance across our global projects. We have taken a number of steps to address these challenges, including managing our projects more conservatively to smooth…

Thank you, Kenny. I'm pleased to review the third quarter results of the company and give you further details that can be found on the 10-K, which will be on file with the SEC later this evening. Our third quarter consolidated revenues were $214 million, which is 34% improvement compared to the third quarter of 2021. And this is primarily attributable to higher overall volumes, previously announced acquisitions that were done in the prior year and was partially offset by a lower level of construction activity in the Thermal segment. Our net operating loss in the third quarter of 2022 was $10.3 million as compared to operating income of $14.8 million in the third quarter of 2021. This variance is primarily related to the negative impact of the global supply chain challenges and geopolitical issues Kenny mentioned above, as well as several non-recurring, non-operational items such as the non-cash impairment of goodwill, which I'll discuss in a moment, in our Solar business of $7.2 million, which was recorded this quarter, and also a gain on the sale of an asset in at – for $13.8 million and a onetime recovery of $6.3 million, both of which occurred in the 2021 quarter and they're onetime items, so they would not be repeated in the 2022 quarter. Additionally, the impact of the tariff which ended on June 30, 2022, on solar panels impacted our ability to get panels for delivery and impacted us into the third quarter slightly as panels became available, plus we had higher interest costs and income taxes. The goodwill impairment I mentioned a moment ago was a result of several factors impacting the carrying value of the solar business, including the purchase of a minority interest at a discount, the performance of certain legacy projects and the impact…

Lou, thanks. Well, in closing, Babcock & Wilcox continues to execute, build on the significant transformation over the last couple of years. With the operational improvements we have put in place in this period, we are well positioned to perform robustly in these more difficult markets and times compared to our peers who have not proactively taken such measures. Despite the market challenges we have outlined that continue to impact B&WR customers and the broader industry, we have continued to expand our bookings, build our backlog, and we have maintained a high level of strong operational project performance across our global operations. We have a solid balance sheet with expanding opportunities across all of our business segments. Our robust pipeline continues to expand, and we now see more than $7.8 billion of identified global opportunities over the next 3 years, which is an increase from the $7.5 billion figure we discussed in recent quarters. While we remain cognizant of the near-term uncertainties with the global supply chain, we are extremely excited about the level of demand we are seeing for the business. And based on our recent bookings and existing backlog we remain confident in our ability to drive significant growth in 2023 and beyond. I would like to highlight our team of dedicated employees who remain one of the driving forces behind our ability to continue to manage through the near challenges and drive our continued success as a company. Collectively, their continued focus on safety, strong project execution, expansion of our bookings and backlog and commitment to helping us become leaders in the global clean energy transition are unmatched across the industry. And lastly, we continue to see B&W on the forefront of the global fight against climate change, which represents an extremely important aspect of a mission as a company. We are excited about the significant advancements within our ClimateBright decarbonization and hydrogen solutions platform and the game-changing impact that they have throughout the world. We expect to be able to announce meaningful projects in that regard in the coming periods, and we continue to see expanding opportunities ahead in this area and remain excited about continuing to build upon our position as an innovative leader in carbon capture, decarbonization and hydrogen production. We remain committed to building on our advanced technologies to meet the growing demand of our customer base for long-term energy security and decarbonization technology. I will now turn the call back over to Megan, who will support us in answering any of your questions. Megan?

Thanks for taking the questions.

No problem, Aaron. Thanks for joining tonight. Appreciate it.

Yeah, you bet. Maybe first for me, just on the supply chain, can you kind of touch on some of the key parts there, the steps you've taken kind of the comfort that the worst is behind you there? Kind of sounds like you're not expecting a lot to get better there as you've kind of adjusted the guidance. And then just thinking about backlog, margins that are in there and comfort you have as we look to fiscal '23 there?

Yeah, sure. I think on the supply chain aspect, I guess, first of all, when we discussed our revised targets to the best again of our abilities, we tried to be conservative on ensuring that we included a new normal, if you will, from a supply chain standpoint. So there are several factors that impact us, one in parts and services, and that's normally, what we've always talked about. That we've had a book and bill or a book-and-bill approach of about 30 to 45 days on our standard parts of business. And over the course of the year and going into the end of the year, we saw that extend out, that certain parts and components of parts that make up our parts and services business are taking longer to obtain or taking - we have to acquire those from different suppliers around the world which creates, obviously, delays in shipping and so on and so forth. And that's in the parts and services business. On the project side, we, of course, see delays on the project aspect both from the raw materials and the infrastructures impacting our customers. So for example, we may have a customer that is happy [ph] as responsible for putting in various steel infrastructure and components. And that's proven to be challenging in certain projects in certain locations because of certain supply characteristics coming out of Europe and in some cases, our customers and us have had to shift some of the steel infrastructure and components in our project business from European theater [ph] over to the Asian market theater. And those add time and delays and other components. We also saw a certain amount of customers that were delaying the start-up projects in order to leverage what we're starting to see, and that's a little bit of reduction in steel infrastructure and raw materials and those pricing coming down, and a few customers wanted to delay to see the start of that. So all of those are variability. I mean there is many of those on the product and supply chain side. There's some of that on the labor side as well that we're seeing, in particular, in the European markets where some of the suppliers have labor shortages and impacts for various geopolitical reasons and so on and so forth. But that's an example of a lot of the areas that we're seeing in both the parts and services business part.

All right. Thank you for the color there. And then maybe second for me, on ClimateBright? Obviously, it sounds like there is some good developments coming there, and you've had some good announcements. Can you just maybe talk about timing there, maybe as you think about Fidelis and some of these others, is it still kind of a 2024 event there? And just what are some of those gating factors for some of those projects to move forward?

Yeah. We are actively moving ahead with the commercialization project in particular in the Louisiana location, Baton Rouge that we've talked about publicly prior as well. That's an important step, as you know, that process in proving in the commercialization side of the project and the technology. And we're moving ahead as rapidly as we can, both on the early phases of the project. We're in discussions around securing the specific site and location. We're in discussions on the offtake agreements that would be supported in that particular project, as well as early discussions around potential interest to acquire that commercial project from it once we've completed the demonstration phase. So we're excited about how that's progressing. We still have a ways to go, obviously, in and around the execution of that, but we are well underway and our project goals around producing hydrogen sometime in the later part of 2023 in early 2024 is still there, and we're still progressing towards that. As we've also said publicly, we're working diligently with various government agencies on the funding mechanism inside of that project. And although we haven't finalized that funding aspect at this point in time, we fully anticipate that, that will occur, and we're working diligently behind the scenes to make sure that we have all of those pieces come in place. But things right now are progressing and actually we're getting more positive on a direction coming into that project at this point in time. And as I mentioned, right now, our focus is on securing the specific land site and the lease accordingly on that project, and that's advancing even as we speak.

Good. Good to hear. Thanks for the color. I'll pass it on.

Thank you. Our next question comes from the line of Brent Thielman with D.A. Davidson. Your line is now open.

Hey, thanks. Good morning, Kenny. I guess, Kenny, I want to come back to the - the outlook into 2023, call it kind of a $30 million bridge from 22 to 23 in EBITDA. Kenny, it sounds like you've built in some contingencies around some of these issues and bottlenecks you've had to deal with and it sounds like you're sort of expecting that to continue. So I think I'm just trying to understand where you get the incremental $30 million in EBITDA next year? Is it some abatement in these pressures? Is it a stronger - stronger growth into next year? Just trying to understand that bridge a little bit more, just given these issues sound like that could persist.

Yeah. No, it's a good comment. We are seeing a couple of areas next year. Let me back up. First and foremost, we're trying to be as conservative as we can on the targets to make sure that we have loaded in, again, the best we can, right? And assuming that things stay about the same as it relates to the global supply chain and infrastructure and the timing of various parts and services. And so we tried to bake that into the - the target that we put out for obviously the rest of this year, but more importantly, into next year around that. So that's one aspect to start with. The other piece from a positive perspective now, as I mentioned before, for example, in the parts and services aspect, we saw the timing from book to cash really move from a 45 day-ish period. I'm talking about book cash, not book-to-bill, but out to a 60-plus day rough order of magnitude, I mean, there are various things that are longer than that in our parts business. And so we've kind of modified the forecast that reflected that - but what we're seeing now is we're catching up, if you will, more with that timing. So as we go into Q4, in particular, within the parts and services business in North America, we're starting to see the revenue rebound back. It's only because now we're catching up with where supply chain is as it relates to those parts, and we're able to get those parts out the site, meet some of the outage work and service work that's starting to increase. Historically, if you remember, we always talked about that the plants were running more full tilt because of the high cost of natural gas. And so you're…

Okay...

Yeah, Brent, the only thing I'd say - this is Lou. The only other thing I'd add, we don't anticipate that we're going to have the - in the solar business, for example, the tariff situation again. I mean we lost four months of revenue in that case. So we see some - we're projecting some growth in the solar business that gives us a little more confidence in being able to make that target.

Okay. Appreciate that Lou and Kenny. And again [ph] the phenomenon behind the book to cash within the parts and services business, I presume that among some other things, is what gives you the confidence in that you know, the step up here, you're sort of expecting in the fourth quarter?

It does. As we sit here, we're - obviously, we put out the targets based on that, and we're seeing that unfold. So yeah.

Okay. And then just another question. I mean it looks like you're booking new work at a healthy clip. I'm just wondering sort of how these disruptions you've experienced in terms of schedule and delays, so forth. How has that impacted the mobility of new projects coming forth to bid and book? I mean could it have been even stronger at these things that been in place? I'm just curious.

Well, it's - I think it's forced us to look at very deeply the overhead of the company because when we look - we have the unique challenge, obviously, as a business that we're seeing the new bookings come in, and we're seeing new opportunities. I mean we mentioned quite often that we still anticipate having a new waste-to-energy booking yet this year. Obviously, we wouldn't say that if we weren't heavily involved in negotiations and other aspects around that opportunity. But when we look at those bookings, out there, one of the challenges we have to always maintain is the overhead associated with supporting that. So we have the - not only the supply chain aspects that fall through, but we also have the engineering aspects and other project management aspects that we have to maintain to support those future bookings. And that's always an area that we have to work through and challenge. We'll never be perfect on an individual quarter until the world obviously goes perfect again on supply chain, but we have to be able to manage that variability. And we said in motion - I don't know, I guess a couple of years ago now or a year ago now, trying to get a little bit more outside support from third-party companies to be able to assist in our engineering and other efforts in the company to give us that a little better flexibility in how we manage those projects. And we saw - probably doesn't show up in the numbers, clearly, but we did see some of the benefit of that this quarter and going into Q4 and going into next year. So some of the activities that we've already taken is helped us to get past some of these engineering challenges - the supply chain challenges or market challenges and we fully anticipate that going forward, will continue to improve. But that's always the pressure point that we have to balance on the new technology side. On the parts and services side, especially in the thermal business, as we look at that overall group, plus the construction, which is part of the thermal business, we're seeing that strong backlog now coming into place, and we're starting to see mobilization of certain large projects unfold now that will really be more of a revenue impact in 2023. And so we enter - we go into next year or should go into next year with a very strong backlog to support the revenue objectives that we have. And we have a lot better visibility now on the timing of many of those projects especially some of the larger projects and especially some of the ones that are happening here in North America where we have a lot more control over the supply chain aspects of it. So that - I don't know if that helps, but that gives us confidence overall.

Yeah. I appreciate that, Kenny. Maybe just one last one, Lou, you mentioned some maintenance covenants put in place. Can you provide any more detail on kind of what you need to hit here going forward?

Yeah. We've got - I mentioned we've got a waiver for the third quarter. We've got the relief on paying the dividend in the fourth quarter. What we've done with the new targets, we've gone back to the lenders, and we've negotiated other covenants than the covenants we had. And so that gives us a little more flexibility going forward into the future with these revised - with the revised estimates and targets that we have out there. So that's helpful to us going forward.

Okay, all right. Thanks, guys. I'll pass it on.

Thank you.

Thank you. Our next question comes from the line of Alex Rygiel with B. Riley. Your line is now open.

Thanks for taking my questions. Kenny and Lou, good evening. A couple of questions. Is there a chance that turnarounds that were delayed in the second half of 2022 could redevelop in early 2023 such that your seasonal trends are a little bit different in 2023?

It's too early to tell on the thermal side and the parts and services that there'll be an increased number of outages. I mean, we - I think what we'll see is next year a little bit more normalization in the flow of the thermal parts and services, particularly here in the domestic U.S. We see that a lot from our customers right now and planning more outages and that type of work. Natural gas pricing is still high and those plants are still running. But they're not catching up with their cycle time here to be able to have those parts and services installed. So we see that happening. I think in the waste synergy aspect, we're seeing more bidding opportunities around that technology. And in particular, we're starting to see the decarbonization aspect come into play into next year. So those are, I think, positive as it relates to the overall direction of the company overall. I don't some of the work Lou mentioned in the solar side, obviously, that were impactful this year because of the tariff aspect. Some of those went and converted those projects into wind. So we won't see a bounce back specifically of those into next year. But we're - you guys all know, but we're seeing, obviously, an increased demand now within solar, especially in the community solar front on smaller projects, which is what we're more focused on solar wide. In particular, we're starting to obviously move into some of the new technologies, green steam and otherwise, which require solar. And so there's some synergistic opportunities around that, that we're starting to move forward on a bit on. But - so I think we'll see the thermal side continue to go strong next year. Obviously, we based the targets and other…

And then can you talk a bit about how EBITDA could exceed your 2023 guidance?

Yeah, it's - for sure. We tried to, again, be conservative on the numbers and the direction of that target next year. The upside comes we think, more from the project timing standpoint. And we tried to be a little more conservative on project timing as it goes into next year. Clearly, if some of the projects that we're seeing from our customers and some of the time frames that they're stating they're planning on starting these projects and construction actually happens, that would be a possible pull forward of those project revenues, and that would be an increase of EBITDA on those locations. We're starting to see also where more around the decarbonization aspect and some of the IRA credits where customers are pulling us more into some engineering opportunities that they want to progress, and we're seeing some more grants and other possibilities coming in state by state, those would all have positive impacts and timing as well, too, that would be a driving force for us. And that would be across the board, but the upside really would come more from those pieces. We were conservative again on the parts and services. So if there's any improvement in the supply chain aspects globally, and we can shrink the book and bill for back from 60 to 90 down to - back to 45%, all of that would be upside for us next year as well, too, because we base the targets on more of that book and bill of 60 to 90 versus the 30 to 45.

Perfect. Thank you very much.

Yes. Thanks, Alex.

Thank you very much. Our next question comes from the line of Rob Brown with Lake Street Capital Markets. Your line is now open.

Hi. I was wondering if you could quantify the FX impact to the backlog in the quarter?

Thanks, Rob. When you say the impact of the backlog in the quarter, what are you - just to clarify the question, sorry.

Yes. I think Lou mentioned that some of the backlog kind of came down as you adjusted the FX kind of translation to the backlog number. I was just wondering how much of impact was that from?

Yeah. That impact was about - round numbers, about 17,000 on the backlog - $17 million on the backlog. Sorry about that, I answered a lot of questions today. I got my millions mixed up. So about $17 million on the backlog, Rob.

Okay. Okay. Great, thank you. And then maybe just wondering if you can give some more on the pipeline of projects in the CO2 capture market. I know you're in discussions with a lot of things. How are those sort of - how many of them - how would you characterize the pipeline of CO2 catcher [ph] projects?

Yes. Well over. I think we stated publicly that's well over 20. I'll just update on the call here and say it's well over 30%. Very active projects. Clearly, the large one in Louisiana, and I'm not talking about the BrightLoop, but I'm actually talking about the biomass facility that we'll put in place there. We'll have oxycombustion, which is or OxyBright is our term, but is a unique - a little bit of unique technology. We're one of the few out there. I think we never say that we're the only one, but one of the few out there that actually can combine the biomass capabilities of our CFPs along with the OxyBright technology to isolate and capture the CO2 associated with that. And that's under the IRA credit here in the U.S. creates negative carbon intensity for that project. And in this case, the customer is able to leverage the low carbon fuel standard credits that come from California, various states, Canada and others for that biodiesel that's out there in Europe as well, too. And so the demand for - as you follow that, the demand for green diesel in Europe now diesel period, but the demand is quite high and other green fuels. And so we're excited about that technology. We're in discussions and have been going back to the pipeline standpoint, looking at other similar type situated opportunities where the customer is interested in the biomass combined with the OxyBright technology to isolate the CO2, maybe different sizes in 300 megawatt, but they would be different overall. But those are some of the opportunities. I think where we're equally excited about, which we believe is the future growth of the company in 2024, 2025 and beyond, is around BrightLoop and its abilities to actually create…

Okay. Great. Thank you for all that color. I'll turn it over.

Thank you. Our last question comes from the line of Jamie Cook with Credit Suisse. Your line is now open.

Hi, good evening. Just I guess a couple of quick follow-up questions. One, you talked about your pipeline of business growing to - increasing to $7.8 billion, I think from 7.5. So what are the drivers behind that? Is it some of the acquisitions that you've done and just the performance of some of the acquisitions? And then my last question, Lou, just in terms of how you're thinking about the company's ability to generate cash flow like the expectations for the fourth quarter? And then as we get to 2023, when earnings or EBITDA is more normalized in the $100 million to $120 million that you talked about? Thanks.

Yeah. I think on the cash flow side, Jamie, our conversion of EBITDA to cash flow was a little behind our expectations up through now. Starting in the last quarter and this quarter going forward, that conversion rate is much higher. There were things in there such as the acquisitions and so forth. But we should get a much more normalized view of the conversion from our EBITDA to cash flow going forward. It's one of the items that we're really focused on, is getting the cash in much faster, being able to utilize our balance sheet to not get as many letters of credit out there so we can get more cash in, pushing for advanced payments with fewer letters of credit backing them up, et cetera, so we can get the cash in faster and bring that EBITDA to cash conversion much closer.

Then on the pipeline, Jamie, we're seeing it from a couple of different sources. It is coming from a little bit from the acquisitions on that. Some of the acquisitions are parts and services, which wouldn't necessarily be in the pipeline, but we are seeing it a little coming from some of the acquisitions on that. The bigger driver or the more sizable, I guess, opportunities are from the - in particular, in the biomass and waste to energy the biomass with oxy combustion, we're starting to see multiple opportunities for that. That's proven technology. So that's technology that we're moving into the delivery phase today. Obviously, we talk about Louisiana. But we're seeing that unfold where, especially with the IRA credits, there are two or three or four more opportunities that we're adding to the pipeline that have very significant revenues coming from that particular technology. And so that's one of the reasons we were confident enough to increase the pipeline from 7.5 to 7.8.

Okay. Thank you.

Thanks, Jamie.

Thanks, Jamie.

Thank you. There are no additional questions waiting at this time. So I'll pass the conference back over to Sharyn Brooks for any closing remarks.

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

That concludes the Babcock & Wilcox Enterprises third quarter 2022 earnings conference call. Thank you for your participation. You may now disconnect your lines.