Babcock & Wilcox Enterprises Inc (BW) 2021 Q4 法說會逐字稿

Hello, everyone, and welcome to the Babcock & Wilcox Enterprises Fourth Quarter and Full Year 2021 Earnings Conference Call. My name is Victoria, and I will be coordinating your call today. (Operator Instructions) I'll now pass over to your host, Megan Wilson, Chief Strategy Officer to begin. Please go ahead.

Thank you, Victoria, and Good morning, everyone. Welcome to Babcock & Wilcox Enterprises Fourth Quarter and Full Year 2021 Earnings Conference Call. I'm Megan Wilson, Chief Strategy Officer and Senior Vice President of Corporate Development at B&W. Joining me this morning are Kenny Young, B&W's Chairman and Chief Executive Officer; and Lou Salamone, Chief Financial Officer, to discuss our fourth quarter and full year 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 in our annual report on 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 fourth quarter and full year earnings release published this morning and in our company overview presentation filed on Form 8-K this morning and posted on the Investor Relations section of our website at babcock.com.

With that, I will turn the call over to Kenny.

Thanks, Megan. Thanks, Victoria, and Good morning, everyone, and thanks for joining our call. Well, wow, what a year. 2021 was a year of unprecedented growth and accomplishments for B&W, especially compared to 2020. Revenues were up about 28%. Our net income swung from a loss of negative $10 million to net income of about $32 million positive and an adjusted EBITDA increased by about 260%, excluding a -- that actually excludes a nonrecurring loss recovery in 2020. We also achieved our ambitious target of adjusted EBITDA of $70 million for the year. Annual bookings and ending backlog were both up about 20% with our highest level of annual bookings since 2017.

Our quarter-over-quarter results for the fourth quarter were actually just as significant. Revenues were up about 28%. Net income was up a remarkable 504%, and adjusted EBITDA was up about 77% and bookings were up 61%. In 2021, we did what we said we would do. We focused on execution. We booked 4 renewable waste-to-energy newbuild projects in 2021 and actually a bid we just announced last month. We closed several strategic acquisitions and continued investing and building our ClimateBright decarbonization platform, including driving forward on commercial demonstration projects for our innovative BrightLoop hydrogen production technology.

Our extraordinary fourth quarter bookings of $269 million included awards of 2 additional renewable newbuild projects, including contracts for $58 million and $24 million supply advanced waste energy technology for power plants in Europe. With the addition of an $11 million booking for biomass boiler upgrade in the beginning of 2022, we have booked 5 sizable renewable energy projects since September. Our recent acquisitions over the last 6 months have strategically expanded our clean and renewable energy businesses.

We're excited about the substantial opportunities we see for solar, solar installation and construction services in the United States through our BW Fosler solar business, which is reflected through our growing pipeline. We are also exploring opportunities to combine solar with B&W's long-term, long-duration energy storage solutions and look forward to continuing our efforts to drive these newer technology. Through our November acquisition of Voda, a flexible, scalable, renewable aftermarket parts and services business based in Denmark, we launched our B&W Renewable services platform to further expand our renewable operation and maintenance for parts and services business in Europe and focused on renewable waste-to-energy and biomass to energy technologies.

In February of this year, we acquired FPS, a leading designer and manufacturer of hydrogen, natural gas and renewable pulp and paper combustion equipment and technologies based in Nova Scotia, Canada. FPS ignitors and control system capabilities are ideally suited to clean energy applications such as firing and hydrogen, which complements B&W's hydrogen generation and combustion technologies. And we see significant potential growth in those markets, not only in North America but around the world.

In February, we also completed a small bolt-on acquisition of Optimus Industries in Tulsa, Oklahoma, which designs and manufactures waste heat recovery products, including package boilers, watertube and firetube waste heat boilers, economizers and superheaters and units for sulfuric acid plants. We expect the addition of U.S. package boiler manufacturing capabilities to increase our U.S. market access and create additional opportunities for the combined business moving forward. We are continuing to explore additional acquisition and investment opportunities in both emerging technologies in mature markets and aggressively pursuing opportunities to further increase shareholder value. Our results, bookings and strategic actions in 2021 have positioned us for an even stronger 2022.

Looking forward, as we previously mentioned, we increased our 2022 target to a range of $110 million to $120 million in adjusted EBITDA, and our overall pipeline is now more than $7.5 million of identified project opportunities through 2024, which, again, does not include parts and services. Additionally, we anticipate growth in our parts and service business as the year progresses due to higher demand by our installed base as a direct result of higher natural gas prices. Our robust and growing pipeline, recent contract wins and strategic acquisitions give us confidence in our ability to achieve a significant year-over-year growth in 2022, and we anticipate that full year 2022 will realize the potential and continued momentum of our ongoing growth strategies.

As always, our EBITDA will ramp between Q1 being the lowest and Q4 being the highest as normal based on our historical trends. Most importantly, we believe that 2022 will be a milestone year for our ClimateBright decarbonization platform as interest in our technologies is rapidly expanding, particularly for our breakthrough BrightLoop technology to produce hydrogen in our steam or syngas from a variety of fuels or feedstocks while isolating CO2 for sequestration of utilization without -- the good news, without any additional parasitic load or loss of efficiency on the plant.

In November of 2021, we signed an exclusive global license agreement with Ohio State Innovation Foundation for a unique particle that is used within our BrightLoop platform for decarbonization and the production of hydrogen and/or steam or syngas, which complements B&W's existing chemical looping technology portfolio. This technology was jointly researched and developed by B&W in collaboration with the Ohio State University, and it's used to produce hydrogen from syngas has been successfully demonstrated.

We have proven how fully scalable and adaptable this technology is for both large and small installations. And we are excited about its transformational potential, so excited in fact, that we are now moving forward with a number of potential commercial scale demonstration projects, including detailed design and engineering, site selection, permitting and financing all with the goal of having equipment on the ground for at least 1 plant by the end of 2022 and producing hydrogen by the end of 2023.

Our robust pipeline of energy transition, carbon capture and hydrogen production opportunities is accelerating as our customers seek solutions to address some of the world's most urgent climate objectives. We are continuing working on over 20 potential ClimateBright carbon capture and hydrogen projects to really determine the size and scale and best carbon capture solution based on customer-specific needs and anticipate booking additional ClimateBright projects in the coming months.

I'll now turn the call over to Lou to discuss the key points of our financial performance in the fourth quarter of 2021 as well as our full year results. Lou?

Thanks, Kenny. First, I'll review our full year 2021 results, and then I'll turn to our fourth quarter 2021 results. For further detail, I call your attention to the fact that we filed our 10-K with the SEC and you can refer to it for further details beyond what we discuss here in this call. Consolidated revenues for 2021 were $723.4 million, a 28% improvement compared to 2020. The improvement was primarily due to a higher level of activity in our Thermal and Environmental segments, expanded geographic presence and improved strategies to mitigate the continued impact of COVID-19 as well as the acquisitions of Fosler and Voda in our Renewables segment. Net income in 2021 was $31.5 million compared to a net loss of $10.3 million in 2020.

GAAP operating income in 2021 was $20.8 million compared to an operating loss of $1.7 million in 2020. This increase was primarily due to the earlier referenced increase in revenue. We also note that operating income in the prior year included a $26 million settlement from an insurer, which is a onetime item. We achieved our 2021 adjusted EBITDA target of more than $70 million with an adjusted EBITDA reaching $70.6 million as compared to $19.7 million in 2020, and the $19.7 million excludes the nonrecurring $26 million settlement, which I mentioned a few moments ago. Total bookings in 2021 were $779 million, a 21% increase compared to full year bookings in 2020. This is the highest level of annual bookings since 2017. Backlog at December 31, 2021, was $639 million, and that's a 19% increase compared to the prior year-end.

Let me now turn to our fourth quarter results. Fourth quarter consolidated revenues were $192 million, a 28% improvement compared to the fourth quarter of 2020. This was primarily due to a higher level of activity in our project business within all 3 segments, including, as Kenny mentioned, 4 large waste-to-energy projects in the Renewables segment and a fifth we just signed, an increased construction volume in the Thermal segment as well as the acquisitions of Fosler and Voda. Net income in the fourth quarter of 2021 was $30.2 million. This is more than 6x the net income of $5 million in the fourth quarter of 2020.

Our GAAP operating income in the fourth quarter of 2021 was $9.7 million, more than 4x the operating income of $2.2 million in the fourth quarter of 2020. This increase was primarily due to the earlier referenced revenue increase as well as favorable project execution. Adjusted EBITDA was $27.9 million in the quarter compared to $15.8 million in the 2020 quarter. Bookings in the fourth quarter of 2021 were $269 million. This is a 61% increase compared to fourth quarter bookings in 2020.

I'll now turn to cash flow, balance sheet and liquidity. Cash flow from operations in the fourth quarter of 2021 was a use of $3.4 million. We ended the quarter with total debt of $340 million in cash and cash equivalents and restricted cash of $226 million for a net debt of approximately $114 million. This is inclusive of the net proceeds under our 6.5% senior notes offering, which was executed in December and after cash paid for the acquisition of Fosler and Voda. Net leverage at December 31 was 1.61x the last 12 months adjusted EBITDA. Net interest expense for the quarter was $8.7 million as compared to $9.8 million in the prior year quarter. The decrease is primarily driven by the reduction in the interest rate based on our last-out term loans and the rates secured on our senior notes issued during the public common stock and senior notes offering in 2021.

As Kenny stated, our strong results for the fourth quarter were propelled by continued execution of our growth strategy and drove us to achieve our adjusted EBITDA target of more than $70 million for the full year 2021. We booked 4 sizable renewable waste-to-energy product -- projects and newbuild projects in 2021, contributing again, as I said, to the highest level of annual bookings since 2017. We closed several strategic acquisitions in the past 6 months and anticipate those acquisitions will further propel our growth in coming years.

We expect 2022's quarterly profile to follow our normal cyclical performance of increasing profitability from the first through the fourth quarter. Again, as Kenny said it, we're reiterating our 2022 target of $110 million to $120 million of adjusted EBITDA. And this is supported by a robust pipeline of more than $7.5 billion of opportunities through 2024 and a $639 million backlog at the end of 2021, a 19% improvement over the prior year and the accelerating momentum of our strategic actions.

I'll now turn it back over to Kenny.

Thanks for that. Well, in closing, we have made tremendous strides over the past 3 years, and we are extremely proud of the milestone year we achieved at Babcock and Wilcox in 2021. Our employees around the world have stepped up to meet the global demand, and we want to recognize some tremendous achievements of each and every one of them. We are growing and expanding and adding new talent across our 3 segments. We've achieved significant year-over-year growth in revenue, net income and EBITDA. We are executing on what we promised by booking 5 renewable waste-to-energy newbuild projects and closing several strategic acquisitions all accomplished just since September.

We continue to build our ClimateBright decarbonization platform and progress on a pursuit of 20-plus potential ClimateBright projects and driving forward on BrightLoop carbon capture and hydrogen commercial demonstration projects. The technology reviews we are seeing from our customers regarding our BrightLoop platform is giving us even greater confidence in the long-term demand of this emerging technology. And looking forward to 2022, we are confident about the year, the year-over-year growth, we expect to achieve for the coming year with a targeted adjusted EBITDA of $110 million to $120 million.

The strategic actions and growth strategies we have been working on for several years are materializing, which is proven by our recent significant bookings, substantially increased backlog and our more than $7.5 billion in 3-year pipeline. As B&W continues to deploy our innovative environmental and renewable offerings, including our waste energy and ClimateBright decarbonization technologies, we are confident that our capabilities will continue to demonstrate B&W's role as a leader and an innovator that advances the world's energy transition solutions. And as always, we continue to drive our results towards increased shareholder value.

With that, I'll turn the call back over to Victoria and Megan, who can help take any questions. Victoria?

(Operator Instructions) And our first question comes from Zane Karimi from D.A. Davidson.

I know it's early, but there does seem to be a significant tick up in the interest pertaining to the waste-to-energy solutions business, especially in Europe. Can you talk a little bit more about the opportunities in hand as well as here as what you're seeing elsewhere? It seems like this could be one solid solution to energy concerns through the region.

Sure. Well, waste energy has been a strong suit of the company for many, many years and has always been strong in Europe, much stronger than, in fact, here in the United States from a uptake and -- or use of waste to create energy. The demand you're seeing has really reflected strongly both of the marketplace and what we see in the marketplace worldwide. We also announced a project in Southeast Asia as well. But we -- and we're seeing opportunities emerge actually in the United States as well, but also through Europe and through more of Southeast Asia. The good news for us is, as we've capitalized our company many, many times over the past couple of years move us into a very strong position. It has strengthened our abilities to take on more projects, and our customers and partners and some of the groups that we work with jointly on these opportunities are seeing more and more waste-to-energy demand to be created or built in Europe.

The other side of that is we are also seeing a increased demand on some of the older waste-to-energy plants and technologies that are out there to upgrade or convert or enhance or augment those plants and facilities as well. And so one of the reasons we invested in the parts and services business in Northern Europe was to be in a much better position to take advantage of those emerging market opportunities. As we continue to look worldwide, obviously, we do see the need to reduce greenhouse gases, in particular, from methane, methane reduction from landfills. To us, it's still a very strong part of the global change to reduce greenhouse gases. And as we've often talked about the fact that even here in the U.S., there's methane from landfills, which would equate to the same greenhouse gas effect of roughly 77 million automobiles.

And so it still is a significant issue related to a global environmental aspect and reducing greenhouse gases overall. And we're starting to see opportunities emerge in the U.S. There's still some other areas that need to improve to make it a much more economical attractive solution here. But meanwhile, Europe is still a growing market for us, and we are continuing to work on a number of opportunities over there and anticipate making further announcements this year, obviously, on additional bookings in our waste-to-energy technology from Europe and potentially in other parts of the world as well.

And could you talk a little bit more about your exposure to hydrocarbon companies about traditional oil and gas within the industrial segment? Like how big are they for you? And as this push in commodity prices moves higher, how could that potentially benefit you guys, if at all?

Well, as we often talk about and did on the call as well, too, we have a -- we do have a strong parts and services business within our Thermal segment that relies on various fossil fuel, both in the industrial and the utility sector for that. The increase -- the main increase or driver for us is on natural gas. When natural gas prices go up, other forms of fuel is used to create energy and that bodes well for us from a parts and service perspective. It's always interesting because it's twofold. On one hand, when the natural gas prices increased significantly, then there is more power output from other forms of fossil fuels and those plants operate to their fullest capacity for much longer periods of time.

So as they operate for longer periods of time, there's clearly more wear and tear that occurs and eventually that leads to greater parts and services that come through our thermal operations. So with worldwide right now as we obviously continue to watch and observe what's happening with all of the different geopolitical aspects that occur in these days and as well as potentially increases in natural gas and other energy forms. Some of those have very positive impacts for us in and around that. And we also see shifts of -- especially in Europe right now, where natural gas is becoming a premium, you just see kind of a natural inclination for a lot of the utility and energy providers to go back and look at alternate forms.

We think also long term that helps drive further initiatives around the hydrogen production and the use of hydrogen as a replacement from a fuel source in the long run. And so we're equally excited about the impact that, that could lead to our hydrogen production capabilities. And as we mentioned in this -- on this call, we're looking to move forward with a 1 or 2 commercial demonstrations yet this year. So it's -- these impacts us in various ways from that standpoint, but we don't see them as a negative. Actually, it opens up opportunities for us. We're excited about that. Lou, maybe anything you want to add to that? No. That's okay. Go ahead. You can…

Okay. And last one for me before I jump into queue. But how should we think about the sequence of the year to build toward 2022 guidance, particularly among the segments?

Well, I think as we talk about and have talked about in the past, as we continue to evolve and execute against our strategy and over the next couple of years, you will see that transition of revenues going towards 2/3 environmental and renewable. Our pipeline and obviously, our recent announcements support that, and we'll see that increase over that period of time. As we also talked about on the call today, our ramp in EBITDA towards our target of the $110 million, $120 million will be just like this year. It will be -- Q1 will be the lowest, Q4 will be the highest.

So it's just -- we're -- a lot of cyclical trends to our business, especially in the parts and services side. It's just normal course for us, and we'll see that again this year. But at the same time, we also know the bookings that we anticipate and projects that we're heavily involved in and actively working to pursue to close and those announcements, whether they'd be Q1, Q2, Q3, but we have that timing layered into our targets and fully see and anticipate reaching those milestones. But it'll be -- it will occur just like it normally does, Q1 being low, Q4 being high.

And again, congratulations on the big year.

Our next question comes from Alex Rygiel from B. Riley.

A fantastic year it appears and quarter. Kenny, the tough question first. Can you address the situation over in Eastern Europe and how it may shift customers' views on both thermal and in clean energy projects?

Sure. Obviously, it's an everyday moving situation that's occurring and we watch it very closely in that regard. The biggest impact, short order, obviously, is natural gas prices and the access to natural gas in Europe. For us, it's too early to determine whether or not that will lead to an increased -- [that's] potentially moving growth on waste-to-energy, meaning more and more countries adopt a different platform for energy consumption or energy production. And so it's little too earlier to see that. We do see growth in our waste-to-energy environment, but I wouldn't say it's reflected or impacted by what's happening in Ukraine at the moment.

We are seeing, obviously, in talking to many customers about the shift in their future. And obviously, they're trying to figure out long term if they need to look at different energy sources to create energy in the long run, and we're having those conversations with them at this point in time, but it's still too early to see any real impact that will hit us. And we hate to predict, obviously, anything at this point in time, and it's a very delicate situation in the geopolitical aspect in the Ukraine. But we're seeing a lot of focus and a lot of requests to discuss different alternative energy sources, including hydrogen and other biofuels in Europe. And some of that is as a result of what's happening right now in Europe and some of that's just normal course in a direction that started years ago that continues to grow. So I'd probably leave it at that right now, Alex.

That is helpful. And then your liquidity position is still pretty strong. Directionally, where are your M&A efforts sort of targeting at this time, both end markets as well as geographically?

Yes, we still look globally. We're very active in both ownership M&A companies that we would acquire in total or even without leaving some minority ownership with the original founders. But we're equally looking at small investments in emerging technologies that complements or help propel our hydrogen production and other decarbonization technologies globally. It is a -- we see the need to keep investing and expanding, and we're getting a lot of momentum, especially around the potential for biomass to hydrogen production as a alternative source of energy, in particular around our BrightLoop platform. And that's coming from a lot of different vertical industries as well as in the utility sector as well.

And we'll continue to look at investments in those areas, in particular, around some of these emerging aspects. And those could be in Europe, within the U.S. and elsewhere in the world. But we're excited about some of those opportunities and where they can help B&W grow more and more. Of course, we'll still keep an eye on and look and evaluate opportunities to acquire cash flows, especially where there's high synergies, where those make sense. I think it's just prudent that we evaluate and those kind of opportunities as well too, but there's strength of what we're looking at from an M&A standpoint, it's a lot towards the emerging technologies and where those may lead.

(Operator Instructions) And our next question comes from Rob Brown from Lake Street Capital Markets.

Just to go back to the FPS acquisition and you have hydrogen technology there. Maybe you can just expand on how that helps your hydrogen strategy and yes -- kind of (inaudible)

Yes. One of the unique characteristics around FPS technology, in particular, hydrogen scanners is when you burn or consume hydrogen from a combustion standpoint, the flame is not often visible. And so you need some strong, very strong scanner technology as it relates to bad sensitivity. And one of the things that we really liked about FPS, well, twofold really around it. The one, B&W has been as part of its parts and services, utilizing FPS technology for many, many years. And so it was an easy extension as it relates to some of our parts and services business today, but they are one of the few companies in the world that has a strong platform around the scanning technology on the -- for hydrogen and hydrogen ignitors as well.

And so it was -- combining that, we felt that obtaining that technology, which would be required as hydrogen becomes more and more prevalent in the marketplace was a significant advantage for us and one that we felt that we could incorporate on a global basis. FPS had been more focused on -- the North America market was predominantly where they played. We are anxious and obviously working hard to bring the product portfolio up to an international standard, and we'll be doing that and one which we think we can grow on an international basis through our global parts and services organization. But we think that technology was important from the hydrogen combustion standpoint.

Okay. Great. And then just maybe a little bit more on the pipeline. You had a number of projects hit recently. How do you sort of see that playing out for the year, in a couple of years? Is that large pipeline kind of front end weighted? Or should it be ratable? Or how do you think about the pipeline [conversion at this point?]

Well, we're excited that the pipeline continues to build in projects, again, renewable projects, in particular here in the U.S. as well as in Europe overall. I anticipate that we'll see some announcements of bookings in the Q1, Q2 time frame, probably more Q2 at this stage, but we anticipate that in other projects throughout the year that we're working on now. Obviously, when you're working on some of these larger projects out there, those take time to work through the engineering aspects, the contract negotiation aspects, just normal typical nature of getting these projects accomplished and through our -- out to a booking standpoint so that we can start to execute on those projects.

But there are a number of active projects that we're heavily involved in right now, again, both in the U.S. and Europe and Southeast Asia as well as the Middle East. And as these continue to develop, obviously, we'll push to get those announced as quickly as we can once they're ready to go. But there's some very exciting opportunities that we see out there that we fully intend to book and get announced this year. So it's -- I would say you would start to see more of that happen in the Q2, Q3 and in Q4 time frames around our bookings, which is just very typical for us. But there are a number that we're working on right now. And it's just reflective in the fact that our pipeline continues to grow. And I think we've increased it from $6.5 billion to $7.5 billion, just to give some color on that.

And our final question comes as a follow-up from Zane Karimi from D.A. Davidson.

Real quick. What does the pipeline look like in solar? And is that business constrained by supply disruptions like others have seen? What sort of growth could we be expecting this year in the business?

Solar is -- continues to build the pipeline for solar is -- continues to build for us and opportunities and we're actively in a number of opportunities right now. Both -- and I would say one of the nice things about the business that we acquired is that they are capable of delivering smaller community solar projects down in the 5, 10, 20 megawatt range, but equally capable of delivering larger projects that would be in the 100-plus megawatt range for solar output. Obviously, that's restricted for us right now in the United States in that regard.

But we are working on a number of projects right now. Obviously, the -- bringing in the panels from an overall standpoint is varies. It depends on the customer and abilities and which ones have access to those panels and those technologies right now. But we do see a number of smaller projects where any supply chain constraint wouldn't be necessarily an issue as part of that overall portfolio. Some of the larger projects would be phased in probably over a longer-term period and balancing that. But we're seeing both those opportunities to increase our pipeline right now and again anticipate booking in a few of those projects this year.

At this time, there are no further questions. And I would like to pass back over to Megan for any final remarks.

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

Thank you, everybody, for joining today's call. You may now disconnect your lines.