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 out various impacts from the global supply chain and project delays, as well as the cost increases we continue to see.

Importantly, we want to emphasize that our third quarter results and recently revised adjusted EBITDA target is not reflective of nor a repeat of overall project performance-related issues, whether it reflects the timing of revenue recognition across our project portfolio, that has been adversely impacted by the ongoing market challenges that we and so many other companies continue to face.

Despite the present supply chain headwinds, we remain optimistic about our current visibility for new booking opportunities which should drive growth in 2023 across all of our business segments as a result of the rising demand for thermal base load generation and clean energy technology solution.

As discussed on our prior earnings call and mentioned in our previously announced revision to our adjusted EBITDA targets, the war in Ukraine and the global supply chain disruptions continue to present ongoing challenges to our various project timings and parts delivery, which, again, is similar to the experience of so many companies around the world.

These challenges also affect our customers as their infrastructure suppliers are facing delays for raw materials, industrial components and labor shortages that are required to cover the balance of plant and are outside of our scope.

These have affected the timing of planned new bookings, as well as deferrals on revenues in certain projects and parts and services. We continue to work to mitigate these challenges through various supply chain efforts, our customers' efforts and our established global resources.

We remain intently focused on minimizing these issues where possible, but recognize that we may continue to experience such adverse impacts as these global conditions persist.

As best we can, we believe our revised targets reflect the currently known supply chain challenges and overall timing of new bookings, backlog runoff, invest revenues and EBITDA. Our operational performance on projects remain strong and on target. Our recently revised expectations are not reflective of overall project performance-related issues again.

And generally, we have been effective at mitigating any project issues that arise from time to time appropriately.

As we look forward to the potential tailwind opportunities for our business segments, as demand for energy security and alternatives to natural gas continue to emerge, we remain committed to expanding our operations, both domestically and internationally as a global technology leader and solutions provider.

Healthy and elevated demand trends along with global initiatives around hydrogen and the decarbonization future continue to position the company well to be a leader in the clean energy transition.

We have over 90 patents filed around our carbon capture technology and processes, as well as exclusive rights with patents shared with the Ohio State University through our joint R&D efforts over the past 10 to 15 years.

Our biomass energy solutions, combined with OxyBright, our oxy-combustion technology, allows for green energy to be produced with negative carbon intensity, which allows our customers to maximize the low carbon fuel standards.

We continue to develop new technologies such as green steam, long duration storage, as well as exploring and testing various fuel alternatives for BrightLoop. We continue to progress our commercialization process for BrightLoop and are in detailed discussions to secure specific site locations, feedstock and CO2 sequestration.

We are now in discussions with various industrial and utility clients regarding additional commercial opportunities and the interest and application of BrightLoop continues in earnest.

Throughout the third quarter, we continued to recognize increased interest in our ClimateBright Decarbonization platform as evidenced by the recently announced contract award to study the application of B&W SolveBright, solvent-based carbon dioxide and capture solution for console.

Consol Energy's advanced coal and biomass-based 21st century power plant project, which is currently in development. This award followed shortly after our announced $42 million contract to provide construction and installation services for an environmental upgrade project here in the U.S. for a power plant.

Together, these developments speak to the increasing demand for clean power production infrastructure and validate our growth pipeline within the environmental segment.

We will discuss these recent award wins in further detail on the call today and provide updates on current scale-up BrightLoop decarbonization and hydrogen syngas production technologies.

With respect to our bookings and backlog at the end of the third quarter, we experienced strong year-over-year growth, supporting our outlook for improved fourth quarter performance and our ability to reiterate our adjusted EBITDA target for the full year 2023 of $100 million to $120 million.

For the third quarter of 2022, our ending backlog was $730 million, which is an increase of 35% compared to the third quarter of 2021.

Additionally, when excluding the negative impact on our existing backlog related to foreign exchange rates, we saw our backlog grow sequentially during the third quarter of 2022 as compared to the second quarter of 2022.

Bookings for the third quarter 2022 were $227 million, an increase of 31% as compared to the same period a year ago, demonstrating our continued success in converting our recently expanded $7.8 billion of identified global project opportunities.

Our current visibility for new booking opportunities reflect an increase over the last quarter's $7.5 billion of identified pipeline opportunities, and this is expected to drive growth through 2023. We look forward to announcing additional contract awards wins as these prospects materialize.

We anticipate an additional new build waste-to-energy announcement yet this year. That, plus our current backlog and waste-to-energy has significantly increased towards our goal of revenues being two thirds renewable and environmental and one third thermal in the near future.

The $42 million environmental segment contract award I mentioned earlier to provide construction and installation services for the environmental upgrade highlights our strategic focus on providing the necessary equipment to enable clean and efficient processes for our customers' operational success.

We strive to provide existing and new customers with the technology required to enable a sustainable future and are excited to provide our extensive expertise and solutions.

Our recently announced contract award to study the application of B&W SolveBright, solvent based carbon dioxide capture solution for console energies, advanced coal and biomass-based 21st century power plant project is yet another great example of how we are providing our customers with transformative technology solutions.

Through this study, we aim to evaluate how our SolveBright technology would be used to treat the flue gas stream from a power plant to capture CO2 and generate clean energy with near zero emissions.

We remain intently focused on advancing the study to show how our advanced carbon capture technologies can be used on this groundbreaking clean energy project and similar projects in the future. I'll now turn the call over to Lou Salamone, who will discuss some of the financial details for the third quarter.

Lou?.

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 of the above mentioned tariff on solar panels which also caused reduced performance of that reporting unit.

These negatively impacted the performance because of supply constraints. Our adjusted EBITDA in Q2 was $13.1 million as compared to $18.9 million in the third quarter of 2021. This variance is related primarily to the previously mentioned gain on the sale of the asset and onetime recovery, both of which occurred in the 2021 quarter.

The previously mentioned tariff on solar panels, which ended June 30, 2022, as well as a continuing negative impact of the global supply chain challenges, lingering COVID issues primarily in international markets and geopolitical issues previously mentioned. Let me now move on to bookings.

Bookings in the third quarter of 2022 were $227 million which is a 31% increase compared to third quarter bookings in 2021. Our ending backlog was $730 million, which is a 35% increase compared to the backlog at the end of the third quarter 2021.

Our net loss per share in the quarter was $0.24 as compared to earnings of $0.12 in the third quarter of 2021, and that variance is a result of the items that I've mentioned above. Let me now turn to our third quarter segment results within the Babcock & Wilcox renewable segment.

The revenues of this segment were $81.7 million for the third quarter of 2022, which is an increase of 115% compared to the $38 million in the third quarter of 2021.

The increase in revenue is primarily due to higher volumes and new build projects, as well as revenues from acquisitions, which closed on September 30 and November 30, 2021, respectively. Adjusted EBITDA in the quarter was $4.5 million as compared to $11.4 million in the third quarter of 2021.

This reduction of adjusted EBITDA was primarily due to some large project improvements achieved in the prior period and due primarily to several non-recurring and non-operational items, such as the noncash impairment of our solar business, gain on the sale of the prior year and higher interest cost in the current year, as well as a number of smaller items.

The various challenges of the renewal business resulted in certain projects being delayed in the future quarters. The higher revenue levels increased shared overhead and SG&A allocations to the segments, which are made based on revenue.

The negative impacts were partially offset by the reduction of the - of an earn-out related to the solar acquisition.

These delays resulted not only in revenue - not only in revenue higher than the previous year being less than anticipated, but negatively affected gross margins and adjusted EBITDA as a result of our higher overhead costs, which were partially offset, where possible, by recoveries from customers.

Within the Babcock & Wilcox environmental segment, revenues were $44.6 million in the third quarter of 2022, which is an increase of 17% compared to the $38.2 million in the third quarter of 2021. The increase is primarily driven by higher overall volume in our system product lines, which was offset by lower service volume in the current quarter.

Adjusted EBITDA of this segment was $3.1 million for the quarter as compared to $3.5 million in the same period last year, primarily driven by a completion of some higher-margin projects in the - in the prior period, along with higher levels of share overhead and SG&A allocated to the segment and were partially offset by the higher revenue volume described above.

Revenue and adjusted EBITDA were lower than anticipated in the segment due to the negative impact of global supply chain challenges and geopolitical issues, and these various challenges result in certain projects being delayed into the future quarters and higher costs, all of which could not be recovered from our customers.

Turning to our Babcock & Wilcox Thermal segment. Revenues were $91.3 million in the third quarter of 2022, which is an increase of 9% compared to the $83.8 million in the third quarter of 2021. This was primarily due to two acquisitions, as I mentioned above.

Adjusted EBITDA in the third quarter of 2022 was $10.8 million, which is an increase of 15% compared to the $9.3 million in the third quarter of 2021 and again, the increase here is again attributable primarily to the two acquisitions that were closed, as I mentioned before, and improved profit margins.

Revenue and adjusted EBITDA were lower than anticipated in this segment, again, due to the negative impact of supply chain challenges and geopolitical issues.

These various challenges resulted in certain projects being delayed in the future quarters and the delay of the segment to deliver parts and services to certain of the international markets as we anticipated those deliveries would occur. Now let me turn to the balance sheet, cash flow and liquidity.

Our total debt at September 30, 2022, was $336.3 million, and the company had cash and cash equivalents and restricted cash balance of $69.5 million.

Additionally, today, we've entered into agreements with our lenders who agreed to waive a Q3 covenant, granted permission to pay the dividend on preferred stock in Q4, conditioned upon approval by our Board and modified and/or added certain covenants to future periods for the term of the loan. I'll now turn this back to Kenny..

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 seeing all these little positive trends start to come forward on that, and that would be - we anticipate - because we're seeing it now the ability to deliver on those parts and services going into next year, as we - we're getting better at spacing out the timing of when we have to put pressure on our customers to book the parts and then obviously, when they're - they will be delivered and then we can recognize that revenue and cash.

So we're catching up with the cycle. We don't think the cycle changes in its time period. It's just now we've kind of gone through that a little bit of backing where we've caught up with that and how we see that flowing into next year. The same holds on the project side.

Again, when we look at the project side of the business, in particular, the new builds, and a lot of that is in waste-to-energy.

But when you look at the timing element of that, we tried to look at that from a conservative aspect and look at how we're managing those projects conservatively to make sure that we're able to, in some cases, absorb some increased costs where applicable.

In other cases, we're able to get supply chain out to different other areas and regions of the world. And so we're seeing some of that catch up. But we also know that there's going to be additional delays by our customers here and there. And so we're trying to map that into our overall management of the company.

And obviously, then relook and adjust overhead and some other aspects around our overall businesses. But that's - I mean those pieces that are catching up and then having a little bit better flow on the project aspect as we go into next year, but even on a conservative level, gives us the confidence in those new targets that we put out..

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 aspects into next year around some of the supply chain aspects that we've had this year, and that's where we are.

But in the waste synergy and the biomass energy side, we see that progressing, and we'll have more opportunities as we going into the bookings next year. And then we - the larger projects at the biomass in Louisiana, we anticipate that still being moved forward and to get that booked next year as well.

Part of what also gives us a lot of optimism, which we didn't talk too much about in the call, is on the IRA Act. And we're seeing, obviously, that some of our clients and customers here in the U.S. That's very much a positive element as it relates to expanding their footprint and that we're starting to see that.

We're also seeing developers in the international community that want to move more into the United States to leverage some of the 45Q or 45D or some of the other credits that are out there under the IRA Act to take advantage of those.

And I think all of those will give us great confidence that we'll continue to build on some of those opportunities here in North America in 2023 and beyond..

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 hydrogen from biomass or biofuels.

We are actually in process right now of testing a number of different fuel sources within our labs, and we see a pathway across multiple industries that are pushing more towards the hydrogen economy.

And again, we're one of the few companies after the table to actually utilize biomass in hydrogen production to leverage the full value of either the 45Q or the 45B on the tax credit standpoint under the IRA.

And that's starting to create appeal and interest across a number of different customers, and we're in discussions on testing of various aspects, working with clients on pre-engineering sides on the hydrogen standpoint and working through a number of those opportunities.

And some of those we anticipate we would announce sometime next year, obviously, and move forward. But the interest level around that technology has been, at least in our opinion, very solid and strong going forward. And we do see that as real breakthrough technology. And so far, the feedback we're getting equates to that.

So the facility in Louisiana would actually leverage the offtake of the hydrogen because it would qualify again under the 45Q or the 45B credit in Louisiana and provide the customer with a greener keel or however you want to describe it, hydrogen output that can be used, again, to support the low carbon fuel standards and further their business case.

And we have, again, a number of different other opportunities that would be similar to that. So we're excited about that. We see that as an opportunity.

We're seeing it in oil and gas as well with certain customers that we're in discussions with around the capabilities to leverage pet coke, which is a waste product in the oil and gas industry, and we can leverage and use pet coke to create, again, hydrogen from that pet coke and produce hydrogen output and also isolate capture the CO2.

And that's very much a positive. And so if we even circle back, maybe give you some idea how strong this is, the emissions and the permits to put these plants together, usually we're able to fall under a minor source application.

And it's simply because the output of this through the stack is just air, little bit of nitrogen, but it's air, not a lot of oxygen, but it's just air so there's no CO2 or other by-products that are going out of the stack. So it's a very strong application as it relates to the permits.

It's - obviously, we're very pure on the CO2 stream for sequestration or other purposes around it, and we're very pure on the hydrogen production from that. And so we're excited about moving that forward and we see a lot of demand coming out of that product once we get closer to commercialization..

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..