Babcock Wilcox Enterprises Inc

Components of Our Results of Continuing Operations

Revenue

Our revenue is the total amount of income generated by our business and consists primarily of income from our renewable, environmental and thermal technology solutions that we provide to a broad range of industrial electric utility and other customers. Revenue from our operations is assessed based on our three market-facing segments, B&W Renewable, B&W Environmental and B&W Thermal.

Operating income (loss)

Operating income (loss) consists primarily of our revenue minus costs and expenses, including Cost of operations, SG&A, and advisory fees and settlement costs.

Net income (loss)

Net income (loss) consists primarily of operating income minus other income and expenses, including interest income, foreign exchange and expense related to our benefit plans.

Condensed Consolidated Results of Operations

The following discussion of our consolidated and business segment results of operations includes a discussion of Adjusted EBITDA, which, when used on a consolidated basis, is a non-GAAP financial measure. Adjusted EBITDA differs from net loss, the most directly comparable measure calculated in accordance with GAAP. Management believes that this financial measure is useful to investors because it excludes certain expenses, allowing investors to more easily compare our operating performance period to period. A reconciliation of net loss to Adjusted EBITDA is included in “Non-GAAP Financial Measures” below.

Revenues decreased by $29.6 million to $209.9 million in the three months ended September 30, 2024 compared to $239.4 million in the three months ended September 30, 2023. The decrease is primarily driven by a $34.2 million decrease in revenue related to the sale of BWRS and fewer waste-to-energy projects performed in the current year, partially offset by growth of our domestic and European Environmental business discussed below, and the Thermal segment benefited from a large natural gas project and increased volume in parts during the year.

Operating income decreased by $7.0 million to a loss of $1.5 million in the three months ended September 30, 2024, compared to $5.5 million in the three months ended September 30, 2023. The decrease is primarily attributable to the sale of BWRS which resulted in a reduction of income from the previous quarter of $7.4 million.

Loss from continuing operations decreased by $1.2 million to $11.1 million in the three months ended September 30, 2024 as compared to loss of $12.3 million in the three months ended September 30, 2023, driven by the sale of BWRS.

Revenues decreased by $121.1 million to $651.1 million in the nine months ended September 30, 2024 compared to $772.2 million in the nine months ended September 30, 2023. The decrease is driven by a $48.1 million decrease in revenue as a large project in our U.S. construction business was completed in 2023 and not fully replaced in 2024 in the B&W Thermal segment, a $46.5 million decrease in the B&W Renewable segment revenue because, consistent with our strategy, we performed fewer waste-to-energy projects in the current year and a $35.3 million decrease due to the sale of BWRS.

Operating income increased by $25.8 million in the comparable nine months ended September 30, 2024 and September 30, 2023 to income of $45.1 million, primarily due to the gain of $40.2 million on the sale of BWRS, offset by a decrease of $9.5 million due to a large project in our U.S. construction business that was completed in 2023 and not fully replaced in 2024 in the B&W Thermal segment and a decrease of $6.5 million related to the settlement of a legal matter.

Income from continuing operations increased by $22.7 million to $1.6 million as compared to a loss of $24.4 million in the nine months ended September 30, 2023, driven by increased Operating income and offset by a loss on debt extinguishment of $6.8 million attributable to terminating the Revolving and Letter of Credit Agreements with PNC and MSD and a $1.3 million decrease in interest expense.

Bookings and Backlog

Bookings and backlog are our measures of remaining performance obligations under sales contracts. In addition, we monitor Implied Bookings and Backlog, which are bookings (backlog) plus amounts related to projects that have been awarded to us but are not fully under contract and/or projects under contract that are not yet fully released for performance. We believe these metrics provide investors, lenders and other users of our financial statements with a leading indicator of future revenues. It is possible that our methodology for determining bookings and backlog may not be comparable to methods used by other companies.

We generally include expected revenue from contracts in our backlog when we receive written confirmation from our customers authorizing the performance of work and committing the customers to payment for work performed. Backlog may not be indicative of future operating results, and contracts in our backlog may be canceled, modified or otherwise altered by customers. Backlog can vary significantly from period to period, particularly when large new build projects or operations and maintenance contracts are booked because they may be fulfilled over multiple years. Because we operate globally, our backlog is also affected by changes in exchange rates of foreign currencies each period.

Bookings represent changes to the backlog. Bookings include additions related to new business or increases in project scope, subtractions due to customer cancellations or reductions in scope, changes in estimates that affect selling price and revaluation of backlog denominated in foreign currency. We believe comparing bookings on a quarterly basis or for periods less than one year is less meaningful than for longer periods, and that shorter-term changes in bookings may not necessarily indicate a material trend.

The following tables include total bookings for the current and prior year quarter-to-date and year-to-date. Bookings, implied bookings, backlog and implied backlog exclude BWRS from all periods presented.

Implied bookings(1) as of September 30, 2024 and 2023 were as follows:

(1)Implied bookings are bookings plus projects that are awarded but not contracted or are under contract but not fully released for performance. B&W Environmental included $16.5 million in implied bookings for the three months ended September 30, 2024 and there was no implied bookings for the three months ended September 30, 2023; included $35.5 million and $8.0 million in implied bookings for the nine months ended September 30, 2024 and 2023, respectively. B&W Thermal included $(35.3) million in implied bookings for the three months ended September 30, 2024 and there was no implied bookings for the three months ended September 30, 2023; included $231.1 million in implied bookings for the nine months ended September 30, 2024 and there was no implied backlog for the nine months ended September 30, 2023.

The following tables include total backlog at the end of the quarter, compared to the same period in the prior year.

(1)B&W Renewable backlog has been adjusted downward $0.9 million and $119.9 million at September 30, 2024 and 2023, respectively, to remove O&M contracts that are recognized as disposed (see Note 6 to the Condensed Consolidated Financial Statements).

Implied backlog(1) as of September 30, 2024 and 2023 was as follows:

(1)Implied backlog is backlog plus projects that are awarded but not contracted or are under contract but not fully released for performance. B&W Environmental included $35.5 million and $8.0 million in implied backlog for the nine months ended September 30, 2024 and 2023, respectively. B&W Thermal included $231.1 million in implied backlog for the nine months ended September 30, 2024 and there was no implied backlog for the nine months ended September 30, 2023.

(2)B&W Renewable backlog has been adjusted downward $0.9 million and $119.9 million at September 30, 2024 and 2023, respectively, to remove O&M contracts that are recognized as disposed.

Of the backlog at September 30, 2024, we expect to recognize revenues as follows:

During the three and nine-month periods ended September 30, 2024 and 2023, we recognized changes in estimated gross profit related to long-term contracts accounted for on the over time basis, which are summarized as follows:

Non-GAAP Financial Measures

We use non-GAAP financial measures internally to evaluate our performance and in making financial and operational decisions. When viewed in conjunction with GAAP results and the accompanying reconciliation, we believe that the presentation of these measures provides investors with greater transparency and a greater understanding of factors affecting our financial position and results of operations than GAAP measures alone. The presentation of non-GAAP financial measures should not be considered in isolation or as a substitute for the related financial results prepared in accordance with GAAP.

The following discussion of our business segment results of operations includes a discussion of Adjusted EBITDA on a consolidated basis, which is a non-GAAP metric and differs from the most directly comparable GAAP measure. Adjusted EBITDA on a consolidated basis is defined as the sum of the Adjusted EBITDA for each of the segments, further adjusted for corporate allocations and research and development costs. At a segment level, the Adjusted EBITDA presented in this report is consistent with the way the our chief operating decision maker reviews the results of operations and makes strategic decisions about the business and is calculated as earnings before interest, tax, depreciation and amortization adjusted for items such as gains or losses arising from the sale of non-income producing assets, net pension benefits, restructuring activities, impairments, gains and losses on debt extinguishment, legal and settlement costs, costs related to financial consulting, research and development costs, costs and operating income from contracts in disposal, and other costs that may not be directly controllable by segment management and are not allocated to the segment. We present consolidated Adjusted EBITDA because we believe it is useful to investors to help facilitate comparisons of the ongoing, operating performance before corporate overhead and other expenses not attributable to the operating performance of our revenue generating segments.

(1)Costs associated with development of commercially viable products that are ready to go to market.

(2) Impacts of the exit of our O&M contracts has been adjusted in the prior period to ensure uniform presentation with the current period.

Items Excluded from Adjusted EBITDA

Corporate

Corporate costs include SG&A expenses that are not allocated to the reportable segments. These costs include, among others, certain executive, compliance, strategic, reporting and legal expenses associated with governance of the organization and being an SEC registrant. Corporate expenses not allocated to the reportable segments totaled $5.7 million and $5.6 million in the three months ended September 30, 2024 and 2023, respectively. Corporate expenses not allocated to the reportable segments totaled $15.6 million and $16.2 million in the nine months ended September 30, 2024 and 2023, respectively. The decrease in the nine months ended September 30, 2024 is due to cost savings initiatives implemented late in 2023.

Research and development

Our research and development activities are focused on improving our products through innovations to reduce their cost and improve competitiveness and/or reduce performance risk of our products to better meet our and our customers’ expectations. Research and development expenses totaled $0.2 million and $0.9 million in the three months ended September 30, 2024 and 2023, respectively. Research and development expenses totaled $0.5 million and $3.1 million in the nine months ended September 30, 2024 and 2023, respectively. In 2024, the focus of our development activities shifted to our BrightLoop TM and ClimateBright TM portfolio, which is captured in the Product development category.

Gain on sale of business

Gain on sale of business of $40.2 million in the nine months ended September 30, 2024 is a result of the sale of BWRS. This is excluded from Adjusted EBITDA as it does not reflect the performance of the continuing businesses. We did not have any gains or losses for the nine months ended September 30, 2023.

Impairment of long-lived assets

We had an impairment on certain intangible assets of $5.8 million in the three and nine months ended September 30, 2024, respectively, relating to the sale of SPIG and GMAB. In the three and nine months ended September 30, 2023 there was no impairment on long-lived assets.

Benefit plans, net

We recognize benefits from our defined benefit and other postretirement benefit plans based on actuarial calculations primarily because expected return on assets is greater than service cost. Service cost is low because our plan benefits are frozen except for a small number of hourly participants. Pension benefits for defined benefit and other postretirement benefits plans before MTM were a benefit of $0.1 million for the three months ended September 30, 2024 and expense of$0.1 million for thethree months ended September 30, 2023, respectively. Pension benefits for defined benefit and other postretirement benefits plans before MTM were a benefit of $0.3 million for the nine months ended September 30, 2024 and expense of $0.3 million for the nine months ended September 30, 2023.

Refer to Note 13 to the Condensed Consolidated Financial Statements for further information regarding our pension and other postretirement plans.

(Gain) loss on asset sales, net

We, at times, will sell or dispose of certain assets that are unrelated to our operations. Therefore, we believe it is useful to exclude these gains and losses from our non-GAAP financial measures in order to highlight the performance of the business. We had a loss of $0.4 million in the three and nine months ended September 30, 2024, respectively, relating to the sale of a non-core facility and an immaterial gain on asset sales in the three and nine months ended September 30, 2023.

Stock compensation

The grant date fair value of stock compensation varies based on the derived stock price at the time of grant, valuation methodologies, subjective assumptions, and reward types. This may make the impact of this form of compensation on our current financial results difficult to compare to previous and future periods. Therefore, we believe it is useful to exclude stock-based compensation from our non-GAAP financial measures in order to highlight the performance of the business and to be consistent with the way many investors evaluate our performance and compare our operating results to peer companies.

Expenses related to restricted stock units are recorded at the Corporate level and are recognized on a straight-line basis over a 3-year vesting period, except for market-based restricted stock units which are recognized over a derived service period.

Stock compensation was $0.9 million and $0.4 million for the three months ended September 30, 2024 and 2023, respectively. Stock compensation was $3.6 million and $5.9 million for the nine months ended September 30, 2024 and 2023, respectively.

Restructuring activities and business service transition costs

Restructuring activities and business services transition actions across our business units and corporate functions resulted in an expense of $0.5 million and $1.3 million in the three months ended September 30, 2024 and 2023, respectively. Restructuring activities and business services transition actions across our business units and corporate functions resulted in an expense of $2.8 million and $3.3 million in the nine months ended September 30, 2024 and 2023, respectively. The restructuring charges primarily consist of severance and related costs associated with non-recurring actions taken to transform our operations with impacts on employees and facilities used in our businesses. Business services transition costs relate to new technology implementation, expected to provide future benefit and are included in Selling, general and administrative expenses in the Condensed Consolidated Statement of Operations. The expense in 2024 is entirely related to restructuring activities.

Settlements and related legal costs

Settlements and related legal costs were $0.1 million in the three months ended September 30, 2024; there were no Settlements and related legal costs in the three months ended September 30, 2023. Settlements and related legal costs were an expense of $3.2 million and a net benefit of $2.5 million in the nine months ended September 30, 2024 and 2023, respectively. The current year expense is driven by the $6.5 million settlement of a legal matter and expenses related to other litigation matters, offset by the favorable final settlement of amounts owed to the former owner of B&W Solar. The benefit in the prior year was driven by a favorable $2.5 million litigation settlement.

Loss on debt extinguishment

Losses on debt extinguishment were $0.7 million in the three months ended September 30, 2024 and $6.8 million in the nine months ended September 30, 2024. The losses were due to the write-off of deferred financing fees and certain other exit costs associated with our extinguishment of the Debt Facilities. We had no losses on debt extinguishments in the three or nine months ended September 30, 2023.

Product development

Our product development activities include sales, marketing, and other business development expenses for products and services still under development and not yet widely available. Product development expenses totaled $2.1 million and $0.9 million in the three months ended September 30, 2024 and 2023, respectively. Expenses were $5.1 million in the nine months ended September 30, 2024 as compared to $3.3 million in the comparable period of 2023. The increase resulted primarily from timing of specific research projects and increased development activities related to our BrightLoop TM commercialization efforts and to further develop our ClimateBright TM portfolio. Management excludes these expenses from Adjusted EBITDA as they do not correlate to revenue or other operations occurring in the current period.

Foreign exchange

We translate assets and liabilities of our foreign operations into United States dollars at current exchange rates, and we translate items in our statement of operations at average exchange rates for the periods presented. We record adjustments resulting from the translation of foreign currency financial statements as a component of accumulated other comprehensive income (loss). We report foreign currency transaction gains and losses in the Condensed Consolidated Statements of Operations. Management excludes these expenses from Adjusted EBITDA as they do not reflect the ordinary course of business and are inherently unpredictable in timing and amount.

Foreign exchange was a gain of $2.3 million and a loss of $4.9 million for the three months ended September 30, 2024 and September 30, 2023, respectively. Foreign exchange was a gain of $1.4 million and a loss of $4.2 million for the nine months ended September 30, 2024 and 2023, respectively.

Financial advisory services

We had financial advisory services of $1.1 million and $1.3 million for the three and nine months ended September 30, 2024, principally related to the sale of our SPIG and GMAB businesses. There were no expenses for financial advisory services in 2023.

Contract disposal

During the third quarter of 2024, we entered into an agreement to terminate our final existing O&M service contract. The termination date was October 31, 2024, and resulted in the payment of a break fee by B&W and various other payments between the parties in settlement of certain claims under the O&M. For the three months ended September 30, 2024 and 2023, we had a net loss on contract disposals totaling $6.1 million and $4.3 million, respectively. We had a net loss of $10.1 million in the nine months ended September 30, 2024, and $8.4 million in nine months ended September 30, 2023. We believe it is useful to exclude the impact of this contract on our operating results as well as our backlog in order to highlight the performance of the ongoing business.

Letter of credit fees

Letter of credit fees are routinely incurred in the course of executing customer contracts. A portion of the fees are included in the contract prices with our customers. Certain letter of credit amounts represent performance guarantees akin to insurance that are not passed along to our customers and are excluded from Adjusted EBITDA as they do not reflect the performance of the business. Letter of credit fees not passed along to customers and included in Cost of operations were $1.3 million and $2.0 million for the three months ended September 30, 2024 and 2023, respectively. Letter of credit fees were $5.9 millionand$5.6 million for thenine months ended September 30, 2024 and 2023, respectively.

Segment Results

B&W Renewable Segment Results

Revenues in the B&W Renewable segment decreased 56%, or $48.9 million, to $38.2 million in the three months ended September 30, 2024 from $87.1 million in the three months ended September 30, 2023. This is primarily attributable to the sale of BWRS, which accounted for $34.2 million of the decrease and consistent with our stated strategy, fewer waste-to-energy projects were performed in the current year, which accounted for $4.8 million of the revenue decrease between years.

Adjusted EBITDA in the B&W Renewable segment decreased $5.2 million, to $5.0 million in the three months ended September 30, 2024 from $10.1 million in the three months ended September 30, 2023 driven by $7.4 million related to the sale of BWRS partially offset by favorable project closeouts in the current quarter.

Revenues in the B&W Renewable segment decreased 41%, or $105.0 million, from $256.4 million to $151.4 million in the nine months ended September 30, 2024 compared to the same period in 2023. This is primarily attributable to performing fewer waste-to-energy projects, which accounted for $46.5 million of the revenue decrease as well as the sale of BWRS which accounted for $30.5 million.

Adjusted EBITDA in the B&W Renewable segment decreased $4.8 million, to $14.3 million in the nine months ended September 30, 2024 compared to $19.2 million in the nine months ended September 30, 2023. This is primarily attributable to the sale of BWRS.

B&W Environmental Segment Results

Revenues in the B&W Environmental segment increased 22%, or $10.2 million, to $56.6 million in the three months ended September 30, 2024 from $46.4 million in the three months ended September 30, 2023. Approximately $7.7 million of the increase is attributable to growth in our domestic environmental and electrostatic precipitator business and $1.0 million of the increase is due to growth in our European environmental business.

Adjusted EBITDA in the B&W Environmental segment was $4.7 million in the three months ended September 30, 2024 compared to $5.0 million in the three months ended September 30, 2023. This is substantially in line with the previous year.

Revenues in the B&W Environmental segment increased 20%, or $26.6 million, to $161.2 million in the nine months ended September 30, 2024 from $134.6 million in the nine months ended September 30, 2023. Approximately $20.5 million of the increase is attributable to growth in our domestic environmental, ASH projects and electrostatic precipitator business and $2.2 million of the increase is due to growth in our European environmental business.

Adjusted EBITDA in the B&W Environmental segment was $14.8 million in the nine months ended September 30, 2024 compared to $10.3 million in the nine months ended September 30, 2023. The increase is primarily driven by the increased revenue described above as well as reductions in selling, general and administrative expenses.

B&W Thermal Segment Results

Revenues in the B&W Thermal segment increased 12%, or $12.9 million to $119.9 million in the three months ended September 30, 2024 from $107.0 million in the three months ended September 30, 2023. The increase is primarily the result of a large natural gas project which accounted for $4.2 million and an increase volume in parts which accounted for $4.8 million.

Adjusted EBITDA in the B&W Thermal segment increased $7.1 million to $18.4 million in the three months ended September 30, 2024 from $11.3 million in the three months ended September 30, 2023. The revenue drivers above resulted in an increase in Adjusted EBITDA of $4.2 million and favorable project closeouts in our construction business resulted in an increase of $2.1 million.

Revenues in the B&W Thermal segment decreased 9%, or $33.9 million, from $384.2 million to $350.3 million in the nine months ended September 30, 2024 compared to the prior year, primarily driven by a $48.1 million decrease in the U.S. construction business as a result of a large construction project finishing in 2023 that was not fully replaced in 2024 offset partially by a large natural gas project of $9.6 million starting execution in 2024.

Adjusted EBITDA in the B&W Thermal segment decreased $4.4 million from $49.4 million to $45.1 million in the nine months ended September 30, 2024 compared to the prior year. The lower revenue in the U.S. construction business accounted for $9.6 million of the decrease partially offset by the large natural gas project of $3.0 million.

Other Factors Affecting Operating Results

Interest Expense

Interest expense for the three and nine months ended September 30, 2024 is lower due to the new debt agreements with Axos beginning in January 2024.

Income Taxes

Our income tax expense in the first nine months of 2024 reflects a full valuation allowance against our net deferred tax assets, except in Mexico, Canada, the United Kingdom, Brazil, Finland, Germany, Thailand, the Philippines, Indonesia, and Sweden. Deferred tax assets are evaluated each period to determine whether realization is more likely than not. Valuation allowances are established when management determines it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. Valuation allowances may be removed in the future if sufficient positive evidence exists to outweigh the negative evidence under the framework of ASC 740, Income Taxes("ASC 740").

Our effective tax rate for the first nine months of 2024 is not reflective of the United States statutory rate primarily due to a valuation allowance against certain net deferred tax assets and unfavorable discrete items. In certain jurisdictions where we anticipate a loss for the fiscal year or incur a loss for the year-to-date period for which a tax benefit cannot be realized in accordance with ASC 740, we exclude the loss in that jurisdiction from the overall computation of the estimated annual effective tax rate.

Depreciation and Amortization

Depreciation expense was $2.2 million and $2.2 million in the three months ended September 30, 2024 and 2023, respectively. Depreciation expense was $6.5 million and $7.8 million in the nine months ended September 30, 2024 and 2023, respectively.

Amortization expense was $2.0 million and $2.4 million in the three months ended September 30, 2024 and 2023, respectively. Amortization expense was $6.7 million and $7.2 million in the nine months ended September 30, 2024 and 2023, respectively.