BABCOCK & WILCOX ENTERPRISES, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)


The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and notes thereto included in the financial statements in item 1 of this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements due to many factors, including those more fully described under “Risk Factors” in our Annual Report on Form 10-K for the current year December 31, 2021. See also “Cautionary Statement Regarding Forward-Looking Information” herein.

Third quarter 2022 update

Management continues to adjust for macroeconomic conditions, including rising inflation, higher interest rates, exchange rate fluctuations and the impact of the ongoing conflict in Ukraine and the COVID-19 pandemic, all of which impacted the Company in the first nine months of 2022. The COVID-19 pandemic continues to pose challenges for us in countries that have significant strategies in place to contain the outbreak, namely our countries
Asia Pacific Region, which resulted in temporary project deferrals and continues to impact results in this region. Additionally, the company has experienced negative impacts on its global supply chains as a result of COVID-19, the war Ukraine, Russia-related supply chain bottlenecks and other factors, including disruptions in the manufacture, supply, distribution, transportation and delivery of its products. The company has also observed significant delays and disruptions from its service providers and negative impacts on the pricing of certain of its products. These delays and disruptions have had, and may continue to have, an adverse impact on the Company’s ability to meet customer requirements. We continue to actively monitor the impact of these market conditions on current and future timeframes and actively manage costs and our cash position to provide additional flexibility while supporting our clients and their specific needs. The duration and extent of these conditions cannot be predicted and therefore the anticipated adverse financial impact on the Company’s results of operations cannot be reasonably estimated.


B&W is a growing, global renewable, environmental and thermal technology provider with over 150 years of experience providing diversified energy and emissions control solutions to a broad spectrum of industrial, utility, municipal and other customers. B&W’s innovative products and services are divided into three market-oriented segments. Our reportable segments are as follows:

•Babcock & Wilcox Renewable: Cost-effective technologies for efficient and environmentally responsible power and heat generation, including waste-to-energy, solar construction and installation, biomass energy and black liquor


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Systems for the pulp and paper industry. B&W’s leading technologies support a circular economy by diverting waste from landfills to generate electricity and replace fossil fuels while recovering metals and reducing emissions. •Babcock & Wilcox Environmental: A full line of premium emission control and environmental technology solutions for utility, waste incinerator, biomass, carbon black and industrial steam generation applications worldwide. B&W’s breadth of experience includes systems for refrigeration, ash handling, particulate control, nitrogen oxide and sulfur dioxide removal, carbon control chemical cycle and mercury control. •Babcock & Wilcox Thermal: Steam generating equipment, aftermarket parts, engineering, maintenance and field service for power generation, oil & gas and industrial assets. B&W has an extensive global base of installed equipment for utility and general industrial applications including refining, petrochemical, food processing, metals and others.

On February 1, 2022in which we have acquired 100% ownership Fossil Power Systems, Inc.
for about $59.2 million. Fossil Power Systems, a leading designer and manufacturer of hydrogen, natural gas and renewable pulp and paper combustors, including ignition devices, plant controls and safety systems, based in Dartmouth, Nova ScotiaCanada. Fossil Power Systems, Inc. is reported as part of our B&W Thermal segment.

On February 28, 2022in which we have acquired 100% ownership Optimus Industries, LLC for about $19.2 million. Optimus Industries, LLC designs and manufactures waste heat recovery products for use in the power generation, petrochemical and process industries, including compact boilers, water tube and fire tube waste heat boilers, economizers, superheaters, waste heat recovery units and sulfuric acid plant units and is based in Tulsa, Oklahoma and Chanut, Kansas.
Optimus Industries, LLC is reported as part of our B&W Thermal segment.

Our business is heavily dependent on the capital, operating and maintenance expenses of global power generation companies, including renewable and thermal heat generation industries and industrial plants with environmental compliance requirements. Several factors can affect these expenses, including:

•climate change initiatives promoting environmental policies which include
renewable energy options utilizing waste-to-energy or biomass to meet
legislative requirements and clean energy portfolio standards in the United
States, European, Middle East and Asian markets;
•requirements for environmental improvements in various global markets;
•expectation of future governmental requirements to further limit or reduce
greenhouse gas and other emissions in the United States, Europe and other
international climate change sensitive countries;
•prices for electricity, along with the cost of production and distribution
including the cost of fuels within the United States, Europe, Middle East and
Asian based countries;
•demand for electricity and other end products of steam-generating facilities;
•level of capacity utilization at operating power plants and other industrial
uses of steam production;
•requirements for maintenance and upkeep at operating power plants to combat the
accumulated effects of usage;
•prices of and access to materials, particularly as a result of rising inflation
and the impact of the Russian invasion of Ukraine;
•overall strength of the industrial industry; and
•ability of electric power generating companies and other steam users to raise

Customer demand is strongly influenced by fluctuations in our customers’ business cycles and by the macroeconomic and energy, environmental and noise requirements of the countries in which they operate.

We have production facilities in Mexico, The United States, Denmarkthe
United Kingdom and China. Many aspects of our operations and properties could be affected by political developments, including the ongoing Russian-Ukrainian conflict, environmental regulations and operational risks. These and other factors can have a significant impact on our international and domestic operations, or our business as a whole.

Through our restructuring efforts, we continue to make significant progress to make our cost structure more variable and reduce costs. We expect our cost savings efforts to continue to translate into results, with revenue growth being driven by opportunities for our core technologies and support services in the B&W Renewable, B&W Environmental and B&W Thermal segments worldwide.


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We expect to continue evaluating other cost savings initiatives to improve cash generation and evaluate additional sales of non-core assets to further strengthen our liquidity. There are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. If one or more events related to these or other risks or uncertainties occur, or if our underlying assumptions prove incorrect, actual results may differ materially from our expectations.

In addition, we continue to evaluate additional injunctions, opportunities for additional cost savings, and opportunities for subcontractor recoveries and other claims, as appropriate and available. If the value of our business decreases, or if we determine that in connection with a proposed disposal we are unable to recognize an amount in excess of the carrying amount of an asset disposed of, we may need to recognize an impairment loss on an asset or more of our assets that could adversely affect ours business, our financial condition and our results of operations.


Components of our earnings situation


Our revenue is the total revenue generated from our business and consists primarily of revenue from our renewable, environmental and thermal technology solutions that we offer to a wide range of industrial utilities and other customers. Revenue from our operations is evaluated based on our three market-oriented segments, Babcock & Wilcox Renewable, Babcock & Wilcox Environmental and Babcock & Wilcox Thermal.

Operating Profit (Loss)

Operating income (loss) consists primarily of our income less costs and expenses, including operating, selling, administrative, consulting and handling fees.

net income (loss)

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

Summarized consolidated results of operations

The following discussion of our business segments’ 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 the most directly comparable measure calculated under Generally Accepted Accounting Principles (“GAAP”). A reconciliation of net income (loss), the most directly comparable GAAP measure, to Adjusted EBITDA is included under “Non-GAAP Financial Measures” below. Management believes this financial metric is useful to investors as it excludes certain expenses, allowing investors to more easily compare our financial performance from period to period.

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