Aaron Spychalla

Aaron Spychalla asked about the visibility into NPK International's 2026 guidance, specifically the low to mid-teens growth in rental and service, and how it aligns with the 30% growth in the commercial pipeline. He also inquired about the contribution of the Grassform acquisition to this guidance and the drivers behind the implied step-up in EBITDA margins for 2026, including the impact of cross-rent costs and new capacity.

Answer

President and CEO Matthew Lanigan explained that the pipeline growth reflects a mix of share of wallet expansion with existing customers and new territories, with expected lower conversion rates in new areas. CFO Gregg Piontek added that Grassform's high-teens TTM revenue is integrated into the double-digit growth expectation. For EBITDA, Mr. Piontek noted that cross-rent levels are expected to remain healthy, and margin improvement will be driven by incremental top-line R&S margin and a reduction in SG&A due to the reset of performance-based incentives.

Aaron Spychalla inquired about the visibility into NPK International's 2026 guidance for low to mid-teens rental and service growth, contrasting it with the 30% pipeline growth, and asked about the contribution from the Grassform acquisition.

Answer

President and CEO Matthew Lanigan explained that the pipeline growth includes a higher proportion of new territory expansion, which naturally has lower conversion rates, and noted similar growth rates are anticipated for the UK market. Senior Vice President and CFO Gregg Piontek added that Grassform's high-teens TTM revenue is integrated into the baseline for double-digit growth and emphasized diversifying the customer base.

Asked about the impact of longer contract durations on the business and margins, and questioned if the full-year guidance implies second-half softness, seeking clarity on the puts and takes.

Answer

Longer contract durations are a positive trend driven by large transmission projects, which increases asset utilization and helps margins despite slightly lower service revenues. The second-half guidance accounts for typical Q3 seasonality and more conservative expectations for product sales, which were exceptionally strong in the first half.

Aaron Spychalla of Craig-Hallum asked about the trend of longer contract durations, their impact on business visibility and margins, and whether this dynamic is expected to continue. He also inquired about the implied softness in the second-half guidance and the potential for conservatism.

Answer

President and CEO Matthew Lanigan confirmed that NPKI is seeing more long-duration projects, particularly in transmission, which boosts asset utilization and positively impacts margins. SVP & CFO Gregg Piontek clarified that the second-half guidance accounts for typical Q3 seasonality and the less predictable nature of product sales compared to the strong first half, while still reflecting healthy year-over-year growth.

Aaron Spychalla inquired about the trend of longer contract durations, its impact on business visibility and margins, and whether this trend is expected to continue. He also asked for clarification on the implied softness in the second-half guidance and the key factors influencing the high and low ends of the range.

Answer

President and CEO Matthew Lanigan confirmed that longer-duration projects, driven by large transmission work, are increasing, which boosts asset utilization and positively impacts margins. SVP & CFO Gregg Piontek explained the second-half guidance reflects typical Q3 seasonality and more conservative expectations for product sales compared to the strong first half, while still representing healthy year-over-year growth.

Aaron Spychalla inquired about the trend of longer contract durations, its impact on business visibility and margins, and whether this trend is expected to continue. He also asked for clarification on the second-half guidance, which implies some softness, and the key factors influencing the high and low ends of the range.

Answer

President and CEO Matthew Lanigan confirmed that the company is seeing more long-duration projects, particularly in the transmission sector, which increases asset utilization and positively impacts margins. SVP & CFO Gregg Piontek explained that the second-half guidance accounts for typical Q3 seasonality and more conservative expectations for product sales compared to the strong first half, while still representing healthy year-over-year growth.

Aaron Spychalla inquired about CECO Environmental's industrial water business, specifically its current size, the most active and largest pipeline opportunities, and the expected timelines and scale of these projects over the next few years.

Answer

Todd Gleason, CEO of CECO Environmental, and Peter Johansson, CFO, explained that the company has intentionally built an attractive industrial water segment, seeing a large pipeline for 2026 in industrial water treatment and produced water, particularly in international locations like the Middle East, with project sizes ranging from $10 million to $50 million.

Aaron Spychalla of Craig-Hallum Capital Group inquired about CECO Environmental's industrial water business, specifically its current size, project timelines, and the scale of opportunities anticipated over the next couple of years, noting it as the most active and largest pipeline. He also asked about potential commercial synergies from the Thermon acquisition, seeking details on 'low-hanging fruit' opportunities, customer overlap, and leveraging a broader product set.

Answer

CEO Todd Gleason explained that CECO has intentionally built its industrial water segment organically and inorganically, seeing a large pipeline for 2026 with $10 million-$50 million opportunities in industrial water treatment and produced water, particularly in international locations like the Middle East. He highlighted the role of acquisitions, engineering capabilities, and customer relationships in this growth. Regarding Thermon, Mr. Gleason noted significant customer overlap, allowing for combined bids on advanced thermal applications and leveraging new product offerings across geographies and markets. He specifically highlighted Thermon's GenesisTM Network platform as a 'low-hanging fruit' for advanced controls and monitoring across CECO's portfolio.

Aaron Spychalla asked for an update on the power generation pipeline, specifically if data center demand is accelerating order activity, and sought clarification on the confidence behind the targeted 100-150 basis points adjusted EBITDA margin expansion for 2026.

Answer

CEO Todd Gleason and CFO Peter Johansson stated that while the power generation space is robust, they don't see an acceleration but rather a sustainable pace, with a pipeline over $1 billion and CECO's solutions coming later in the multi-year build cycle. For margin expansion, Todd Gleason outlined three drivers: volume visibility from backlog (leading to higher EBITDA margins despite potentially lower gross margins on large jobs), G&A/S&E leverage from increased scale, and operating excellence initiatives like 80/20 for cost management and efficiency.

Aaron Spychalla asked for an update on the power generation pipeline, specifically if data center demand is accelerating activity, and sought clarification on the confidence behind the targeted 100-150 basis points adjusted EBITDA margin expansion for 2026.

Answer

Todd Gleason (CEO) and Peter Johansson (CFO) described the power generation space as robust, with a pipeline well over $1 billion, noting it's a multi-year cycle extending to 2030-2032, and CECO's solutions are later in the project cycle. Todd Gleason (CEO) attributed EBITDA margin confidence to three factors: volume driving steady expansion, G&A/S&E leverage from increased sales, and operating excellence initiatives like 80/20 driving cost management and efficiencies.

Aaron Spychalla of Craig-Hallum Capital Group LLC asked for more detail on the large industrial project opportunities outside of power generation, including their end markets and geographies, and questioned the potential impact of recent legislation on project momentum.

Answer

CFO Peter Johansson detailed a significant number of large opportunities (over $50 million each) in industrial water projects across the Middle East, India, and Southeast Asia. He also noted a resurgence in buying cycles for semiconductors, beverage can manufacturing, and metals processing. Both executives stated that while helpful, recent legislation is not the primary growth driver, with CEO Todd Gleason emphasizing he is more focused on the company's "big beautiful backlog."

Aaron Spychalla asked for a high-level overview of CECO's capital expenditure plans and investment areas for 2025 and beyond, and questioned the potential impact of increased defense spending on the company's business.

Answer

Peter Johansson (executive) identified IT infrastructure, specifically the standardization onto a single Microsoft D365 ERP platform, as the largest investment priority through 2026. He noted that traditional CapEx remains modest. Regarding defense, Johansson explained the benefits are both indirect, from new factory construction, and direct, through technology supplied to the Navy. Todd Gleason (executive) added that the high-specification work for naval applications is similar to their work in the nuclear sector, which saw strength in Q1.

Aaron Spychalla from Craig-Hallum Capital Group asked about the visibility the year-end backlog provides for 2025 guidance and how project timing is factored in. He also requested details on 2025 margin progression and the potential impact of tariffs.

Answer

Todd Gleason, CEO, stated that the record backlog provides significant confidence and visibility for 2025 guidance, a stronger position than entering 2024. Peter Johansson, CFO, added that gross margins have room for moderate expansion, while EBITDA margins should see accelerated improvement from scale and productivity. Regarding tariffs, Gleason noted the direct financial impact is expected to be manageable, with the primary concern being potential market uncertainty, which has not yet materialized.

Aaron Spychalla questioned management's confidence in the timing of delayed project revenue, the reasons for the wider 2025 guidance, and the company's capacity to manage its growing backlog.

Answer

CEO Todd Gleason expressed confidence that delayed projects will be realized, attributing the wider 2025 guidance range to the variable timing of when this backlog converts to revenue (either late Q4 2024 or early 2025). He and CFO Peter Johansson affirmed they have the necessary capacity, explaining they are carefully managing resources and qualifying new fabrication partners to ensure supply chain flexibility.

Aaron Spychalla inquired about the expected progression of Thermon's medium voltage heater opportunity over the next few years, considering the $150 million+ pipeline and $11 million+ backlog, and how growth will look as manufacturing scales. He also asked how Thermon's offerings integrate into the LNG and midstream markets, the current state of that business, and its anticipated ramp-up.

Answer

COO Tom Cerovski described the medium voltage heater market as an early-stage, large, multi-year opportunity with significant competitive barriers. He noted ongoing CapEx and OpEx investments to increase capacity in both hemispheres, anticipating a material impact on FY2027 and beyond. CEO Bruce Thames detailed Thermon's broad product application in LNG liquefaction and export facilities, including medium voltage heaters for natural gas regeneration, heat tracing for freeze protection, immersion heaters, and tubing bundles. He also highlighted growth in midstream gas processing, particularly fractionators in the U.S., driven by increased natural gas production and power demand.

Aaron Spychalla from Craig-Hallum Capital Group inquired about the expected progression and growth trajectory of Thermon's medium voltage heater opportunity over the next few years, considering the pipeline and manufacturing scaling. He also asked about Thermon's product offerings and growth drivers within the LNG and midstream markets.

Answer

COO Thomas Cerovski explained that medium voltage heaters are in a very early stage, with an $11 million backlog and a $150 million quote pipeline, representing a large, multi-year opportunity requiring CapEx and OpEx investments for capacity expansion. CEO Bruce Thames detailed Thermon's broad product applications in LNG liquefaction and midstream gas processing, including medium voltage heaters for natural gas regeneration, heat tracing for freeze protection, immersion heaters, and tubing bundles, driven by increased natural gas production and power demand.

Aaron Spychalla with Craig-Hallum Capital Group inquired about the expected conversion of Daktronics' strong backlog to revenue over the fiscal year, including its margin profile and the impact of book-to-ship ratios. He also sought a breakdown of margin improvements from value-added pricing versus operational efficiencies, especially considering tariff impacts, and details on the new Mexico plant's capacity, segment focus, tariff benefits, and investment. Finally, he asked about future trends and room for improvement in inventory management and working capital.

Answer

Howard Atkins, CFO and Chief Transformation Officer, explained that backlog conversion is influenced by the higher concentration of live events projects, which have longer lead times and spread revenue over time, and the seasonally slower third quarter due to holidays. Brad Wiemann, Interim President and CEO, added that standard orders convert in weeks, while large projects have more variables. Mr. Atkins attributed operating margin improvements to value-based pricing, order growth, and structural cost efficiencies, noting these benefits occurred despite a significant increase in tariff expenses. Regarding the Mexico plant, Mr. Wiemann stated it's a small, leased facility requiring minimal investment, complementary to U.S. operations, and provides optionality for future production capacity without shifting work from U.S. factories. Mr. Atkins concluded that inventory management has largely achieved its target efficiency, with less room for significant further improvement, though revenue growth will positively impact the balance sheet.

Aaron Spychalla inquired about Daktronics' backlog conversion to revenue over the fiscal year, including the margin profile within the backlog, and how the book-to-ship ratio looks when considering both backlog and new orders. He also asked for a breakdown of margin improvements between value-added pricing and operating efficiencies, especially given the tariff impact, and sought details on the Mexico plant's capacity expansion, segment focus, tariff benefits, and required investment. Finally, he asked about the future trend of inventory management and working capital improvements.

Answer

Howard Atkins, CFO and Chief Transformation Officer, and Brad Wiemann, Interim President and CEO, explained that backlog conversion is influenced by a higher concentration of live events orders, which are customized and have longer conversion times, leading to more predictable, recurring revenue spread through the spring. They noted the seasonally slow third quarter due to holidays, but emphasized that new orders also contribute to revenue growth. Howard Atkins highlighted that value-based pricing and structural cost efficiencies were the primary drivers of operating margin improvement, despite an $8.8 million tariff expense this quarter compared to $1.5 million a year ago. Brad Wiemann clarified that the Mexico plant is a small, leased facility requiring minimal investment, complementary to U.S. plants, and provides optionality for future production and tariff management without shifting work from U.S. factories. Howard Atkins added that while inventory management remains a focus, the company has largely achieved its efficiency targets, so significant further improvement is not expected, though revenue growth will positively impact it.

Aaron Spychalla asked about the live events pipeline, expected order growth for the remainder of the fiscal year, revenue cadence, and the potential for the segment to reach its historical high watermark. He also inquired about the sustainability of strong gross margin performance, identifying any one-time items, and the impact of seasonality. Finally, he sought insights into Daktronics' thoughts on M&A, market observations, areas of interest, and current valuations.

Answer

Interim President and CEO Brad Wiemann highlighted the success in winning all three large Major League sports projects and anticipated continued growth in live events, both in-bowl and out-of-bowl, supported by expanded product offerings like NPP. Acting CFO Howard Atkins confirmed a good pipeline. Regarding gross margins, Howard Atkins attributed the strong performance to a beneficial revenue mix, improved alignment of manufacturing expenses with revenue, and normalized warranty expenses. Brad Wiemann added that fixed cost leverage, a higher mix of profitable business, value-based selling, inventory management, and enhanced purchasing power contributed. On M&A, Brad Wiemann stated the company is strategically evaluating opportunities presented, noting the strong cash position allows for serious consideration, though nothing specific was disclosed.

Aaron Spychalla asked about the pipeline for live events order growth, the expected cadence of revenue, and whether the segment could reach its historical high watermark. He also inquired about the sustainability of gross margin trends, potential one-time items, and the company's thoughts on M&A opportunities, market conditions, and valuations given the strong balance sheet.

Answer

Brad Wiemann (EVP, Interim President & CEO) highlighted winning all three large Major League sports projects and anticipated continued growth in live events, both in-bowl and out-of-bowl, supported by expanding product and service offerings. Howard Atkins (Acting CFO & Chief Transformation Officer) confirmed a good pipeline. Regarding gross margins, Mr. Atkins attributed strong performance to a beneficial revenue mix, improved alignment of manufacturing expenses with revenue, fixed cost leverage, and normalized warranty expenses. Mr. Wiemann added that value-based selling, inventory management, and enhanced purchasing power also contributed. For M&A, Mr. Wiemann stated the company is strategically evaluating numerous opportunities, with the strong cash position enabling serious consideration, though nothing specific was announced.

Aaron Spychalla inquired about the company's thoughts on M&A, what they are observing in the market, areas of interest, and current valuations, given the strong balance sheet.

Answer

Interim President and CEO Brad Wiemann stated that while many M&A opportunities are presented, the company is being strategic. He acknowledged that the strong cash position allows for a more serious consideration of such opportunities, though nothing specific is currently being discussed. Acting CFO Howard Atkins concurred.

Aaron Spychalla inquired about the company's thoughts on M&A, what they are observing in the market, areas of interest, and current valuations, given the strong balance sheet.

Answer

Interim President and CEO Brad Wiemann stated that while many M&A opportunities are presented, the company is being strategic. He acknowledged that the strong cash position allows for a more serious consideration of such opportunities, though nothing specific is currently being discussed. Acting CFO Howard Atkins concurred.

Aaron Spychalla inquired about the revenue growth outlook for fiscal 2026, the levers available to manage margins amid tariff uncertainty, progress in expanding the AV integrator network within the Commercial segment, and future plans for working capital and capital allocation.

Answer

Brad Wiemann, EVP, Interim President & CEO, stated that fiscal 2026 growth is on track to align with the company's 7-10% CAGR target. He also detailed margin levers including value-based pricing, operational cost reductions, and new services. Regarding the Commercial segment, Wiemann highlighted significant growth opportunities in the AV integrator space. Howard Atkins, Acting CFO, added that the primary use of capital is for profitable growth and product development, with share repurchases also being a key consideration.

Aaron Spychalla inquired about the specific reasons for delays in order bookings, the potential impact of tariffs on Daktronics versus its competitors, the growth drivers and market penetration in the High School segment's shift to digital video boards, and the company's high-level capital allocation priorities given its strong balance sheet.

Answer

Reece A. Kurtenbach (Chairman, President and CEO) explained that booking delays are primarily due to the natural lumpiness of large projects and that current quoting activity remains strong. Regarding tariffs, he noted that Daktronics, as a U.S. manufacturer, has already been paying tariffs on components, suggesting new broader tariffs on finished goods from China might impact competitors more significantly. He described the High School market as a wide-open opportunity, with fewer than 10% of schools having converted to video. On capital allocation, he stated the board reviews options quarterly, including CapEx, tuck-in M&A, and direct shareholder returns like buybacks.

Aaron Spachella inquired about the scale and growth outlook for the C-store and refueling vertical, the recovery status of the grocery segment, and the progress of cross-selling initiatives and margin expansion at the acquired EMI business.

Answer

President and CEO Jim Clark explained that the major C-store project involves thousands of locations and is about halfway complete, with continued activity expected well into fiscal 2026. He characterized the grocery market as stable but not yet fully recovered, with potential upside remaining. Regarding EMI, Clark noted that its margins have improved by over 200 basis points since the acquisition, with a clear plan for further expansion, and highlighted that cross-selling efforts are gaining significant traction.

Aaron Spychalla inquired about the fluctuating customer demand schedules, the specific margin impact on the Display Solutions segment, and the company's strategy for managing potential tariffs.

Answer

CEO Jim Clark identified the grocery vertical as the primary source of demand fluctuations but noted that schedules are stabilizing. CFO Jim Galeese quantified the temporary gross margin impact from these inefficiencies at 200-250 basis points, which he expects to recover. Regarding tariffs, Clark explained that LSI's strategy involves leveraging its domestic manufacturing, using existing inventory as a buffer, and having alternative sourcing plans ready, while passing on real cost impacts to customers as they occur.

Aaron Spychalla inquired about the business outlook for the second half of the fiscal year, potential Q3 seasonality, the trajectory for gross and EBITDA margins, and the possible impact of proposed tariffs on the business.

Answer

President and CEO James Clark explained that while it's difficult to distinguish between a temporary surge and a new run rate in the Grocery segment, he anticipates elevated activity will continue through Q3 and Q4. He noted that margins were impacted by ramp-up inefficiencies, the integration of the lower-margin EMI business, and costs from hedging against port strikes, but expects gradual improvement. Both Clark and CFO James Galeese emphasized that LSI's domestic manufacturing focus (70% domestic sourcing) and proactive contingency planning should mitigate the impact of any potential tariffs, positioning them favorably against competitors.

Aaron Spychalla inquired about the progress of major C-store program rollouts, the overall pipeline strength, updates on refrigerated case pilots in C-stores and QSRs, and the early commercial and cost synergies from the EMI acquisition.

Answer

President and CEO James Clark confirmed the C-store backlog would carry the company through fiscal 2025 and that pilot programs for the new R290 refrigerated solutions have been successful, becoming the standard from January 1. Regarding the EMI acquisition, Clark highlighted strong commercial introductions and operational improvements, expecting years of synergy harvesting. Executive James Galeese added that multiple C-store chains have shown strong acceptance of their new display units.

Asked about the growth and composition of the project pipeline, the progress on operational improvements and margin targets, and the timeline and risks associated with completing the remaining non-core legacy projects.

Answer

The company reported a significant increase in its 12-month pipeline to $4.5 billion, up from $2 billion, with win rates around 15-20%. Margins on core 'Shimick' projects are improving and are being bid at 10-20%, but overall margins are dragged down by legacy non-core work. Most non-core work is expected to be completed by late 2025, with one project extending into late 2026, and the associated risk is steadily decreasing.

Aaron Sparhola from Craig-Hallum Capital Group inquired about the growth of the $4.5 billion 12-month bidding pipeline and associated win rates. He also asked for an update on operational improvements, the margin profile of the current backlog, and the progress in winding down the remaining non-core legacy projects.

Answer

CEO Yarl Yarl explained that the pipeline has more than doubled from ~$2 billion at the start of the year, with win rates averaging 15% for fixed-price and 20% for negotiated contracts. He stated that overall margins will gradually increase as new Shimmick projects, bid at an average of 14-15%, replace negative-margin non-core work, with an acceleration expected in 2026. Yarl Yarl added that the risk from non-core work is decreasing, with one major project set to finish by year-end and the last one extending into mid-2026.

Aaron Spychalla of Craig-Hallum Capital Group LLC asked about the potential impact of federal budget uncertainties, such as the IIJA, on the project pipeline. He also inquired about the current bid activity, confidence in securing profitable work, labor availability on the West Coast, and the company's outlook for free cash flow in 2025.

Answer

CEO Ural Yal stated that Shimmick has not seen any impact from federal budget issues on active projects, noting their portfolio is more reliant on IRA funding, which is expected to remain robust. He expressed confidence in the project pipeline and highlighted a strategic push to diversify into the private sector. Yal confirmed that labor availability on the West Coast is currently sufficient for growth. Regarding cash flow, he and Interim CFO Amanda Mobley affirmed a strong liquidity position of $100 million, stringent cash controls, and a newly secured revolving credit facility, providing confidence in funding operations and growth through 2025.

Aaron Spychalla asked about the potential for future operating expense reductions, the timeline for the project pipeline converting into backlog, and the company's capital allocation priorities for 2025 following the receipt of the Golden Gate Bridge settlement proceeds.

Answer

CEO Steve Richards explained that while the company has invested in estimating resources, SG&A efficiencies are expected as legacy work burns off and the company focuses on its California operations. He noted that bidding is not seasonal and expects to win new work in Q4 and early 2025, with no decline in opportunities. Regarding capital allocation, Richards and Interim CFO Amanda Mobley stated the settlement proceeds significantly improve liquidity and will be used for ongoing operations, completing legacy jobs, and paying down debt.

Aaron Spychalla from Craig-Hallum Capital Group LLC inquired about the ramp-up of new business from the previous year, the status of associated onboarding costs, client attrition trends, and the potential size of a recent new client win. He also asked for an update on the timeline for reducing Days Sales Outstanding (DSO).

Answer

CEO Perry Moss confirmed that the implementation and temporary costs for last year's new clients are now complete, and the focus has shifted to optimization. He stated there is no new attrition beyond previously discussed factors. Moss highlighted two recent wins—a retail expansion and a new multinational restaurant chain—both of which are significant 'seven or eight figure' accounts. CFO Brett Johnston added that he remains confident in generating significant cash flow and expects further DSO improvements in the second half of the year, targeting the mid-60s range into next year.

Inquired about progress on operational excellence initiatives since the last call, asking about identified process gaps, key performance indicators (KPIs), and the timeline for margin improvement from optimizing new business.

Answer

The company has baselined all processes and identified gaps, implementing fixes and 'quick hits' for Q2 impact. The focus is on converting business to profit through efficiency. Margin improvement will come from initiatives across sourcing, procure-to-pay, and order-to-cash, all aimed at boosting EBITDA, cash flow, and paying down debt.

Aaron Spychalla inquired about the status and cost implications of the new vendor management system, the stabilization of client attrition, the expected duration of weakness in industrial markets, and the strength of the sales pipeline. He also asked for details on the pending sale of the RWS mall business.

Answer

CFO Brett Johnston stated the vendor management system is substantially complete, with some temporary costs extending into Q1 but savings expected to ramp up in Q2. Chairman Daniel M. Friedberg added that future improvements will focus on process efficiency. CEO Perry W. Moss confirmed industrial weakness is expected for another two quarters and highlighted that a new, disciplined sales process has significantly grown the pipeline. Regarding the RWS sale, Friedberg noted a preliminary agreement prevents discussion of proceeds but confirmed the business was a non-contributor to the bottom line.

Aaron Spychalla asked for a quantification of the financial impact from the new vendor management system in Q3, whether there would be carryover costs into Q4, the current status of the sales and client onboarding cycles, and the potential business impact of a new political administration.

Answer

CFO Brett Johnston explained that while difficult to quantify precisely, the vendor system's cost impact was less than the $1 million in billing credits but still significant. He confirmed the system is now fully operational and expects related costs to be "much less impactful" going forward. Executive S. Hatch added that the sales cycle has "dramatically" accelerated, evidenced by a record nine new client signings. He also noted the client onboarding process is faster and more accurate due to technology investments. Regarding political impact, Hatch stated that since landfill regulation is primarily at the state and local level, he does not anticipate federal election results to significantly change the business.

Aaron Spychalla of Craig-Hallum Capital Group LLC inquired about the current thermal energy demand, the potential for large upgrades and new builds including new coal-fired generation, the prospective size of these orders, the outlook for the second half of 2025, and the company's confidence in returning to positive free cash flow.

Answer

Kenneth Young, Chair & CEO, confirmed strong demand driven by data centers, noting a need for 120 gigawatts over ten years and active discussions for up to 20 gigawatts of new generation, including potential new U.S. coal plants. He indicated new project sizes could be in the low hundreds of millions. Regarding the second half outlook, Young anticipates a strong year due to high-margin parts and services but is still finalizing formal guidance. Cameron Frymyer, EVP & CFO, affirmed confidence in achieving positive free cash flow in the second half of 2025, supported by asset sales, debt reduction, and strong parts and services growth.

Aaron Spychalla inquired about Babcock & Wilcox's 2025 guidance, the potential impact of tariffs on project timing, the status of a major coal-to-gas conversion project, and the financing and timeline for the Massillon BrightLoop hydrogen project.

Answer

Chairman and CEO Kenneth Young stated that while the company is not updating its guidance, it is monitoring potential project delays from tariff negotiations. He confirmed the large Indiana natural gas conversion project is on schedule. For the Massillon BrightLoop project, Young noted it requires an additional $40-$50 million in financing, which they aim to secure in the next few months. The goal is to begin construction in Fall 2025 and start hydrogen production by mid-2026.

Aaron Spychalla inquired about the drivers behind the 2025 adjusted EBITDA guidance range, the current impact of tariffs, the status of the Wyoming BrightLoop project, and the potential effects of changing EPA emissions regulations on the Thermal business.

Answer

Chairman and CEO Kenneth Young explained that the guidance range reflects uncertainty from potential tariffs and ongoing debt restructuring. He noted it's too early to see specific project delays from tariffs but discussions are active. Regarding the Wyoming project, he cited progress with the Department of Energy despite administrative delays. For EPA regulations, Young stated that B&W is well-positioned whether clients maintain coal plants or convert to natural gas, as long-term economics, not short-term policy, drive those decisions.

Inquired about the revenue timing for the new coal-to-gas project, the pipeline for similar conversions, the current status of letters of credit, and the free cash flow outlook for 2025.

Answer

The natural gas conversion project will see revenues primarily in 2025 and 2026, with some in 2027. The pipeline for similar conversions includes over a dozen prospects. Letters of credit stand at approximately $80 million, which will reduce to around $70 million after the SPIG/GMAB sale, and will roll off over the next 1.5 years. Free cash flow conversion for 2025 is expected to be around 40% of EBITDA after accounting for interest expenses and BrightLoop capital expenditures.

Aaron Spychalla of Craig-Hallum Capital Group LLC inquired about the operational challenges and margin outlook for the Treatment segment, the revised timeline for the Hanford DFLAW facility startup, and the near-term outlook for the Services segment, including the West Valley and RadMAC projects.

Answer

Mark Duff, President, CEO & Director, explained that early-quarter technical challenges in the Treatment segment, related to a new Hanford waste stream, have been resolved through automation, with benefits expected in the second half. He noted the DFLAW startup delay to as late as October 15 is due to technical issues like nitrogen oxides in off-gas systems, but Perma-Fix is prepared for the ramp-up. Duff also mentioned that the Services segment's West Valley project is in a slower-than-expected planning phase, with revenue recognition likely starting in Q1 2026.

Aaron Spychalla inquired about several topics, including the near-term priorities and opportunity size for the Hanford grouting project, revenue and margin contribution from the new PFAS Gen 2 unit, the status of the Services business amid federal procurement delays, and the CapEx outlook for the year.

Answer

Executive Mark Duff addressed the questions, stating the DOE will define its Hanford grouting strategy by December 2025, and he expects Perma-Fix to play a major role. On PFAS, he projected the Gen 2 unit could help generate nearly $1 million per month. Duff also noted the Services project pipeline is improving after a trough, and that full-year CapEx is expected to be $5-$6 million, largely for the new PFAS reactor.

Aaron Spychalla inquired about the near-term impact of federal budget uncertainties on operations and key projects like West Valley and Hanford, the operational readiness and phased startup of the DFLAW program, plant investment updates, and the cost and growth trajectory for the PFAS technology initiative.

Answer

Executive Mark Duff stated that a short government shutdown would have limited impact and that key projects like DFLAW are high-priority and expected to proceed. He confirmed DFLAW is on track for an August startup, with the company preparing operationally. CFO Ben Naccarato detailed that PFAS costs were about $3 million in 2024 and are projected to be around $5 million in 2025 for Gen 2 development. Mark Duff added that the Gen 2 PFAS unit is scheduled for late Q3 deployment.

Aaron Spychalla inquired about the near-term outlook for Q4 and early 2025, the balance sheet and CapEx plans for the Hanford ramp-up, the market opportunity for transuranic (TRU) waste, and the potential impact of the recent election.

Answer

Mark Duff, Executive, stated that Q4 is trending much better than Q3 with stable waste receipts, and the company is prepared for the initial Hanford DFLAW ramp-up. Ben Naccarato, Executive, confirmed the balance sheet is in good shape with low debt. Duff added that TRU waste is a burgeoning market where Perma-Fix is uniquely positioned as the sole commercial operator. He also expressed optimism that a new administration would favor the commercialization of waste treatment, benefiting the company.

Aaron Spychalla inquired about the growth drivers and outlook for the Transportation segment, the size and prospects of the energy transmission business, and the company's operating leverage and investment needs.

Answer

CEO Gary Bowman attributed Transportation growth to synergies from recent acquisitions and robust public spending, highlighting wins in construction management and highway design. He also noted that the geospatial group's recent wins are driving the energy transmission business. CFO Bruce Labovitz explained that operating leverage is primarily driven by disciplined labor management and investments in innovation to scale revenue faster than headcount.

Aaron Spychalla inquired about the Transportation segment's order timing, the impact of IIJA funding, key growth drivers in the Power segment, and the current M&A market environment, including valuations.

Answer

Executive Gary Bowman explained that Transportation orders are naturally lumpy but the outlook remains strong, supported by IIJA, gas tax, and state funds. He identified data centers and grid modernization as key drivers for the Power segment. Regarding M&A, Bowman described the pipeline as active and competitive, with a focus on larger targets. CFO Bruce Labovitz added that Transportation's backlog value is up, indicating strong momentum, and noted the company is also pursuing non-acquisition 'acqui-hires' to add talent.

Aaron Spychalla inquired about the impact of the Infrastructure Investment and Jobs Act (IIJA) on the transportation vertical, the nature of the current backlog and its visibility compared to past years, and for details on planned investments in technology and service line expansions.

Answer

CEO Gary Bowman confirmed that IIJA spending is accelerating and transportation trends are strong. CFO Bruce Labovitz noted the backlog's characteristics are stable, with a typical 80% turn profile within 12 months and no significant delays. Regarding technology, Gary Bowman highlighted investments in remote sensors, LiDAR/SONAR asset management products, and digital twinning tools. Bruce Labovitz added that these investments are strategically tied to revenue generation and margin enhancement, and the company has the balance sheet to support them.

Aaron Spychalla from Craig-Hallum asked for an update on the transportation project pipeline, the impact of IIJA funding, and management's perspective on how the recent election results might affect Bowman's business.

Answer

Executive Gary Bowman and CFO Bruce Labovitz described the transportation pipeline as robust and expanding, driven by acquisitions like ExelTech, the addition of new services like bridge design, and leveraging Surdex's aerial survey capabilities for state DOTs. Regarding the election, Gary Bowman expressed cautious optimism, foreseeing potential benefits from a more favorable regulatory environment for fossil fuels and mining, while expecting infrastructure spending to remain stable. He also noted a potential increase in public-private partnership (PPP) projects.

Aaron Spychalla inquired about the drivers behind the opportunity pipeline's growth to $18 billion, the conversion timeline for orders, the data center outlook for the Concrete segment, and the prospects for free cash flow conversion in the second half of the year.

Answer

CEO Travis Boone attributed the pipeline growth to some private sector clients delaying project awards from Q2 into the second half of the year due to economic uncertainty. He noted that while the data center market remains strong, there is new competition, but Orion's client relationships remain a key advantage. CFO Alison Vasquez added that despite working capital usage in Q2, cash collections improved in July, and she expects a strong second half for cash flow.

Aaron Spychalla inquired about the timing and potential size of upcoming defense and shipbuilding contract awards, the business outlook and margin expansion goals for the Concrete segment, and activity levels in private downstream energy markets.

Answer

CEO Travis Boone stated that major defense awards are expected in late 2025 or early 2026, with several pursuits in the $500 million range. He confirmed the Concrete business has not seen a slowdown and noted increased bullishness from petrochemical clients. CFO Scott Thanisch added that growing volume and operating leverage are expected to drive margin improvement in the Concrete segment.

Aaron Spychalla asked for color on the Q4 revenue shortfall against guidance, the company's confidence in its 2025 outlook, and the drivers behind the significant pipeline expansion to $16 billion. He also inquired about the current bidding environment and the timing of large Navy projects in relation to the 2026 growth forecast.

Answer

CEO Travis Boone explained that the 2024 revenue shortfall was due to project timing shifts, specifically a Hawaii project moving into 2025, not lost work. He affirmed confidence in the 2025 guidance and the strategy to build backlog for significant growth in 2026. Boone attributed the pipeline growth to strong opportunities in data centers and Navy projects in the Pacific. CFO Scott Thanisch added that the large pipeline allows for selectivity and supports a favorable margin environment.

Aaron Spychalla of Sidoti & Co. inquired about the current bidding environment and backlog, the progression of opportunities with the U.S. Navy, and the company's capital expenditure outlook.

Answer

Executive Travis Boone described the bidding environment as strong and steady, with significant pursuits lined up for Q1 2025. He noted that major Navy opportunities are now expected later in 2025. CFO Scott Thanisch added that the company anticipates increased CapEx spending to acquire equipment for future growth, supported by a strong balance sheet.

Asked about the specifics of Q4 project push-outs in the Industrial business, the current sales pipeline, the drivers of 2024 margin guidance, the performance and outlook for the Fluids business, the 2024 free cash flow forecast, and the progress of the 800 Series product launch.

Answer

Executives clarified that Q4 project delays were due to two specific, non-systemic issues (supply chain and permitting). The quote pipeline shows strong mid-to-high teens growth. 2024 margin guidance reflects a shift to more volume-driven growth from longer-duration projects with competitive pricing. The Fluids business performance is driven by strong international operations (70% of revenue) offsetting U.S. softness. Free cash flow is expected to be solid for the year but muted in Q1. The 800 Series product is performing well in the internal fleet before a broader customer rollout.