Babcock & Wilcox Enterprises - Q3 2023

Transcript

Operator (participant)

Good evening. My name is Hannah, and I will be your conference operator today. At this time, I would like to welcome everyone to the conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the star key. Thank you. Sharyn, you may begin your conference call.

Sharyn Brooks (Director of Communications)

Thank you, Hannah, and thanks to everyone for joining us on Babcock & Wilcox Enterprises' Third Quarter 2023 Earnings Conference Call. I'm Sharyn Brooks, Director of Communications. Joining the call today are Kenny Young, B&W 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 statement.

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 10-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.

Kenny Young (Chairman and CEO)

Thanks, Sharyn, and thanks to everyone for joining us today. Well, as you can tell by our earnings release, it's been a busy third quarter for Babcock & Wilcox. I'd like to start the call today by first reviewing our third quarter performance on a continued operations basis, accounting for the announced reclassification of our solar business, as well as the latest advancements across our BrightLoop and ClimateBright initiatives. I'll also discuss our announced strategic business realignment and the rationale behind that decision, as well as details related to our 2023 and 2024 financial targets, which are based primarily on the strong performance of our aftermarket parts and services businesses, before turning the call over to Lou. Let me start by highlighting the broad-based activity that drove revenue growth across all business segments during the quarter.

Revenue for the third quarter was $239 million, which is 13% improvement compared to the prior year and our third consecutive quarter of revenue expansion on a year-over-year basis. Our top-line improvement was led by thermal revenues that increased approximately 17% when compared to the third quarter of 2022, followed by renewable, more specifically, our renewable services, as well as environmental revenues, increasing 11% and 4%, respectively. Our aftermarket parts and services business in thermal and renewable, typically our higher margin businesses, continue to perform above our internal expectations. Consolidated Adjusted EBITDA from Continuing Operations for the quarter was also impressive at $20 million, an improvement of $7 million or 54% when compared to the same period last year. This is inclusive of roughly $2 million in expenses for BrightLoop and ClimateBright in Q3 2023.

While product mix was a large factor in the Adjusted EBITDA performance for the quarter, attributable to the higher margin nature of our aftermarket businesses, we also demonstrated strong execution on increased volumes of projects within our environmental segment. While continued operation bookings and backlog were mostly flat year-over-year, this is largely attributable to timing of new bookings, as negotiations on a few larger opportunities are taking slightly longer than anticipated. Some of these delays are positive due to increased scope for B&W aftermarket services, as many utilities and large energy companies are reevaluating the timing of new build projects and deferring to upgrades due to higher interest rates and other geopolitical factors.

Our outlook for near-term booking opportunities remains robust, positioning us well to achieve updated backlog growth in a range of $550 million-$650 million by year-end 2023, based on continued operations, not including our reclassified assets. In addition, based on our improved performance of thermal parts and services and our global reach in providing clean energy technologies, we remain confident in achieving our revised full-year adjusted EBITDA target from continuing operations of $85 million-$90 million in 2023, when excluding BrightLoop and ClimateBright expenses. Transitioning to BrightLoop and ClimateBright commercial activities, we are pleased to provide several updates related to our hydrogen generation technology and project portfolio. As previously mentioned, we are developing a small BrightLoop hydrogen production plant in Massillon, Ohio, very near our headquarters here in Akron.

We are close to signing a definitive agreement for hydrogen offtake at this location for up to 3 tons per day of hydrogen production for the next 10 years. We are also excited to announce we have a letter of intent for project-level financing, and we have signed a lease agreement and are moving forward with construction to produce hydrogen by the end of 2024 or very shortly or early into 2025. With regard to our medium and larger platforms, we are also excited to announce a collaboration with Air Products, which represents a key step forward in our development of net negative carbon intensity hydrogen production facility in Louisiana, utilizing BrightLoop technology.

More specifically, we have signed a memorandum of understanding with Air Products to enter into a definitive offtake agreement for up to 200 tons of carbon negative hydrogen per day, as well as the CO2 produced at the facility, with the initial production, the facility expected to be operational in late 2026. This comes on the heels of our previously announced offtake agreement with General Hydrogen to acquire both hydrogen and CO2 from our medium-sized biomass BrightLoop platforms. Both of these agreements come with 10-year length terms. Based on the traction we have received to date, it has become clear that commercial solutions that address carbon-neutral targets have become imperative. Importantly, in parallel, we continue progressing in Wyoming and within recently announced hydrogen hubs, especially in West Virginia. This includes permitting, fuel commitments and collaboration, offtake, land allocations, as well as project funding.

While our recent developments across BrightLoop projects continue to progress, we are also pleased to announce a meaningful update to our board of directors. Effective today, Dr. Naomi Boness will join our board of directors, bringing an extensive expertise within the energy sector, particularly in hydrogen generation and carbon capture. We welcome Naomi to the board and are confident her deep industry experience will prove valuable as we continue to accelerate our hydrogen strategy going forward. To reiterate, our updated pipeline, when excluding the reclassified operations, is over $8.5 billion across all three segments, with approximately $1 billion in BrightLoop opportunities. We believe this puts us on a pathway to reach $1 billion in bookings by 2028, with a combination of small, medium, and large projects.

We feel confident that could lead to $1 billion in revenues from BrightLoop by 2030 and beyond, and would still only represent 1% of the market share of total hydrogen spend by 2030. I'd now like to focus on the announced strategic business realignment, including what it means for the company going forward and its immediate impact to our current operations. In response to today's market conditions, which include higher interest rate costs and reduced or delayed growth capital expenditures by our customers, we see growth, a growing global trend in extending the operational lifespan of existing power and industrial generation facilities. This presents us with an opportunity to shift our focus to the more predictable revenue streams generated from our aftermarket businesses. We plan to utilize these cash flows to strengthen our balance sheet and reduce our overall debt.

While we are also evaluating strategic aftermarket alternatives related to non-strategic assets. Further, we expect to realize up to $30 million in annualized cost savings, primarily through reduction of the high overhead associated with seeking multiple new build projects. Our heightened focus on producing more predictable cash flow generation is consistent with our approach to provide long-term profitable growth for the company and its shareholders, ultimately driving our decision to streamline our efforts to concentrate on aftermarket businesses and capitalize on higher-margin parts and service opportunities. In order to ensure a successful realignment of our updated strategy, our focus is on the following: 1, a greater emphasis on higher-margin aftermarket parts and services across all three segments, while further reducing overhead costs associated with certain large new build project opportunities.

Reducing our senior secured letters of credit facility by up to $20 million by the end of fiscal year 2024. Refinancing our existing senior secured credit facility to reduce our interest expense by up to $5 million. And just today, announcing a commitment for $150 million in refinancing. Bolstering cash flow generation and strengthening the balance sheet, and utilizing federal, state, and project-level financing to accelerate the deployment of our BrightLoop and ClimateBright technologies. While we recognize the long-term growth potential for solar from both the community and utility standpoint, there were several key factors that our management team and board considered when evaluating what steps the company would take regarding the pathway and for continued growth. As part of this evaluation process, we have decided to reclassify our solar business out of continuing operations.

This is primarily due to the historical projects, the higher risks, and the margin profiles. Looking ahead to next year, our focus on promoting future growth aligns with the sustained demand we observe across all segments, paving the way for improved performance in 2024 with our announced Adjusted EBITDA target range of $100 million-$110 million when excluding BrightLoop and ClimateBright. Importantly, given our strategic business realignment, we now have increased visibility and confidence in our outlook as a significant portion of our targeted Adjusted EBITDA will be generated from existing backlog with less reliance on large projects. I'll now turn the call over to Lou to discuss the financial details of the third quarter. Lou?

Lou Salamone (CFO)

Thanks, Kenny. I'm pleased to review our third quarter results and our recent commitment for the refinancing of our senior credit facility, further details of which can be found in our 10-Q that is on file with the SEC. I'd also like to call your attention to the fact that I will be referring to amounts of our continuing operations. Our third quarter consolidated revenues were $239.4 million, which is a 13% improvement compared to the third quarter of 2022. This is primarily attributable to higher volumes in our renewable segment due to the B&W Renewable Services operations, as well as the thermal segment volume, which increased due to higher levels of construction and parts activity.

Our net operating income for the third quarter of 2023 was $5.5 million, compared to an operating loss of $2.7 million in the third quarter of 2022. Our Adjusted EBITDA was $20 million, as compared to $13 million in the third quarter of 2022. Bookings in the third quarter of 2023 were $198 million, and the ending backlog at the at the end of the quarter, third quarter in 2023, was $507 million. Our net loss per share in the third quarter was $0.18, as compared to a loss per share of $0.15 in the third quarter of 2022. As Kenny mentioned, we've reclassified the solar business out of continuing operations.

As a result, we'll have taken an impairment charge of about $56.6 million and recognized contract losses of $47.9 million, which include future estimated losses, both of which are reported in discontinued operations. We're pursuing potential recoveries of certain of these amounts, up to $40 million, and there is no assurance that these amounts will be recovered. Accordingly, such recoveries have not been recognized in the financial statements. I'll now turn to our third quarter segment results. Within our Babcock & Wilcox Renewable segment, revenues were $87.1 million for the third quarter of 2023, which is an 11% increase compared to $78.5 million in the third quarter of 2022.

The increase in revenue is due primarily to higher volume associated with renewable services, and our Adjusted EBITDA in the third quarter was $10.1 million, as compared to $4.5 million in the third quarter of 2022, primarily due to the higher revenue volumes as described above. Within the Babcock & Wilcox Environmental segment, revenues were $46.4 million in the third quarter of 2023, which is an increase of 4% compared to the $44.6 million in the third quarter of 2022. The increase is primarily driven by a lower volume related to flue gas treatment projects, offset by a higher overall volume of cooling technology projects. Adjusted EBITDA was $5 million for the quarter, as compared to $3.1 million for the same period last year.

Again, this is primarily driven by a higher product mix—higher-margin product mix, as described above, along with favorable closeouts of a flue gas treatment plant. Sorry about that. Hard for me to say, flue gas. Turning our Babcock & Wilcox Thermal segment to our Thermal segment, revenues were $107 million in the third quarter of 2023, which is an increase of 17% compared to the $91.3 million in the third quarter of 2022, and this was primarily attributable to the higher level of volume in our construction projects, as well as parts and service and our packaged boiler businesses. This was partially offset by a decline in certain service projects.

Adjusted EBITDA in the third quarter of 2023 was $11.3 million, compared to $10.8 million in the third quarter of 2022. This was primarily driven by the higher revenue volume and product mix described above. I'll now turn to our balance sheet, cash flow, and liquidity. Total debt at September 30, 2023, was $377.6 million, and the company had cash, cash equivalents, and restricted cash balance of $65.1 million. Additionally, subsequent to September 30, 2023, we obtained a commitment to refinance our senior credit facility and amend our existing reimbursement agreement, including updating certain financial covenants thereunder. The refinance commitment is expected to reduce our interest costs by up to $5 million per year based on current interest rates. The financing and strategic alignment should significantly improve our liquidity this quarter and onward.

I'm also pleased to announce that we have, as Kenny had mentioned, we've signed a letter of intent for the financing of our first BrightLoop hydrogen project being developed in Massillon, Ohio. Now, I'll turn the call back over to Kenny.

Kenny Young (Chairman and CEO)

Thanks, Lou. Well, in closing, while Q3 wasn't without challenges, and it included several strategic decisions to improve the fundamentals of our business, we are extremely excited about the growth opportunities ahead of us. With increasing commercial interest in our core and new technologies and global demand for our baseload power generation, our market outlook remains robust, and we see the momentum in new booking activity accelerating into 2024 and beyond. Finally, as always, I'd like to recognize the efforts of our employees as they continue to drive our success as an organization worldwide. With the outstanding support of our extremely talented and experienced employees and the continued confidence of our customers, we're driving innovation and supporting the global transition to sustainable solutions, and we're focused on delivering strong, profitable growth for our shareholders.

We are entering a new phase, and as we execute our strategic business realignment, and we look forward to the transformation that will enhance overall margins and improve cash flows generation for the company. I'll now turn the call back over to Hannah, who will assist with any questions. Hannah?

Operator (participant)

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your questions. We will pause here briefly as questions are registered. Our first question is from the line of Aaron Spychalla with Craig-Hallum. You may proceed.

Aaron Spychalla (Senior Research Analyst)

Yeah, good afternoon, Kenny and Lou. Thanks for taking the questions.

Kenny Young (Chairman and CEO)

Hey, Aaron, no problem.

Aaron Spychalla (Senior Research Analyst)

You know, first- thanks. You know, first for me on the guidance, you know, appreciate some of the color there. Can you just talk a little bit more about, you know, the exclusion of kind of BrightLoop and ClimateBright there? You know, what those investments might look like as we think about 2024, and then maybe just elaborate a little bit. You talked about some kind of project-level financing and other things that you're pursuing there.

Kenny Young (Chairman and CEO)

Sure. No, be happy to. So I would think about BrightLoop and ClimateBright from a broader company expense standpoint to be, you know, I don't know, at under $10 million, but $5 million-$7 million, perhaps, somewhere in that neighborhood, just to give some transparency there from a B&W standpoint. Obviously, the project financing that we're referring to will go in at the project level versus an impact necessarily to B&W. So there'll be a timing, and depending on how that project financing is set up and the exact structure of ownership of those particular projects, how the revenue will flow back and forth to B&W, as we've mentioned in the past. But from an expense perspective, you know, rough order of magnitude, that's how we're thinking about BrightLoop and ClimateBright.

Aaron Spychalla (Senior Research Analyst)

All right, thanks for that. And then second, you know, just on the backlog, can you just give a little more color on some of those projects? You know, sounds like maybe just slipping into 2024. You know, have any of those been lost, or is it just kind of more of a project timing? And then you kind of talked about accelerating momentum, just, you know, maybe some of the areas that you're looking for as we head into 2024.

Kenny Young (Chairman and CEO)

Yeah, well, actually, I would, even though we're in November here, we're talking about Q3 on this call, I would say some of those are slipping more into Q4, maybe into 2024. It just depends as we work through those negotiations on a few projects that we're trying to complete, on that. As you know, as referenced in my comments, some of those delays are referred to increasing some scope and activity, potentially for B&W, as a few of the projects were looking to larger upgrades and enhancements, and some of our customers are now trying to ascertain how they can extend out the life of these plants, you know, longer than maybe they had anticipated.

So, it's caused us to, or caused them to relook at some of the scope in a positive way as it relates to B&W, and so we're excited about that. But, you know, so those negotiations continued, but hopefully, and we have, you know, full intent to get those booked still in Q4, but, you know, one or two of those may slip out into 2024 as well. But it's more of a timing, I think, just from a negotiations aspect and as the customers relook at their approach to some of these technologies and the lifespan of the plants, which in the long run bodes well for us as an aftermarket provider. So, that's how we look at it.

I think worldwide, obviously, some new build opportunities, you know, in particular, I would say in renewable energy, waste-to-energy, some of those are delayed a little bit because of the interest rate increases and timing of capital expenditures, but not for any other reason. So, there's a few that will probably extend into next year, overall. But, you know, for us, you know, as we talked about, the business is reducing the overhead associated with large new build; this is an opportunity for us to do that. You know, we also see potentially increasing opportunities around licensing some of our waste-to-energy technologies and in support of some of the new direction that we want to take in the company.We'll balance that as we transition more towards licensing, and less on specific large new build opportunities.

Aaron Spychalla (Senior Research Analyst)

Understood. Thanks for taking the questions. I'll turn it over.

Kenny Young (Chairman and CEO)

Thanks.

Operator (participant)

Thank you, Mr. Spychalla. Our next question is from the line of Brent Thielman, D.A. Davidson. You may proceed.

Brent Thielman (Managing Director and Senior Research Analyst)

Hey, thanks. Good afternoon. Hey, Kenny, Lou, I just wanted to confirm the 2024 EBITDA target is 100-110 ex BrightLoop and ClimateBright?

Kenny Young (Chairman and CEO)

That's correct. Yep.

Brent Thielman (Managing Director and Senior Research Analyst)

Okay. And I just again, another clarification. I think you said $5 million-$7 million against that, potentially in costs, just in support of BrightLoop and ClimateBright. Is that, is that the right sort of baseline?

Kenny Young (Chairman and CEO)

Yeah, that and I think that's, you know, say below 10, but somewhere in that range, I think is a good number. It will tweak and vary a little bit depending on the project financing and how we deal with that on these projects as they continue to advance, and the timing of some of the state funding that we're anticipating, as well as other SPV level investors that would be investing in those projects. So there's just an element of that timing piece and how the revenue flow between the projects back to B&W would take place, which, you know, could plus or minus those expenses from an EBITDA standpoint.

But, you know, and it's a little early to predict precisely how that will work and the timing of that, but, we see that pathway unfolding. So just to give you some range, that's kind of how we're thinking about it.

Brent Thielman (Managing Director and Senior Research Analyst)

Okay, that's helpful. And then I guess, what—I mean, particularly in regard to some of these moves to boost the cash flow of the business, can you talk about what sort of your expectations are, you know, assuming kind of this 2024 EBITDA target range should get some benefits from this overall strategic realignment? I assume there's less drag from certain operations as a function of this. How should we think about that 2024 EBITDA, you know, converting into the cash flow?

Lou Salamone (CFO)

Yeah, Brent, from our standpoint, with the emphasis on the thermal business and what we now also call Power business, which generate much more cash flow than new build projects, we should start seeing a better conversion than we've had in the past from Adjusted EBITDA to the cash. Some of that cash will be used, as Kenny talked about, to continue to expand our BrightLoop penetration. But we should be able to convert a much higher percentage than we've converted and have positive cash flow coming into the second quarter of next year. Conversion rate would probably be. I'll be, I'll be a little bit broad on that because of CapEx, but the conversion rate would probably be in the 60% range, with respect to, to cash.

Brent Thielman (Managing Director and Senior Research Analyst)

Starting 2Q, is that right, Lou?

Lou Salamone (CFO)

Yeah. Yeah, I'd say middle of Q2, we'll start seeing that. But Q1, as you know, Brent, Q1 is always a slow quarter for us as well as others in this industry.

Brent Thielman (Managing Director and Senior Research Analyst)

Yeah. Okay. And then I guess, just in regard to some of the financing that you've done here recently, maybe give me your thoughts, next steps, just related to the capital structure that you may or may not need to take, I guess, in order to sort of support the ongoing kind of financing commitments you've got out there, support the growth of the company, support BrightLoop. Do you feel like the capital structure is in a place you can do all that at this stage?

Lou Salamone (CFO)

Yeah, I think the committed financing that we talked about earlier for the $150 million for the senior credit facility, which will be both the what I'll call the letters of credit facility and the revolver, certainly helps our capital structure, as does the lower interest rate. And as Kenny mentioned, we're kind of looking at some of the strategic areas that may not fit with our you know new direction, and that may generate some cash.

Kenny Young (Chairman and CEO)

I'll add.

Brent Thielman (Managing Director and Senior Research Analyst)

Thank you.

Kenny Young (Chairman and CEO)

Yeah, yeah, if I'll add to that, just real quick, though, but that $100-$110 million EBITDA range, it's important to note and try to emphasize this, that we're lessening the, if you will, the reliance on large new build projects as it relates to that target. You know, that doesn't mean that we won't be entering into certain projects if it makes sense for us to enter into. We're trying to obviously allow those to be more upside to that target rather than a necessity in order to achieve the target. So try to be a little more conservative on that approach with putting that guidance or targets out there.

Brent Thielman (Managing Director and Senior Research Analyst)

Okay, great. Thank you, Kenny.

Kenny Young (Chairman and CEO)

Yep.

Operator (participant)

Thank you, Mr. Salamone. Our next question is from Rob Brown with Lake Street Capital Markets. You may proceed.

Rob Brown (Founding Partner and Senior Research Analyst)

Good afternoon. I just want to clarify a little bit more on your comments on the realignment and not sort of pursuing these larger projects. So what kind of the, I assume it's waste-to-energy, but are you then not bidding projects, or how do you sort of go to market with that and, you know, how do you change your focus there?

Kenny Young (Chairman and CEO)

Yeah, it's not as complicated as it sounds. We're simply, you know, twofold, then I'll explain it further. Certain opportunities in certain parts, on waste-to-energy particular, or international opportunities, you know, require certain security package levels. The security packages, i.e., LCs, letters of credit, as it relates to us, come with high interest rates, right? So, a lot of in waste-to-energy, the margins are not as high on new build, clearly not as high as our aftermarkets parts services on renewable services. But those letters of credit and the interest associated with them really compresses the margins, plus, you know, additional risks.

So as we look at going forward, you know, two aspects: there are opportunities and projects that we're in discussions and negotiations on regarding waste energy, specifically, that would have higher margin potential or targets associated with them that are well above and beyond the interest expense associated with the letters of credit. So those are, yeah, positive ones or opportunities for us to pursue. But we want to, you know, remove the reliance of that in our forecast so that they're more upside rather than a necessity, if that makes sense. But secondarily, we do see an expansion opportunity on licensing. We have been licensing our waste-to-energy technology in several markets, and that typically comes at even higher gross margins and significantly lower amounts of letters of credit.

So the interest rate expenses are, or the cost of that are much more attractive to us from a margin standpoint. So it's not necessarily a no bid or zero bid, it's just as we continue to focus, we'll reduce the overhead down to match what we think is, you know, the hand one or two or three, or whatever the projects that we think that are a stronger opportunity for us from a margin and cash flow standpoint, as we also increase the licensing model that we have, you know, particularly around our waste-to-energy technologies. So it's, I don't know if that makes sense, but it's as simple as that sounds.

Rob Brown (Founding Partner and Senior Research Analyst)

Yep. Okay, got it. Thank you. And then on the BrightLoop pipeline, I know you've given some pretty good color on it over on your last analyst kind of update, but, how is that pipeline kind of at this point? Are you seeing more projects come into it? Are you seeing, you know, what's the direction in terms of project certainty and some of those projects that we're waiting for, some of the fine, you know, government supports and financing incentives?

Kenny Young (Chairman and CEO)

Yeah. So we are excited about the opportunities in the pipeline building. When we announce the pipeline, we typically keep it to a three-year projects that we think will book in the next three years. So I guess if we you know expanded that pipeline to total opportunities, you would see $ several more billion in those opportunities. And that's mainly around BrightLoop as it relates to those large projects. So our overall opportunities on BrightLoop keep growing. Around that, we have you know as a result of that, we keep expanding that organization going forward in BrightLoop and ClimateBright.

You know, we haven't got to a final decision on this yet, but we're debating and discussing whether or not we should move BrightLoop and ClimateBright maybe to a separate, at least discussion, not necessarily segment going into next year, but we're not at that point yet. But the, you know, the short-term aspect, the opportunity, as Lou mentioned, Ohio now is moving into a real project for us. The financing is coming into place. The offtake agreements are moving into definitive agreements for up to 10 years of take or pay on that hydrogen. Obviously, it's not a big plant, relatively speaking, but it's important because it puts in the ground, you know, commercial technology for us and moves it, you know, from where we were before.

The state discussions that we're having with several states now continue. Those applications are moving into a real status. Some of those will start to move into public domain soon, and you'll see further announcements on that. You know, it might be a phased-in approach on some of that funding coming from states. And we're, you know, we continue the discussions on the federal level as well, too. The other aspects, again, it's kind of a circular piece, but the hydrogen hubs that were just recently announced by the DOE, in particular, the Appalachian hub, you know, there's mention. We've mentioned before previously some of the work that's taking place there in Mountaineer and West Virginia. That's all pulled through. That will eventually. Some of that will get down to us.

That's gonna take time, obviously, but those things keep moving on. We've increased testing now. Boy, I'm gonna throw out a number. It's probably we're up to about 30 different fuel testing or samples that we're testing across a broad range, both in utilizing solid fuels, such as certain coal developments, also in biomass developments, in multiple locations. That's going through our labs at this point in time. So we keep increasing the amount of fuel testing related to the opportunities, and we keep developing the opportunities, as we keep unfolding the projects that are before us.

But, you know, as mentioned in the comments today, you know, the developments around Air Products and getting to a 10-year agreement with moving forward with them, to finalize a 10-year agreement, that location is a big step. That plus the General Hydrogen announcement puts us in an offtake of up to 220 tons a day. We are in negotiations on the feedstock aspect, mainly biomass in that particular location, and we're in negotiations on the lease and then the air permitting process there. We are also in discussions on funding around that project, so all corners of that pyramid are, you know, coming together. The same in some of the other locations and, you know, we'll keep announcing that obviously as we continue to make progress there.

But BrightLoop keeps expanding and we're excited about, you know, those opportunities. One of the areas I didn't talk about in the comments, but I'll say it on the call here, that we're starting to see, and we're early on this, so we'll identify it as we move along. But what we're starting to see globally, and potentially in the U.S., is actually combining ammonia, either net negative or net-neutral ammonia with coal-fired plants to reduce the overall CO2 offset of those coal-fired plants. We see that activity happening a lot, especially in Asia. There's been some discussions with a few here in the U.S., so really early on that application.

But that's exciting for us because, as I mentioned before, a lot of these plants now are looking to extend their life cycle and power generation. And if we can introduce a net-neutral or net-negative ammonia production from biomass, which BrightLoop can do, these power plants can actually have a carbon offset that would take, literally, depending on the mix, could take a coal plant down to net at least net-neutral by 2030. And that we think that's an exciting development. We're early in that discussion, but it bodes well for us because it's both aftermarket parts and services for our baseload power generation and thermal group, but it also opens up offtake for the ammonia produced by net negative carbon intensity BrightLoop using biomass.

So we're excited about both ends of that spectrum, and that's, you know, one of the decision points that went into our thinking to get more around our thermal parts and services and our renewal parts and services, and focus more on the BrightLoop ClimateBright because it's becoming more real for us. At the same time, reduce, you know, some of the costs associated with some of the other areas. So all of that adds into that realignment strategy.

Aaron Spychalla (Senior Research Analyst)

Okay, great. Thank you for all the color. I'll turn it over.

Operator (participant)

Thank you, Mr. Brown. Our last question is from the line of Alex Rygiel with B. Riley. You may proceed.

Alex Rygiel (Senior Managing Director)

Thanks. Good evening, Kenny and Lou. A lot going on here. So let's get into a couple of things. First, as it relates to the $30 million in the annual cost savings, can you comment on the timing of that and how important is that in getting to your guidance of $100-$110 million next year?

Kenny Young (Chairman and CEO)

Yeah, that some of that has already started, and will help out a little bit in Q4, and clearly will kick in heavily into Q1. On that, that process has already begun. Obviously, we're taking steps. Some of the timing of that may be more in Q1 than now, but they've been identified and those are in process to be implemented. I guess that's the way to describe it.

Alex Rygiel (Senior Managing Director)

Excellent. And then there was a reference to strategic alternatives related to non-strategic assets. Is there any chance you could quantify kind of the possible value here that you could realize in making those?

Kenny Young (Chairman and CEO)

I know. Great question, Alex. I wish I could, but I'll leave that out for the moment, but just wanted to, you know, say we're, we look at various things from assets. Some of those are, you know, could be property locations and other things, assets that, you know, no longer strategically that we need going forward, but I don't have a valuation or anything that we'd want to put out at this point in time.

Alex Rygiel (Senior Managing Director)

Great. Thank you very much.

Kenny Young (Chairman and CEO)

Thanks, everyone.

Operator (participant)

All right, thanks. That concludes the question and answer session. I would now like to turn the call over to Sharyn for any closing remarks.

Sharyn Brooks (Director of Communications)

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

Operator (participant)

That concludes today's call. Thank you for your participation. You may now disconnect your lines.