Babcock & Wilcox (BW) Q3 2026 earnings review
Babcock & Wilcox sets higher 2027 targets, but unpaid bills drain cash
Babcock & Wilcox, a maker of power-plant boilers, is growing rapidly on data-center and utility demand while burning cash to fund the work. Third-quarter revenue more than doubled to $291 million, and sales outside its flagship North Dakota project rose 53% by our math. Chief executive Kenneth Young issued a 2027 Adjusted EBITDA target of $125 million to $140 million and kept the 2026 plan unchanged, which by our math leaves $37 million for the fourth quarter.
| Sales excluding the North Dakota project | $213M +53% from a year ago by our math |
|---|---|
| Total revenue | $290.8M +109% from a year ago |
| Operating cash flow in Q3 | -$131M by our math, on an $89M jump in unpaid bills |
| New 2027 Adjusted EBITDA outlook | $125–140M +43% vs the 2026 plan midpoint |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because strong 2027 profit targets and local zoning approval in North Dakota were offset by a heavy third-quarter cash drain. Unpaid customer bills jumped while upfront deposits shrank, so operations burned $131 million in cash during the quarter by our math and pulled unrestricted cash down to $71 million after bond payoffs and share buybacks. Gross margin also stayed thin at 15%, weighed down by cost-plus project mix and shortages of welders and electricians.
The question now is whether the company can collect its unpaid bills and sign a second large data-center contract before construction costs ramp up next year. If customer payments arrive and a second award closes, cash recovers and backlog grows; if collections lag and no deal lands, liquidity tightens while backlog shrinks. Fourth-quarter receivables and bookings will tell.
🐂 Bull Case
New 2027 Plan Points to 43% Profit Growth
Babcock & Wilcox, a maker of power-plant boilers and environmental equipment, issued its first operating cash profit target for 2027. Chief executive Kenneth Young set the 2027 Adjusted EBITDA range at $125 million to $140 million, which rises 43% at the middle of the range from this year's plan by our math. That growth rests on Base Electron, its $2.4 billion project to build a natural-gas power plant for an artificial-intelligence data center in North Dakota.
The North Dakota project contributed $77.8 million of third-quarter sales, down from $100.7 million last quarter. Young said "manufacturing of the boilers, steam turbines and other long-lead-time components is progressing rapidly" and noted "county approval secured for conditional use and zoning permits". Clearing local zoning lowers the risk of a permitting stall before on-site construction ramps up in 2027.
What to watch: the start of civil and mechanical site construction in North Dakota during the first half of 2027. On-time site work will allow the company to recognize the bulk of the $2.4 billion contract and reach its 2027 profit range.
Core Sales Accelerated Beyond the Data Center Build
A standing concern was that the North Dakota mega-project masked flat performance in the rest of the business. In the third quarter, total revenue more than doubled from a year ago to $290.8 million. Even after stripping out the $77.8 million from Base Electron, underlying sales rose 53% to $213.0 million by our math, because utility and industrial customers ordered more projects and replacement parts.
Young said rising electricity demand "continues to drive new power generation opportunities" across coal, natural gas and environmental equipment. Customers signed $228 million of new bookings in the quarter, up 112% from a year ago and up from $151 million in the second quarter. The uncontracted project pipeline also expanded to more than $16 billion, up from $14 billion three months ago.
What to watch: the standalone parts and services revenue table in the third-quarter filing. That disclosure will show whether high-margin replacement parts grew alongside lower-margin construction projects.
December 2026 Bonds Paid Off and Buybacks Ramped
The energy-equipment group finished paying off its near-term debt maturities during the third quarter. It redeemed the remaining $61.8 million of 6.5% bonds due in December 2026, "resulting in the lowest company debt levels in recent history", Young said. That payoff cut quarterly interest expense in half from a year ago to $4.1 million, while the company also spent $38 million buying back its own shares.
What to watch: quarterly interest expense and preferred stock actions in 2027. With the 2026 bonds gone, lower interest costs will lift cash flow, though $3.7 million in quarterly preferred stock dividends still remain.
🐻 Bear Case
Unpaid Customer Bills Drained $131 Million in Cash
"We have a strong balance sheet to support our fast-paced growth which includes increased working capital, from time to time," Young said. In the third quarter, that working-capital swing was large enough to consume more than a third of the company's cash pile. By our math, operations burned $130.7 million in cash during the three months ended September 30, after breaking even in the first half.
- Operating cash flow: negative $130.7 million in the third quarter by our math, bringing the nine-month cash burn to $130.3 million
- Accounts receivable (unpaid customer bills): $260.0 million, up $89.3 million from June and $141.6 million since December
- Advance billings (upfront customer deposits): $58.8 million, down from $81.5 million in June and $112.0 million in December
- Total cash (including restricted cash): $128.9 million, down from $382.8 million in June
This matters because the power-plant builder is funding project manufacturing out of its own pocket before collecting cash from customers. Combining the $130.7 million operating cash outflow with $61.8 million of bond payoffs and $38 million of share buybacks pulled unrestricted cash down from $308.6 million in June to $71.2 million.
What to watch: accounts receivable and advance billings in the fourth quarter. Another quarter of rising unpaid bills without new upfront customer deposits would leave very little unrestricted cash for 2027 construction.
Large Project Mix and Labor Shortages Cut Margins
Revenue rose 109% from a year ago, but gross profit (sales minus the direct cost of operations) grew only 35%, from $33.3 million to $44.9 million by our math. Gross margin fell 8.5 percentage points from a year ago to 15.4%, because the cost of operations jumped from 76.1% of revenue to 84.6%. Selling, general and administrative overhead fell 10.4 percentage points to 10.5% of sales, which helped lift operating margin to 4.7%.
Two forces are squeezing direct project profitability. First, the Base Electron build is a cost-plus contract that carries lower margins than replacement parts. Second, the company said an "increase in power demand has caused a shortfall in skilled labor, such as welders and electricians", which "increased construction costs and affected productivity". The release also gave no update on BrightLoop hydrogen construction or SolveBright carbon capture.
What to watch: gross margin as on-site construction ramps up in 2027. Continued welder and electrician shortages could eat into the fixed-fee portion of the company's large project contracts.
No Second Large Data Center Contract Signed Yet
Young said data-center momentum continues to build, with the project pipeline now exceeding 6 gigawatts of opportunities, up from 4 to 6 gigawatts last quarter. However, Babcock & Wilcox still did not announce a second definitive data-center contract during the third quarter. Because quarterly bookings of $228 million ran below quarterly revenue of $290.8 million (a ratio of 0.78 by our math), total backlog slipped from $2.6 billion in June to $2.5 billion.
What to watch: a signed full notice to proceed on a second data-center power project before year-end. Without a second large award, total backlog will keep shrinking by $50 million to $100 million each quarter as the North Dakota project burns down.
Warrant Revaluation Drove Almost All Reported Net Income
Babcock & Wilcox reported $93.9 million in net income and $0.61 in basic earnings per share, but nearly all of that profit came from an accounting adjustment rather than power-plant work. The company granted stock warrants to Applied Digital and Base Electron to win the North Dakota contract, and a drop in the fair value of that warrant liability created an $85.1 million non-cash gain in the third quarter.
Excluding warrant revaluations and stock appreciation rights, net income was $4.8 million. When calculating diluted earnings per share, accounting rules strip out the warrant gain and add the warrant shares to the share count, which pushed diluted shares up 54% from a year ago to 158.7 million and reduced diluted earnings to $0.02 per share.
What to watch: the customer warrant liability on the balance sheet, which still stood at $51.8 million at quarter-end. That remaining balance will continue to cause large non-cash swings in reported net income every quarter.
💲 Other KPIs
Unpaid customer bills jumped 52.3% from last quarter and have more than doubled since December 2025 ($118.4 million). Accounts receivable grew while quarterly revenue fell 9.0% from the second quarter, showing that bill collection lagged behind project work and drove the quarter's operating cash outflow.
Advance billings — upfront cash deposits customers pay before work is performed — fell for a third straight quarter, dropping 27.9% from June ($81.5 million) and 47.5% since December 2025 ($112.0 million). The steady decline means the company is burning through earlier customer deposits without replenishing them at the same pace.
Secured debt and bonds fell after the boiler maker paid off all $61.8 million of its 6.5% senior notes due December 2026. However, because cash and restricted cash dropped from $382.8 million in June to $128.9 million, the company moved from a net cash position back to $37.5 million of net debt by our math.
🔮 Guidance
Unchanged. The full-year plan still calls for $92.5 million in Adjusted EBITDA at the middle of the range, more than double last year's $43.7 million. With $55.5 million earned in the first nine months, the middle of the range leaves $37.0 million for the fourth quarter by our math — more than double the third quarter's $17.7 million. That fourth-quarter step-up relies on seasonal utility outage work and manufacturing milestones. This follows two earlier raises (+$12.5M, +$2.5M, $0M).
New. The initial 2027 plan points to $132.5 million at the middle of the range, which is 43.2% above the 2026 plan midpoint by our math. Reaching that range depends on transitioning the North Dakota data-center project from component manufacturing into full on-site construction next year, alongside converting part of the $16 billion project pipeline into new orders.
❓ Key Questions
Which projects drove the $89 million jump in unpaid bills?
Accounts receivable rose from $170.7 million in June to $260.0 million in September, causing a $130.7 million third-quarter operating cash burn by our math. Investors need to know how much of that balance sits with Base Electron and when the cash will arrive.
Why has a second data-center contract not closed yet?
The company reserved 1 gigawatt of Siemens steam turbines last quarter and expanded its data-center pipeline to 6 gigawatts, but backlog still dipped to $2.5 billion. Management has not said what is holding up a full notice to proceed on a second award.
How did replacement parts sales and margins perform in Q3?
The earnings release did not include the revenue breakdown between high-margin parts and lower-margin construction projects. Because company gross margin stayed low at 15.4%, the quarterly filing's segment table is needed to check whether parts revenue grew from a year ago.
Did on-site construction start at the Massillon BrightLoop hydrogen plant?
Last quarter, management planned to begin on-site construction at its Massillon, Ohio commercial demonstration plant in the fall of 2026 for late-2027 operation. The third-quarter release did not mention BrightLoop or the SolveBright carbon-capture project.