Babcock & Wilcox (BW) Q2 2025: Parts & Services Revenue Jumps 31% on Data Center Power Surge
Babcock & Wilcox delivered a transformative quarter as surging electricity demand from AI-driven data centers fueled a 31% rise in higher-margin parts and services revenue. Debt reduction accelerated with the $177 million Diamond Power sale, while backlog climbed 49%, signaling multi-year demand visibility. Management’s focus on asset-light growth, debt discipline, and energy transition technologies positions BW for a structurally improved outlook into 2026.
Summary
- AI Data Center Boom Drives Core Growth: Parts and services revenue soared as fossil plant utilization increased to meet unprecedented electricity demand.
- Balance Sheet Reset Accelerates: Diamond Power divestiture and bond exchange sharply reduced net leverage and extended maturities.
- Backlog and Pipeline Signal Multi-Year Upside: Record backlog and a $7.6 billion project pipeline anchor visibility into 2026.
Performance Analysis
Babcock & Wilcox’s second quarter results were defined by a sharp mix shift toward higher-margin parts and services, with this segment posting 31% year-over-year revenue growth. This surge was propelled by the rising need for baseload power, particularly from data center expansions and increased industrial activity, leading to greater utilization and life extension of existing coal and natural gas plants. While total consolidated revenue from continuing operations was flat year-over-year due to project timing, the underlying business mix improvement was material for profitability.
Adjusted EBITDA from continuing operations nearly doubled, reflecting both the margin-rich nature of parts and services and disciplined cost control. The company posted an operating income of $8.1 million, a marked turnaround from a loss in the prior year. The sale of Diamond Power for $177 million provided a significant deleveraging event, dropping net debt to approximately $204 million and relieving going concern doubts. The backlog swelled 49% to $418 million, underpinned by North American demand for plant upgrades and conversions. Free cash flow inflected positively, as management guided for cash generation in the second half, supported by asset sales and improved working capital.
- Parts & Services Margin Expansion: Higher utilization of legacy fossil assets drove mix shift toward aftermarket, boosting profitability.
- Project Timing Damped Headline Revenue: Large project revenue was lumpy but did not offset underlying strength in recurring businesses.
- Debt Reduction and Liquidity: Diamond Power proceeds and bond exchanges reset leverage and extended maturities, improving financial flexibility.
BW’s core business is now structurally stronger, with a more resilient margin profile and multi-year demand tailwinds tied to secular electrification trends.
Executive Commentary
"We generated strong operating results highlighted by strong performance from our parts and services business, which posted a 31% increase in revenues compared to the second quarter of 2024. This growth has been spurred by the rising need for power and electricity due to the rapid expansion of AI-driven data centers, as well as increased baseload generation usage across the consumer manufacturing and industrial sectors."
Kenny Young, Chairman and Chief Executive Officer
"The refinancing and reduction of our current debt obligations continues to be one of our top priorities. We have taken strategic steps to address our debt obligations, and today we are extremely pleased to announce that B&W has alleviated the previous doubt about continuing as a going concern. This is a major step forward for B&W, and we believe that we are well positioned to support our customers in meeting the growing need for reliable and efficient energy."
Cameron Freymeier, Chief Financial Officer
Strategic Positioning
1. Capitalizing on Data Center Electrification
BW’s core value proposition is tightly linked to the surge in AI and cloud data center demand, which is triggering unprecedented baseload electricity requirements. The company’s parts and services segment benefits directly from increased runtime and life extension of existing fossil generation, driving recurring, high-margin revenue.
2. Asset-Light Model and Debt Discipline
The Diamond Power divestiture and bond exchange mark a decisive pivot to an asset-lighter, more capital-efficient profile. Management is actively pursuing additional non-core asset sales and refinancing, with proceeds earmarked for debt reduction and working capital, further lowering risk and enhancing optionality for future growth investments.
3. Technology-Driven Energy Transition
BrightLoop, BW’s modular steam and hydrogen generation platform, is gaining commercial traction as utilities and industrials seek flexible, lower-carbon solutions. The technology’s ability to produce steam or hydrogen from multiple fuels, with optional carbon capture, positions BW as a differentiated supplier for both today’s fossil-heavy grid and tomorrow’s decarbonized landscape.
4. Backlog and Pipeline Visibility
A 49% increase in backlog and a $7.6 billion identified project pipeline provide multi-year visibility and underpin the company’s confidence in sustained growth. Management highlighted active negotiations for large U.S. plant upgrades, conversions, and data center-adjacent projects, with announcements expected before year-end.
Key Considerations
This quarter marks a clear inflection for BW’s business model, as secular electrification trends and disciplined capital allocation converge to strengthen the company’s long-term outlook.
Key Considerations:
- AI-Driven Power Demand: Data center growth is accelerating fossil plant utilization, extending asset lives and boosting aftermarket revenue.
- Debt and Liquidity Progress: Proactive asset sales and refinancing have significantly reduced leverage and extended maturities, lowering financial risk.
- Transition Technology Optionality: BrightLoop’s ability to flex between steam and hydrogen production, with embedded carbon capture, offers a hedge against regulatory and market shifts.
- Backlog and Pipeline Quality: A record backlog and robust project funnel suggest strong forward revenue and margin visibility, though large project timing remains variable.
Risks
BW remains exposed to project timing volatility, especially for large new-builds and conversions, which can create quarter-to-quarter revenue swings. Regulatory uncertainty around fossil generation and carbon policy could impact customer investment decisions. While debt risk has been reduced, further asset sales and cash generation are needed to fully secure long-term balance sheet health. Execution risk on BrightLoop commercialization and customer adoption remains a key watchpoint as energy transition dynamics evolve.
Forward Outlook
For Q3 2025, BW management signaled:
- Continued strength in parts and services, driven by high fossil plant utilization
- Ongoing asset sales and refinancing initiatives to further reduce debt
For full-year 2025, management maintained a constructive outlook:
- Positive free cash flow expected in the second half, excluding BrightLoop investment
- Backlog and pipeline conversion underpinning confidence for 2026
Management highlighted several factors that will shape results:
- Mix shift toward higher-margin aftermarket businesses
- Potential for large project awards and announcements by year-end
Takeaways
BW’s Q2 marks a structural pivot as secular electrification demand and disciplined capital allocation converge.
- Business Model Transformation: Asset-light, high-margin aftermarket now anchors profitability, with data center-driven demand extending the fossil generation runway.
- Balance Sheet Strengthening: Debt reduction and refinancing have removed existential risk and enable strategic flexibility.
- Energy Transition Optionality: BrightLoop and pipeline visibility position BW as a key player in both legacy and emerging energy markets.
Conclusion
Babcock & Wilcox’s second quarter results confirm a business model transition toward resilient, recurring revenue and lower leverage, driven by secular power demand and disciplined execution. With a record backlog, robust pipeline, and emerging transition technologies, BW is structurally positioned for multi-year growth and margin expansion.
Industry Read-Through
BW’s results highlight the accelerating impact of data center electrification on North American baseload power demand, with legacy fossil assets running harder and longer. Aftermarket suppliers with deep installed bases are poised for margin expansion as utilities prioritize uptime and life extension. The rapid shift toward asset-light models and debt reduction is a cautionary tale for capital-intensive peers. BrightLoop’s hybrid steam and hydrogen platform reflects a broader industry move toward modular, flexible solutions that can bridge today’s fossil grid and tomorrow’s decarbonized landscape. Project timing volatility and regulatory uncertainty remain sector-wide risks, but secular demand drivers are creating new winners in the aftermarket and energy transition value chain.