BWEN - Earnings call transcript Q3 2019

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Operator

Good morning and welcome to the Broadwind Energy’s Third Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Jason Bonfigt, Vice President, CFO and Treasurer of Broadwind. Mr. ahead. go please Bonfigt,

Jason Bonfigt

Eric good earnings welcome today conference CEO, Broadwind’s President Anita, third are Broadwind quarter and COO, and Kushner; XXXX call. Stephanie morning you to and Energy's Broadwind’s Blashford. Thank With me

This at website on bwen.com. news morning's release earnings available our is

will from and non-GAAP begin call materially market may forward-looking also reference I some outlook measures. that today, statements Actual differ forward-looking we like to and some Before you statements. regarding financial results caution these would this include our plans will

Please refer statements filings We X-K morning. with SEC information. or and our our risks filed and and this forward-looking Form incorporated to Form assume consider no uncertainties in our including we SEC the the obligation attachments disclosed to there, the any XX-Q update

over Kushner. the that, turn Having said I'll to Stephanie call

Stephanie Kushner

a Jason. and Orders morning. raising bookings quarter across end the healthy million. Heavy end Fabrications affirming to in margins a were orders and $X our distributed number markets. again Power Good Thanks, of $XXX booked million a in record backlog for strong other third quarter were we

million $XX.X was XX% year ago from of and XX% revenue Our a higher sequentially. up

were our All operating profitable. of segments

team quarter to Our I’m the our reported was customers’ requirement. net share mainly expense through and the faced some just challenges works $X.XX We the We these challenges guidance. loss corporate the and proud top chain overhead. EBITDA due during million per $X.X and of of met interest above end supply way our significant of

to the orders exceed last nearly flow At for and signaled ratio $XXX from Receipts both conversion of year-to-date last book-to-bill steel of period cash quarter. X.Xx. customer year million liquidity generation. contributed and Our of our fourfold significantly for a were as deposits inventories nine-month $XX.X million up we improved free

new importance for we for repowering new to production production, other add fabrication. our a to we on focus from to addition orders as Tower adapters continue wind we project customers significant expanding a customer and to order of In booked industrial support XXXX a large large

weak Having uptick although remained October beginning $X mainly improve orders new gas we $X.X booked sequentially. orders million turbine Process an than with due by million month. to are to the more systems about the up since X% in modestly increased demand continued of at that, Gearing said content. encouraged for

recall are portion I'm upturn, while be diversification to is Having towers, excited the to to that, you chart, the about sales demand. we a our tower of objective Referring grow chart the that the through wind said in is which left, as the the cyclical managed window on systematically political our of progress. cyclicality outside of see could supportive. continue environment can from if wind we extended

On a Through set million. hand XX, million booked the customers. to our $XX of side, make we've from of business right diverse booking good we full progress continue targeted September year $XX

slide since by next a the we've the single our visual good a of progress large customer. is was dominated XXXX, On tower when business diversification made

of number developed see a one more bottom the now from customers operating logos important business of from the As you of expanded can product page, the our we've or buy segments. many whom on of with than

renewables. fired that and moderate be next peak, but upgraded of wind foreseen The to long continue originally we then and less natural slated cliff over for Utilities a has plants in economic wind gas coal and stretch are soften be XXXX the brighten. installations oil The projects have continues retirements to continue than out favor feared. identify McKenzie to will to to several for projected onshore somewhat. and for the outlook demand is turbine continues outlook [Indiscernible] still the there U.S. indications years.

wide comprising and tower right, Shown nearly meet of range energy these year of industries to amounts needs. energy favor sources Across last their bought a renewable record commercial wind increasingly customers market. customers industrial the half on the

in preliminary Korea our August and request received favorable Indonesia. consortium duties for support Vietnam, of a protective imports manufacturing the XX, on tower tower Canada, On from ruling tariffs and

expect not be will the in The and booking imports. experienced of recovery due preliminary this tower the to be priced XXXX margins XXXX. quarter, low established final for surge we duties XXXX although We today August unfairly the resolved in case reflect in until XXXX some orders are to we've

stronger looks tower working wind we're while business. the the longer medium on hard diversification term, So for for term our

masts. crushers, wind, drill in continues mining order Gearing be to motors Heavy We're demand of growth shovels, supporting robust. seeing Outside for Fabrications and both and

For have is $XX the million for gears us, as weak capacity us year rapid this in frac of sales annual been than we idled. customers growth subsided oil some been and demand mixed. which Frac experienced fleet has gas and XXXX fleet has frac from comprised more have

for most been or have XXXX, During our sales of aftermarket frac replacement gearing.

new Our refreshing. have offset customer, which fleet frac recovery expect frac partially added demand major the less do because We weakness. the in the of for orders new have needs declined inevitably industry gears a some as we than XXXX market

our consistent demand they the industrial up been and prices. our on process investments with for other have we've has and from customers to steel On been customers helpful has in focus gearbox business. steel view systems and turbine bottomed added to curtailed capital soft which gas some have appears have slightly, hand, other new flat And Demand as our markets ticking repair is custom business. growing maybe our build healthy of been weaker

mix. scheduling, diversifying continue our complex we product key and to environment about customer to maintenance challenges job In some chains we significant businesses. focus sales as a in we to As more improve go raise support are stressed. tight to and or profit Towers, fabrications our are investments our improvements face completing by and on System are operational in offerings, live broader where live supply gearing industry are production the we labor systems

will and production tight inventory this assembly. impending has sometimes inefficiencies hold as continue our meant waiting components to is This the more in builds the had and for it and in we critical have and builds slots beyond. tower QX retain probably With juggling process for inventory, that tower multiple experiencing some market, final we

monitoring The closely. business, general be down-cycle. our in XX% from particularly of majority cycle. oil be gearing can by we've insulated but wind cycle turbines not seen business. the gas demand solar Outside of We're economic largely revenue our are the softening, up service are in because our and impacted remaining and economy But significant both towers that repair any beefing offering gas, can we a greater the gearbox

our broadened to and relook product our go we expand strategy, have will we finalizing fun details the Lastly, We're and in way messaging our and at This branding and end. earlier to been offerings as has grow. a will launched new business year continue the this provide matured way year the our recent a underscores has project Consistent we with market. diversification in years. look feel and before

I'll that insight over for it With segments. turn some operating on Eric more our to

Eric Blashford

Thanks, Stephanie.

Moving meet booked to with to capacity QX both Coating follows orders our our plants in in the the margins $XX to forecasted expressing robust line segment, customers which with million. slightly of due million strong at increase installations. Towers in case. interest trade tower activity in be $XX tower continues and Fabrication improved in This orders wind were large a Heavy product part to we

the Our industrial really quarter this other team of space. in orders Heavy markets make $X including manufacturable. take an it had construction, million first record design Fabrication customers This how innovative works our line which and order particular operates our engineering with demonstrates in hydroelectric marine mining, and project to

the to this exceed for expect than line Heavy in line that same impressive given $XX orders Fabrication full-year for orders our We less which is $Xmillion. were million, XXXX,

sections sold demand. left the and to up volume XXXX at is We sequentially. evident in side and production an graph are of hand slide the the XXX increase the XX% we in ramping The QX, during quarter, XX% lower versus meet tower increase tower up

respond increasing production are Tower with spiky a albeit volume our to our to We team's mix been varying quarters and in models. of less with this ability has recent flow pleased

level proud at high our our employee that delivery safety and historically our that and levels. remain We to both improve. are And quality metrics retention continue

to continue best practices to people members plants to to team great internal recruit new our We are quickly our wealth our processes. and our help and pleased school into leverage introduce

in power towers plants the that to becoming optimize of production making the greater the taller of a both investments part are are product U.S. We mix in

were of out only on key $XX.X in of adverse XXXX. QX imported machining, $XX.X of impact generating and Even third cost coding. resources towers. million with due quarter slightly these efforts EBITDA sales recovered focused in $X.X versus have QX, a million $XXX,XXX XXXX million welding, versus the have We assembly our margins pricing to in improvements

into continue stronger Looking trend and XXXX. shaping forward up it's we expect year to to a the XXXX this to of balance be than XXXX,

As flow. and supply suppliers we through to stressing by that continues The hard production and We supply were lots seeing our Stephanie our QX work chain mentioned in are challenges with minimize earlier, our production some challenge risk working mitigate customers QX we team. are successfully to our were of to able closely our in this chain those challenges in efficiency.

production of increases support both The business has at our workforce commencement both positions. our growth and to in plants in resulted

and to training. our we The both But fabrication and talent, team by increasing many recruit commercial has skilled in internal our XX% and been are great the market in grow nearly product for developing line been have able strong expanding competing cases training June. We which customer workforce and labor with are our to requires base. since in effective continues investments in people recruiting

continue reflect our markets. efforts to and diversification new bear orders incoming as customers Our new fruit both

impressive unloading able was that cargo advantage single a be by some This were shipped to for products One simply ship. once large taking a nearly we again Heavy quarter, This port. of onsite such foot deepwater XXX barge for other long customers. our so complete it being weldment our to boom had Fabrications

area Program of the concert City Transportation, in Manitowoc a with and a region. to grant structures. versus ship other larger used working and was customer approved, us others will Wisconsin even HAP heavier or million a definite advantage Assistant strategic of is approximately the be port Department in to allowing build which strategic for us and Additionally, the $X the fabricators Harbor of upgrade This Wisconsin,

This deployed quarter, in same This plant live will system and Abilene maintenance Texas results. in business our Manitowoc thereafter. to good computerized last we we the the system our quarter it is going the gearing are with plant shortly management migrate with

a are up second to our solution continue for to and center Manitowoc machining a turnkey more demand toward with to path high increasing We our facility keep customers. adding performance our

Our begun online to with production tower additional to an we early this we and expect QX, $XX $X million machine $XX have the range reflecting to be EBITDA revenues XXXX, XXXX. higher million. in million preparations in expect range to have In million $X.X of

Moving to gearing.

have softened orders reflect of and $X.X markets orders gas last million QX, in and stated recently our QX, As We booked million quarter, XXXX oil in XXXX. that trend. incoming $XX.X versus

Our industrial gas. we're the focus from in in on steel coming which oil partially as seeing offset diversification sectors bear continues to mining, and the orders and softness fruit

Our yielded of our efforts Broadwind, assemblies core complex involve divisions. to provide and in kitting combined gearboxes, that and new offering bundled exciting the two some opportunities orders Heavy cases new solutions of and at using customer three Fabrication, least have some all

graph in wind blend can you by more customers industrial the have our the partially on the and and increases gas reflects by the that projecting. and highlights of market, markets As been from revenue It steel our we balanced sector reduction revenue was oil in mining, sectors. see replaced

to grow show to continue results. the business efforts custom Our good gearbox

Our gearbox this since grown and XXXX revenue continue. expect to we has substantially

existing to fact, and in in expanding repair for the Chicago centers considering This in service overall customer great service our in addition center customers. regional would interest we new Southeast. our business be gearbox response and our are a Pittsburgh to providing to In coverage

to in and or shipments flow gas support directing reduced oil revenue and a reflecting continuous service new lines. efficiency of down XXXX we and quarter XX% efforts gearing build from improve To both this the QX, product for million, XXXX, our growth are customers. line, business was QX, this to improvement the CI $X

mix the from profitable XX% QX, represents are fifth the This productivity However, reflecting excited this $X.X that business and realization. we straight improved continues. for quarter EBITDA XXXX this was up and for quarter positive pricing million trend

last our results financial during Foote Brad in mentioned improved QX, XXXX. I for our began As call,

challenging. So you more become our comps have

the million to We $X approximately million to expect million revenues in QX range be in yielding of EBITDA. $X $X.X

from process $X.X the customer. turbine QX, XX%, on systems our driving year-over-year due of business order content process international Orders were our for up systems. primarily XX% Moving increased for growth million, new to gas an XXXX

three solar market. Diverse bookings improved including from slightly the orders

installations. benefit will XX% as market solar growing that the we from level primarily provide. productivity $XXX,XXX a process actions in the nearly yielded systems customers were plus for new order loss the pursue in XXXX. of year EBITDA million, This the we turbine business up to activity versus QX, continue believe quarter $X.X increased Revenues versus products We implemented market for in XXXX and for QX, reflecting the price services $XXX,XXX sales earlier and positive the

Our diversify this key business efforts a priority. to remain

into press We will expand existing customers. with customers new our forward new and as position we markets

that will kitting, benefit and confident chain turbine management, services our supply are the business. We customers fabrication outside assembly gas

Our modules fourth operating the we as to priorities of increasing their to projects of our expanding by the applications. quarter market and customer power customers content processing our capabilities each such were include, panels, Broadwind within all support and for continuing leveraging existing while provide divisions diversification, weldments able share for

the consistent with be last quarter. range $X expect million with revenue We in EBITDA to positive QX

it to Now I'll his for turn Jason over comments.

Jason Bonfigt

consolidated million. QX Eric. $XX.X were sales Thanks

quarter earlier XX% of our driven by million $XX to were Sales in this sales committed consecutive increases production primarily guidance third levels. year-over-year up year. above we Our nearly Tower

tower year driven support up utilization surge turbine underway. that the Our throughout to wind installation the has industry by the plant building been is ramp

will utilization Tower was roughly QX. in XX% prove QX, and again this In plant

Our year. line expansion. than uptick has in expanded Tower other in focus Growth Gross gearing X.X% gas continues in Fabrication demand growth offset to driver margin our system more in gearing offset demand. X.X% term decline new this last product important corresponding segment the and a to of lower content our profit partially utilization Heavy allowed turbine and in process near in markets QX the margins an oil plant in and from business be gas. recent to

certain lines of on Additionally, a businesses we in process in we had have these of Overall, year-over-year. better and performance gearing actions have mix each operation have price improved product systems. and taken in production

last which of time temporary tower priced a were a tower lower tower unfairly surging when We through the are year margin These weighing contracts into managing our executed period performance. on contracts, market. are financial were imports at

next into and the As year margins the to case, move trade improve. expect we due filing we to of

of lower efficiencies to and majority due QX in contracts should a fulfilled be tower these margin further realized in are volume. As increases production

prior and our the operating cost during to was increase demonstrating Operating our million $X.X a revenue were X% of quarter compared expenses XX% quarter, as the in modest a Operating expenses approximately percent management. the year-over-year. on year during leverage focus

last and Our impact year, expenses. insurance program of offsetting costs running incentive which is increases the below medical are compensation in

of the Our include consolidated credit $XXX,XXX year. income the segments the had prior compared in loss prior $X.X EBITDA guidance improvement million in representing to EBITDA to is was $X.XX associated all $X.X million quarter operating compared operating gain and $X.XX in prior $X.XX the loss QX Year-to-date did forgiveness. above quarter. quarter during the range the delivered We year-over-year non-cash quarter. The tax market year a new million with upper our end $X.X and during loan

from during a to approximately the $XX most The nearly declined end past months the to deposits advance million to to to we capital $X related five $XX in six these the contributor significant at million. deposits Typically, was working Operating this production. signed four months. of of contract in receive reduction million four QX quarter of collection down

to our urgency are benefit. surge at next and customers quarters. the normal deposit installations, the will tight than due XXXX This the production capture the one supply chain However, for PTC to to full of securing least earlier spots two elevate the balances

have quarter. our million driven the for decline of predominantly nearly held that X.Xx. declined we capital inventory million pre-buy we steel the balance a a from by now steel $X as sheet in and in on has reduction improved was Pre-buy of are reflected also inventories during $X.X the the to working This The of past to result expecting million $X.X healthier consume the four to efficiency steel majority quarters. reduction QX, a a

to chain typically challenges another I'm inventory higher expecting lead QX, modestly less levels in which balances. as to plans, write-down supply will efficient most lead not in likely inventory

We or material of drawdown to pre-buy to XXXX production also steel. the delivery support expect outpace

metrics DPO levels. stabilized this these and of consistent are as year a have aggressively, result production we managing more Although, DSO

We and which allows now programs capital. cash customers improves offering cost to flow that are of DSO have us borrow at their several financing lower our

Due QX, in to quarter. this meaningful introduced balance expect the DSO cash capital, from days now we our operating XX decline and practices flow last year expecting cash program financing XX working in I'm to improvements days more the typical is than near offset as of conversion program to management cycle dropped end. sheet see impact the that

organizational incentive the reminder, will think be across metric. a and a tied is behavior over year right for to past a been as this this and to organization We the compensation partly result us. continue us and for this As the has priority this driving an focus awareness is

of As capital working of XXXX. as on noted the was the graph, seen since on side operating we the a the have sales lowest right percent slide, QX

healthier continue a we to We with to XX%. into as a of in that range working and QX today capital expect sales remain below are operating percent

reduced approximately balance our million accounts due under line over balance last $XX.X million $XX $XX our collected, of quarter to $XX $XX quarter had to credit million credit at in deposits and of a end to higher million over sequential improvement. million which our end, We our sheet, rates. under million, Moving from capital million million This to $XX reduced sheet at decrease was credit receivable advance X/XX improvement $X.X line working balance of liquidity quarter of at Availability a dropped which debt X/XX. finance of line expected our sequentially. of $XX.X had leases

$XXX,XXX QX. was in expense interest Our

the and our end surge average quarter near the notably debt reduced payments of received usage quarter higher Our throughout line was significantly. credit of

we interest to end is interest this line QX and of expecting expense. near the benefit and reduced of as at a to full were to borrowings, quarter applied receive we $XXX,XXX. Again, our it expense is quarter minimize the cash mechanism practice an was are $XXX,XXX effective to As really the zero drop to receipts customary

the be into the delivery projecting are machining further slip will We mostly This range as new to end XXXX sales. of fabrication at lower timing reduction support is center our X% our of to our spend related objectives the capital XXXX. of to guidance early growth large closer

or to XXXX, range. X% For X% sales expenditures capital modest a fall of we expect in

progress good going years two deploy this we're diversification continue to made and fabrication have and to fuel We our key to to past capital growing the line product in three our initiative. expand competencies

Outside of we expect gearing product investments sites. the new targeted and line, and impact investing of in make Heavy in Fabrication support further investments to improve to sizes operation of evolving to tower weights performance

performance our QX, positive quarters production despite the momentum firming. labor two guided chain constraints. and we margins After financial in challenges backlog was orders, in well-positioned Our as in for of are are supply XXXX ongoing and

our of We are our diversification progressing revenues. million now strategy is non-wind $XX annual business and

will capital, We continue to processes expand people this in investing further.

is summary $X.X above million EBITDA and be million. $XX $X to to of QX guidance million revenue Our approximately

of be less production through QX. likely chain constraints, result improving labor still continuing complexity which low supply through in efficient margin and plans will be Although, in is working a we we'll most manage volume the will to contract tower and

risk will provide We and mitigate a are working months. in more updates to progress our in we few this

Q&A over turn prepared the and session. the call operator our for I'll remarks concludes the That

Operator

you. Thank

ROTH Please go The the Instructions] question-and-answer Capital ahead. [Operator Justin Clare Partners. begin now will We from today question with first session. comes

Justin Clare

Hi, everyone.

Stephanie Kushner

Justin. Hi

Justin Clare

Fabrications. in as in was next just I if for first, and Towers an expected additional I quarters we adding could business see customers up of here in wondering as provide you the and customers coming is discussions in ramp especially customer traction update you've guess the Heavy demand whether new generally last to gained So the well as Towers adds year? on quarters the could with having couple you're

Eric Blashford

include all the Well capacity, at it them certainly major the and customers you in two, is are of United which of doesn't repowering. for fourth [Indiscernible] produce of expect three for least to Justin those as States we four talking know, the XXXX and are there we in for with likely kind it OEMs

produce in So, I additional customers us more do expect to XXXX.

spear effort Regarding focusing constant Fabrications the of that kind that tip We that's on. are we're us. Heavy a there targeting do of on for people have things two the out markets

I us start and so once to expect in As share earlier production. more there's solar But as so are these do mentioned an tend more as customers penetrate small example, on us announce those, Justin, do give to to successful of area. you'll hear and slow that and we with I their they us marine, they larger bring accounts we orders more

Justin Clare

talk what grow here? you on is benefits financial business overall just Can then, help Heavy that fabrication the that? you you was do picture business, margin the from business, like profile I growing nicely important for heavy becoming if could you continue wondering more And understand greater Fabrications this and the the to here. looks to scale get and about as us

Eric Blashford

Sure.

the addition Heavy the factories. to diversification of Fabrications and our benefits One the workforce flexible use in is biggest of our of

previous calls instead reclaiming storage dedicated generate We're me parts. So, that stored heard inventory previously we're in parts were all managing job with mention of just of better doing reclaiming of areas plants the actually our inventories. a having that revenue we've to to plants so you've of been

that the Towers. the also they're say They kind complexity would with I us margins, to asking the do. of to margins consistent are vary to Regarding what due of

overall the provide and content tends our welding but you've not and within improve our if have instance, me it that increase but a do welding it's lower tends to some mentioned, them I For for heard a margins overall assembly, improve simply us those margin, to able just to are wants painting sales, customers. want to customer that and as we and to only machining

Stephanie Kushner

to Justin. Well, add just let me that

you over the say are a low, the low fab that's we norm. when kind cycle. you'll see actually and quarter, margins double-digit at higher. this our EBITDA are comparable margins quite say you Right Tower for industry particular to what towers are heavy if would think they're comps fabrication, margins Towers, now or I see margins of metal In look I will the

Justin Clare

Thanks color the there. for

chain business bit on components there? more to materials the the helpful shifting can components problem, but you supply detail you here, any then, specific would detail and provide mentioned So be Towers were internal challenges there? think, driving are again the more I a a that

Jason Bonfigt

internals Yes. the upwards could plate and from manner. come those may delivery XXX global is of a the included through those now. we're kits Typically, kits Steel internal right efficient and have installed XXX of kits the not distributors timely build really process. several that so to issue that that and parts the It's parts in are in those managing the end of manufacturing at the in very

we really boots, lose So on really now have, that slots. utilize our resources paint what right focused that to our we're production is rollers so the we finite don't

So of don't move in a to build. if to we parts. just led inefficiencies delays our when able to could around really leads has missing a sections in few of accommodate But later it production. have some our to facilities it to parts we're overtime and to We're kind it complete lead

Justin Clare

is that as Is there considering what's supply the there? constraints the because that labor turn limit ability well risk orders you shortages have customers? supply then, the that to So potential of may issues your the here down risk what or as to supply chain

Stephanie Kushner

No.

make are slots I sure stage are scarce production say is the what trying carefully and our to on holding will. resource paints early assembled think requirements. those if lose in fully we're little of side our meeting we're the inventory what don't maybe not more to we're the accepting Jason all and doing of is you sites was on sections. any And managing a customer if most our we slots then, that pain we

Justin Clare

seeing Towers quantify or indicated backlog will for you in Can then next much are as that you through that improvement QX when be Will how that early improvement flow the QX, more you're improving. margins is year? then, financials? the that And and as QX

Stephanie Kushner

think we year. we're guidance up So, to should QX soon do not giving our next another million really XXXX, as million as $X.X for and see we gradual be but it's Tower $X EBITDA full

Justin Clare

last one question for then, And me.

have concern With whether being in the or any a are to being at tariffs forward trade if tower ongoing implemented? change of case a the you seen point there's due level this imports things reduction pulled about

Eric Blashford

this do delayed. reporting imports spiky the Justin, we do is is them We to on tend that. and Eric, monitor be The

should the or in again we seen So another point we this I data be haven't somewhat month but to which us an on delayed. at that's impact. is any able available haven't two see impact, seen to

Justin Clare

That's Thanks it for much. me. very

Stephanie Kushner

Thank you.

Operator

appears any no Instructions] questions. I to Kushner our over the conference be remarks. to for There This [Operator further would concludes Stephanie question-and-answer back turn closing session. like to

Stephanie Kushner

Thank for momentum building feel we feel your and the interest. about thanks quarter good QX We we're you and good like XXXX for and and beyond.

look we very Thank forward another to updating you you quarter. in So, much.

Operator

you today's This conference presentation. for is now concluded. Thank attending

now may You disconnect.

Broadwind (BWEN) 29 Oct 192019 Q3 Earnings call transcript