Greetings, and welcome to Broadwind's Third Quarter 2024 Conference Results Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Tom Ciccone. Thank you. You may begin.

Good morning, and welcome to the Broadwind Third Quarter 2024 Results Conference Call. Leading the call today is our CEO, Eric Blashford; and I'm Tom Ciccone, the company's Vice President and Chief Financial Officer. We issued a press release before the market opened today detailing our third quarter results. I would like to remind you that management's commentary and responses to questions on today's conference call may include forward-looking statements which, by their nature, are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially. For a discussion of some of the factors that could cause actual results to differ, please refer to the Risk Factors section of our latest annual and quarterly filings with the SEC. Additionally, please note that you can find reconciliations of the historical non-GAAP financial measures discussed during our call in the press release issued today. At the conclusion of our prepared remarks, we will open the line for questions. With that, I'll turn the call over to Eric.

Thanks, Tom, and welcome to those joining us today. Broadwind delivered a solid Q3, highlighted by near double-digit EBITDA margin and our seventh consecutive profitable quarter despite reduced revenue. Offsetting a transitional pause in new wind tower demand, third quarter results benefited from a higher-value sales mix, improved execution, and targeted cost reduction actions. We booked $23 million in orders in the third quarter, a 45% increase from the year-ago period, driven by increased demand across all reporting segments. Heavy Fabrication saw increased demand for the adapters used to repower wind turbines and for our pressure reduction systems, partially offset by decreased orders in the industrial and mining sectors. Gearing orders increased 46% year-over-year due to increased demand from the power generation and infrastructure markets. Orders from our Industrial Solutions segment increased 52% year-over-year due to strength in the global gas turbine market. At a commercial level, we continue to expand our product mix within higher-margin adjacent markets. Quoting activity is elevated at all segments, but most notably in our Heavy Fabrications and Industrial Solutions businesses, where quoting is up more than triple year-over-year, reflecting improved demand and the impact of our commercial efforts across our non-wind markets, such as material handling, mining, and power generation. Operationally, we continue to invest in innovative technology to improve our process capabilities, reduce costs and improve our profitability. Our tower facility in Abilene installed a new portable milling system to machine flanges. This new flange mill is used to machine the surface between the top flange of a tower and the cell of a wind turbine. The new mill holds tighter tolerances, improves surface finish and reduces the setup time for a total reduction time of approximately 25% for that key process. Gearing continues to invest in technology that supports improved efficiency and speed to market. Most recently, the organization has deployed portable laser scanning and product measurement equipment to develop the 3D models used by our commercial team to quote gearbox designs, retrofits, or repairs, reducing our quote turnaround time by 75%, literally from weeks to days. Beginning in the first quarter of this year, we undertook significant actions to align our cost structure with the current demand environment. In combination, these actions will contribute more than $4 million in annualized cost savings, which is evident in our results. As demand conditions begin to improve, we believe these actions position Broadwind to realize improved operating leverage entering 2025. Q3 revenue declined versus year-ago levels, primarily due to lower tower demand. Our non-wind activity levels remained relatively stable as we see demand for our precision manufacturing capabilities across multiple markets. In Q3, we generated EBITDA of $3.4 million and net income of $0.1 million. Within our Heavy Fabrications segment, Q3 revenue was $21 million, down 46% from a year ago, primarily due to the decline in tower production and PRS shipments, partially offset by increased sales of mining equipment. Gearing revenue was $9.2 million, a 19.6% reduction year-over-year due to broad-based softness in the oil and gas market, offset by an uptick in sales into the mining and industrial categories. Industrial Solutions revenue was $5.7 million, down 22.8% year-over-year primarily due to the absence of a large international project shipped last year, which did not repeat. In summary, the operating performance of all divisions continues to be strong as we quickly respond to demand fluctuations in the business. With that, I'll turn the call over to Tom for a discussion of our third quarter financial performance.

Thank you, Eric. Turning to Slide 5 for an overview of our third quarter performance. In Q3, we delivered our seventh consecutive quarter of profitability. While revenue continues to be adversely impacted by the ongoing pause within the onshore wind industry as well as an extended slowdown within the oil and gas sector, we were still able to maintain an adjusted EBITDA margin approaching 10%, a testament to our higher value sales mix, solid execution, and targeted cost reductions. In Q3, we generated $3.4 million of EBITDA compared to $7.6 million in the prior year period, due mainly to a 54% year-over-year decline in wind tower sections sold. This reduced level of power sales versus the prior year is consistent with our previous commentary regarding the slowdown of Abilene production late in 2023. Turning to Slide 6 for a discussion of our Heavy Fabrications segment. Third quarter orders of $11.1 million are up both sequentially and versus the prior year period as we recognized orders related to wind repowering projects during Q3. We are currently building repowering adapters for two different wind OEMs at our Manitowoc, Wisconsin, facility, work that will continue into 2025. Third quarter revenues were $20.6 million, down almost $18 million versus the prior year quarter. During the third quarter, we recognized segment EBITDA of $3.4 million, a decrease of $3.5 million versus the prior year period, primarily driven by the decreased revenue levels, partially offset by targeted cost actions taken towards the end of 2023 into 2024. Turning to Slide 7. Gearing orders of $4.4 million are up $1.4 million versus the prior year. Although we experienced an increase versus the prior year, orders of this scale are below desired levels, primarily due to continued softness in oil and gas activity. As we have mentioned in the past, we have recently made a significant investment in machine technology and expanded our commercial efforts, and we expect to see a corresponding increase in orders in the near term. Segment revenue was $9.2 million, down $2.2 million versus the prior year quarter. Q3 segment EBITDA was $0.6 million, a decrease from $0.9 million recognized in the prior year quarter. These decreases are reflective of the lower order intake levels we've been experiencing over the past four to five quarters. Turning to Slide 8. Industrial Solutions recorded orders totaling $7.4 million in the third quarter. This represents an increase both sequentially and versus the prior year and a near record booking level for the segment. The segment has been experiencing strong commercial interest due to demand strength for natural gas turbine content, most specifically for new gas turbines, and we expect order strength to continue into Q4. Q3 segment revenue was $5.7 million, a decrease versus the $7.4 million recorded in the prior year period. The prior year revenue total included a large international shipment, which did not repeat in the current year. Q3 segment EBITDA was $0.6 million, a decrease of $0.3 million versus the prior year period, reflective of the decrease in segment revenue. Turning to Slide 9. We ended the third quarter with total cash and availability on our credit facility of $19 million, a sequential improvement versus the second quarter. As discussed last quarter, after a significant decrease during the first half, our deposit balance returned to a more typical operating level at the end of Q2. During Q3, we experienced a moderate decrease in our operating working capital balance for the first time this year, and we had positive cash flow of $4.8 million. During the fourth quarter, we are anticipating inventory levels to increase as we expect to be holding larger amounts of finished goods in accordance with our customers' shipping needs. As such, we anticipate a meaningful Q4 increase in operating working capital and a temporary increase in borrowings. Finally, with respect to our financial guidance, today, we are introducing financial guidance for the fourth quarter of 2024. Given our current expectations and beliefs, we anticipate fourth quarter revenue to be in the range of $31 million to $33 million and adjusted EBITDA to be in the range of $1 million to $1.5 million. That concludes my remarks. I will turn the call back over to Eric to continue our discussion.

Thanks, Tom. Now allow me to provide some thoughts as we enter Q4, beginning with our Heavy Fabrications segment. We believe domestic onshore wind activity is poised to accelerate in 2025 and 2026, given current indications of interest from customers. We are encouraged by the momentum in the wind repowering market as we support multiple customers as they update and repower legacy turbines to increase their power generating capacity while extending their useful lives. As sustained higher interest rate environment has impacted project economics for some developers, leading them to delay or defer the timing of their investments. However, recent reductions in interest rates and declining steel prices will benefit wind project economics over time. We remain confident on the long-term economics of wind, given the improving capacity factors of turbines and a competitive cost of wind power, particularly with a 10-year tax credit visibility afforded by the IRA. We're excited about the launch of our newest model in the family of natural gas pressure-reducing systems, or PRSs. The Broadwind Clean Fuels L-70, low-flow PRS unit is the third model in this product family. It's now in field testing, and we're seeing strong customer interest in this model, given its performance specifications, compact footprint, and attractive price point, making it the ideal solution for industrial applications such as primary or backup power supply systems and pipeline integrity projects. In our Gearing segment, efforts to broaden our sales mix into less cyclical markets continue, positioning us to realize a more balanced, stable revenue profile. We continue to execute our strategy to move beyond traditional gearing to other precision machine products. We're pleased at the increasing level of customer activity we're seeing as a result of our investments in process capabilities and qualifications. As customers continue to reshore, we are well positioned to provide them with a quick, high-quality, and competitive alternative to their legacy suppliers. Furthermore, we continue to advance our growth and diversification strategy in gearing, having recently completed our AS9100 quality certification, which will allow us to begin serving the aerospace market with direct customer qualifications currently underway. In our Industrial Solutions segment, the momentum that we've experienced in the gas turbine industry in the first half of 2024 continued into the third quarter as our key customers are seeing strong demand for gas turbine equipment and services and are reporting strong backlogs. Accordingly, quoting activity remains high, tripling in volume from the prior year. As a reminder, our Industrial Solutions business provides supply chain solutions, custom fabrications, and control panel manufacturing for the growing combined-cycle natural gas turbine market driven by demand growth attributable, at least in part, to data centers and other sources of increasing load for electricity worldwide. As a result, in this business, we're on pace for another record order year surpassing the previous record set last year. In summary, I am pleased with the strong operational performance from our team this quarter as we continue to demonstrate strong execution on our strategic priorities. We've reduced our cost structure during a transitional period for domestic onshore wind demand while retaining our key talent and continuing to work on vital activities like process improvement and product expansion. Our focus on team member safety has yielded a 51% reduction in our recordable incident rate so far in 2024, well below the industry average. And we have had zero lost time incidents this year. We're committed to keeping our people safe and productive. We continue to build a firm foundation for steady profitable growth, serving the power generation, infrastructure, and other key markets with high-quality precision components and proprietary products to capitalize on improved demand in the years ahead. With that said, I'll turn the call back over to the moderator for the Q&A session.

Our first question comes from Eric Stine with Craig Hallum.

So starting with wind, I understand there is some uncertainty, but I also feel a sense of cautious optimism. How do you view the business today compared to a quarter or a few months ago? Has your perspective improved or softened? Additionally, how does the election outcome influence your view for 2025 and beyond?

Well, I'd say my opinion has improved a little bit in terms of optimism. I think any time there's an election uncertainty, people tend to pause. Now that the election is complete, I think there might be a little bit of release. I don't think the election will impact wind or impact Broadwind really in any way. Just keep in mind, our wind business benefits both sides of the aisle. We're a manufacturer producing wind turbine towers and a bunch of other things. So I really don't think the election will have an impact on Broadwind certainly not in the near or medium term.

Got it. And then maybe just thinking about '25 and all the moving parts across your business, I mean, do you look at '25 as kind of that's the year where you see follow-through in the order trends you're seeing now, order recovery throughout the year and then it really sets you up for '26? Or, I mean, is this something where you think that what you're seeing now and what you would see early in '25, potentially bodes very well for '25? Just curious whether year-over-year look or however you want to describe it.

Yes. Thanks, Eric. We've got really good visibility of our wind turbine tower production really through the first three quarters and then some in 2025. we've got some customer activity that I think is accelerating in terms of demand as RFQs and things like that, talking about late '25 and into 2026 volumes. So I continue to believe that 2025 is going to be similar to 2024 in terms of volume with a little bit of an uptick. We mentioned adapters that tend to be strong for us. That's the wind industry. And I do think we should start seeing some order activity towards the Q3, Q4 time frame in 2025 in preparation for 2026 volume. I do expect it to ramp up a bit.

Okay. So that's the commentary on wind. I'm thinking about the rest of the business. Is it...

Sure. First, I want to highlight that our services supporting power generation are robust from various perspectives including gearing, industrial solutions, and PRS. This is a key reason for the strong order activity we are experiencing in Industrial Solutions. The power generation market appears to be entering a super cycle, especially considering the low electricity generation and demand in the U.S. As for our other markets like material handling, industrial machinery, and mining, we anticipate they will either remain neutral or see a slight decline in 2024. However, we expect a positive shift as we move past 2024 into 2025. For instance, material handling is projected to have an upward trend through 2027, particularly for our large cranes. The industrial machinery market is also expected to show a steeper positive trend compared to material handling. Additionally, engine, turbine, and power transmission sectors are demonstrating strong performance. Mining is predicted to experience some growth, although not as pronounced as the other three markets mentioned. Overall, I believe we are well positioned as we begin an upward trend across all these markets.

And arguably, oil and gas, I guess, the general thought would be that oil and gas set to improve given the administration change?

Yes, I didn't mention that, but that's the area that continues to be soft. However, you're correct that our customers have expressed interest in placing orders for fracking pumps and similar products. They have been waiting, to be honest, for the outcome of the election either way. Nevertheless, now that the election has concluded, I believe it indicates positive prospects for the oil and gas sector.

Our next question comes from Amit Dayal with H.C. Wainwright.

With respect to power generation, Eric, outside of wind, can you provide some insight into the products and services you are offering?

Yes, thank you. The Industrial Solutions segment based in North Carolina primarily focuses on providing services related to combined-cycle natural gas turbines globally. We offer supply chain solutions, light manufacturing, and panel manufacturing for the delivery, upgrades, and new installations of natural gas turbines worldwide. The market for this is very strong. For instance, one of our customers recently went public and announced they are sold out for the next five years and are planning to expand their capacity. We are aligning with that growth. Therefore, natural gas power generation is significant for us, and we are performing well in that area. Additionally, wind power generation and the PRSs we offer also contribute to power generation.

Okay. I mean natural gas could be a beneficiary under this new administration. So it looks like all the diversification efforts you have put in place should...

Right. This trend started before that, before the election. But you're right, I think it will only strengthen. And if you mentioned data centers and AI, the load increase, not to mention electric vehicles, it's just going to be fantastic for the United States and globally. And so we participate in most of those markets.

Understood. No, that's good to know. You've taken a lot of steps to cut costs. It looks like you are there now. Probably not much more room to sort of cut costs from here. But from a revenue growth perspective, outside of wind, obviously, that is a separate segment for you. But for other segments, other products, what are the revenue growth strategies that you may be looking to implement? Is it just maybe branding or building a stronger sales team? Just trying to understand what you're already doing today and what you may be thinking of doing that can sort of now allow you to create some leverage for...

Yes, that's a great question. We have been focusing on this alongside our diversification strategy, which I see as comprising three key areas. First, we need to enhance our process capabilities to enter new markets and offer new products, and we have made progress on that. For instance, in Industrial Solutions and Gearing, we've invested in advanced five-axis equipment. Next, we need to ensure we have the necessary quality certifications. We have been improving our certifications, especially in Gearing and across other divisions, including ITAR, CMMC, and AS9100 for aerospace and defense. These qualifications are now in place. Lastly, we need to enhance our commercial outreach. Despite the cuts we've made to fixed overhead and SG&A costs, we've strengthened our commercial team by adding skilled individuals who understand these new markets. This allows us to leverage our improved process capabilities and quality certifications effectively. I mentioned earlier that our requests for quotes have tripled in both Industrial Solutions and Heavy Fabrications, and nearly doubled in Gearing. We are starting to see positive results from these commercial initiatives and are optimistic that this will translate into bookings as we move into Q4 and Q1 '25.

Yes, Amit. And just to add to that, I think really what we're trying to focus specifically within our Gearing segment, we're really trying to focus on the non-gearing, the precision manufacturing, precision machining business and just market those capabilities.

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Eric Blashford for closing comments.

Yes. I've had a question about our Q4 guidance. I just want to remind the audience that part of that is because we had some of our customers pull volume into Q3 2024, which is why our Q3 2024 was so strong. So when you combine Q3 and Q4, it actually is really aligned with what the analysts thought we were going to be. So we're pleased to have delivered such a strong Q3. And when you add Q4 to it, it will add up to a strong second half of the year. Again, thank you for your attention on this call. We're excited for what we're doing here at Broadwind and look forward to coming to you and talking about our Q4 results early in the year. Thank you.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.