Earnings Call Transcript - BWEN Q1 2025

Operator, Operator

Greetings and welcome to Broadwind's First Quarter and Full Year 2025 Results Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Tom Ciccone. Thank you. You may begin.

Tom Ciccone, Vice President and CFO

Good morning, and welcome to the Broadwind first quarter 2025 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 first 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.

Eric Blashford, CEO

Thanks, Tom. And welcome to those joining us today. Broadwind delivered solid commercial and operational execution during the quarter, with revenue and adjusted EBITDA of $37 million and $2.4 million, respectively, with increasing momentum reflected in sequential growth in both revenue and gross margin. Stronger demand for wind repowering adapters supported our revenue this quarter, while our disciplined operations produced a positive EBITDA margin despite a lower margin product mix and supply chain delays. Customer activity continues to accelerate with order rates increasing 5% year-over-year to $30 million. Stronger demand for wind repowering adapters and natural gas turbine content more than offset lower demand in mining and natural gas pressure-reducing systems, or PRSs. These market dynamics highlight the importance of our diverse customer base especially during times of U.S. trade policy uncertainty. Orders within our Heavy Fabrication business increased 10% year-over-year due to continued strong demand for the adapters used to repower wind. Orders for our Gearing business continued their upward sequential trajectory, increasing 13% versus Q4 2024 as we have begun to realize sizable wins in the strategic power generation market as well as a lift in oil and gas gearing, which we believe is partially due to tariff-related onshoring. Orders from our Industrial Solutions segment increased 38% year-over-year due to continued strength in the global gas turbine market setting another record for orders and backlog in this segment. At a commercial level, we continue to expand our product mix within higher-margin adjacent markets. Quoting activity remains elevated in all segments, but most notably in our Heavy Fabrications and Industrial Solutions businesses, where we're seeing strong interest from the power generation market. We are prudently adding resources to meet this increasing demand. In the gearing market, we're pleased to see that the investments made in equipment and quality certifications over the last year are returning dividends in the form of new orders from new customers in power generation and defense. Operationally, we continue to invest in equipment technology to improve our process capabilities, reduce costs and improve our profitability. In the Industrial Solutions segment, we're investing in advanced testing equipment to expand our transmitter panel offering and are moving forward with a UL certification for electrical panels to further expand our offering. In heavy fabrications, we've invested in new milling and beveling equipment to improve throughput and precision in our wind tower and repowering adapter manufacturing processes while reducing costs. Looking at sales in the first quarter, revenue was slightly below the prior year quarter due to the absence of a large natural gas turbine aftermarket shipment in the prior year and softness in the oil and gas gearing market, offset by stronger shipments into the wind market. Within our Heavy Fabrication segment, Q1 revenue was $25 million, up 15% from a year ago mostly due to the aforementioned increase in demand for wind tower adapters, partially offset by slower sales of our PRS units. Gearing revenue was $6 million in Q1, down 28% year-over-year due to broad-based softness in the oil and gas gearing market, partially offset by strength in wind and the industrial sector. We've taken further cost actions to align production capacity with the present demand levels while maintaining key manufacturing and engineering talent required to accommodate the anticipated increase in orders later this year. Industrial Solutions revenue was $5.6 million, down 29% year-over-year, primarily due to the timing of certain aftermarket shipments into the natural gas turbine market. In summary, the team and business continues to perform well. As we navigate demand fluctuations and policy uncertainty, while we maintain our key operating talent and execute our diversification strategy. With that, I'll turn the call over to Tom for a discussion of our first quarter financial performance.

Tom Ciccone, Vice President and CFO

Thank you, Eric. Turning to Slide 5 for an overview of our first quarter performance. First quarter consolidated revenues were $36.8 million, a 2% decrease as our production levels continue to be impacted by the extended slowdown within the oil and gas sector. Sequentially, revenue was up almost 10%, as we have experienced stronger demand for wind repowering. Adjusted EBITDA margin was 6.4%, due primarily to low capacity utilization, particularly within our Gearing segment and a lower margin mix of products sold across all three operating segments. Q1 orders totaled $30.5 million, an increase of 5% versus the prior year first quarter. Orders in Heavy Fabrications and Industrial Solutions increased due to strong demand from the wind repowering and power generation markets, while orders and gearing remain muted. Turning to Slide 6 for a discussion of our Heavy Fabrication segment. First quarter orders of $12.4 million are up versus the $11.2 million booked in the prior year period as we continue to realize improved demand for wind repowering projects. This is partially offset by a decrease in orders for our PRS units. First quarter revenues of $25.2 million are up both sequentially and versus the prior year quarter, driven by an increase in wind tower sections sold and increased revenue related to repowering adapters. During the first quarter, we recognized segment adjusted EBITDA of $3.4 million, an increase sequentially and versus the prior year first quarter, driven by increased revenue and overall production levels as we ramp up for increased shipments expected in the second quarter. Turning to Slide 7. Gearing orders of $8 million are down approximately $2.5 million. Although down versus the prior year, Q1 gearing orders are up sequentially and are well above the quarterly average for the past two years within the segment. We have booked some meaningful oil and gas volume for the first time in over a year as we may be benefiting from the possible onshoring in reaction to recent U.S. trade policies. Segment revenue was $6 million, down $2.4 million versus the prior year quarter. We experienced an adjusted EBITDA loss of $0.2 million driven by lower revenue resulting from softer order intake levels in recent quarters in addition to operational inefficiencies experienced in Q1. Turning to Slide 8. Industrial Solutions recorded more than $10 million of orders in the first quarter, surpassing the previous $8 million record achieved last quarter. The segment continues to operate in a robust demand environment and there continues to be strong commercial interest for its natural gas turbine content. Segment backlog also hit a new record high of nearly $23 million at the end of the first quarter, eclipsing the previous record of $18.5 million set in Q4 of 2024. Q1 segment revenue was $5.6 million, and Q1 segment adjusted EBITDA was $0.5 million, both down versus the prior year period as we experienced supply chain headwinds, which impacted shipments during the quarter. We believe these issues to be temporary and expect revenue totals to improve over the balance of 2025. Turning to Slide 9. We ended the first quarter with cash and availability on our credit facility of approximately $23 million, reflective of our deposit balance returning to a more normal operating level. In addition, we experienced a significant inventory build in Q1 as we began a tower run in Manitowoc early in Q2 and transitioned to a new tower design with increased material content in Abilene. Finally, with respect to our financial guidance. Today, we are reiterating our full year 2025 revenue and adjusted EBITDA guidance. We anticipate full year revenue to be in the range of $140 million to $160 million and adjusted EBITDA to be in the range of $13 million to $15 million. That concludes my remarks. I will turn the call back over to Eric to continue our discussion.

Eric Blashford, CEO

Thanks, Tom. Now allow me to provide some thoughts as we move into Q2. Beginning with our Heavy Fabrications segment. We believe that domestic onshore wind tower activity will continue at its present rate through 2026. We are encouraged by the continued momentum in the wind repowering market. As we are seeing sustained demand from our OEM customers for the adapters we manufacture, which are used to upgrade most legacy turbines. We believe that the tariffs announced earlier this year, combined with the existing antidumping measures in place will continue to benefit domestic wind tower manufacturers. We have good visibility for tower production through the balance of 2025 and are in active discussions with several OEM customers for 2026 volume. We continue to reallocate production capacity towards stable recurring project revenue streams across diverse end markets with recent gearing wins in the power generation market and expanded opportunities in large utility-scale natural gas turbines. We continue to see quote activity from the power generation and grid hardening space, especially for products supporting the nation's electrical infrastructure, such as the large transformers required to support the grid. We are expanding our service and commercial teams for our clean fuels PRS line to better serve customers outside the Permian and Eagle Ford regions into the DJ and Bakken regions. The newest model in our line, the L-70 low flow unit continues to perform well in field trials and will be ready for full release this summer. Customers appreciate the unit's performance specifications, compact footprint, simplicity of operation, remote monitoring capability and attractive price point, making it the ideal solution for industrial applications, such as primary or backup power supply systems and pipeline integrity projects. Furthermore, we're evaluating certain export opportunities, which we will address through key distribution partners who provide local service and support after the sale. In our Gearing segment, we continue to execute our strategy to move beyond traditional gearing toward other precision machine products. We're pleased with the increasing level of customer activity we're seeing in various new markets such as air derivative gas turbines, aggregate material processing and large high-speed compressors to name a few. The recent sizable orders we received from the power generation sector are evidence that our strategy is working. In Industrial Solutions, the momentum that we've experienced in the gas turbine industry last year continues this year as we set another quarterly record for bookings in Q1. Our key customers, which see strong demand for gas turbine equipment and services are reporting strong backlogs and are increasing their production capacity in response. The strength in the natural gas turbine market is attributable, at least in part, to data centers and other sources of increasing electrical load and is expected to continue for years. So we are taking the necessary steps to increase capacity, add capabilities such as electrical panel manufacturing and improve processes so that we can take full advantage of this significant growth opportunity. 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 worldwide. In summary, I am pleased with our start this year as we continue to demonstrate strong execution of our strategic priorities. Each of our divisions is well positioned to support the nation's growing need for power generation and infrastructure improvement which we see as long-term opportunities for us. Our quality, quick response and reliable deliveries continue to win new customers for us, particularly within the gearing business. We've reduced our cost structure during a transitional period for domestic onshore wind and oil and gas gearing demand while retaining our key talent and continuing to work on vital activities like process improvement, prudent capabilities investment and product expansion. We value our people and are committed to keeping them safe, fulfilled and productive. We have five plants, all U.S.-based so we're prepared to capitalize on any opportunities afforded by the pro-domestic manufacturing policy backdrop afforded by the current administration. While the potential impacts of both tariffs and renewable energy policy changes are unknown, we are confident that we can support the necessary rebuilding of the country's infrastructure. We're encouraged that our order intake continues to grow, positioning us for improved utilization of our manufacturing base over the coming year as we 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.

Operator, Operator

My first question comes from Justin Clare with ROTH Capital Partners. Please proceed with your question.

Justin Clare, Analyst

Hi, good morning. Thanks for the questions here. So I just wanted to start off on the Heavy Fabrications segment. Q1 revenue was the strongest we've seen in, I think, over a year for that segment. And so I was just wondering if you could talk a little bit more about the repowering opportunity that you're seeing? And then maybe how revenue might trend for heavy fabrications through the remainder of 2025? And then if you could speak to 2026 a little bit, it sounds like you are anticipating kind of flat demand year-over-year, but do you see any mix shift between Abilene or Manitowoc or between the repowering opportunity or tower segments?

Tom Ciccone, Vice President and CFO

Thanks, Justin. Some of the strength we've seen in Q1 can be attributed to robust demand for our repowering adapters. This sector appears to be a very strong market right now, and we're billing for several OEMs at both of our plants. This has provided a significant boost for us. Looking ahead to the remainder of 2025, we anticipate an increase in overall revenue in that segment, especially in Manitowoc as we began a tower run in Q2. We expect to start recognizing some of that revenue in Q2 and Q3.

Eric Blashford, CEO

Yes. And Justin, this is Eric. Just to add on to that. Regarding 2026, we expect it to be about the same from a new wind tower perspective, and repowering adapters could be at the same level, if not slightly higher. We are currently producing for multiple OEMs, and there is another one interested in our capacity to repower.

Justin Clare, Analyst

Got it. Okay. That's good to hear. Maybe just shifting over to tariffs. I know all your manufacturing is in the U.S., but wondering if tariffs are having any effect on your cost structure, any materials that you might source from overseas? And then just wondering on the competitive environment, are the tariffs changing anything in terms of your relative cost structure to others you may compete against really across any of your segments?

Eric Blashford, CEO

If we start with wind, there are components sourced from overseas. Our OEM partners anticipated this and have shifted some internal parts that usually come from China to other countries that are less affected by tariffs. Therefore, the impact on us will be minor and largely passed through. We don't expect significant effects due to the proactive changes made in our supply chain. Regarding other divisions, we are observing a slight increase in consumables like welding wire that we can pass on to our customers, as we quote each job independently. On the other hand, we're noticing some potential onshoring activities, particularly in oil and gas gear, which we haven't seen before. This increase might be related to our customers' concerns about tariffs from the Far East, leading them to seek more local sourcing for gear and components.

Justin Clare, Analyst

Okay. Got it. And then, I guess, just following up on gearing. We have seen oil prices drop this year, and they're still at a relatively low level. I guess what's your visibility into the demand outlook for gearing and how might the outlook for oil and gas be affecting that?

Eric Blashford, CEO

Regarding oil and gas gearing, as we mentioned previously, there is currently an 18-month to 2-year slowdown because new fracking rigs are not being deployed. We are observing upgrades to existing fleets and are actively participating in the aftermarket. Therefore, I would describe the situation as somewhat soft with a slight potential for improvement. We've received some of the strongest orders and revenue in gearing that we've seen in several years, which is noteworthy and appealing to us. In the power generation sector, which does not involve drilling but utilizes natural gas and oil, we're seeing an uptick. These were strategic target markets we pursued, particularly with our AS9100 Certification related to air derivatives, and we are beginning to notice some positive developments there. Despite the decline in oil and gas prices, we are identifying real opportunities in power generation from this sector.

Justin Clare, Analyst

Okay, got it. Thank you. I'll pass it on.

Eric Blashford, CEO

Thanks Justin.

Operator, Operator

Our next question comes from Sameer Joshi with H.C. Wainwright. Please proceed with your question.

Sameer Joshi, Analyst

Hi, good morning and thank you for taking my questions. I will focus on the Industrial Solutions segment. It seems that the drop in revenue could be attributed to supply chain issues and delays. Additionally, the outlook and backlog appear to be quite strong. Is it correct to assume that the Q1 performance is solely linked to supply chain disruptions or delivery delays?

Tom Ciccone, Vice President and CFO

Yes. Sameer, that's a correct assumption. We're attributing the drop in revenues. It's simply a temporary delay as a result of supply chain issues that we've been experiencing in Q1. I think we've largely made up for that already in the beginning of Q2.

Eric Blashford, CEO

Yes. So with regard to the Industrial Solutions, if you remember, we're providing some pretty complex and large packages for utility-scale installations and upgrades of turbines and with several hundred pieces and components in each package, if one is delayed, we have to delay the whole package. But within our supply chain and our OEM support with their supply chain specifications, we are qualifying new suppliers and actually U.S. and international suppliers. So we've resolved that supply chain, I would say, constraint. But it's largely because of the growth in the industry, the overall growth in the industry as being absorbed by Broadwind, our customers and the supply chain.

Sameer Joshi, Analyst

I understand. Perhaps I'm overreacting to the nearly $10 million increase in inventory this quarter. Was this rise due to delayed shipments or an increase in work in progress inventory, especially from the industrial solutions sector?

Tom Ciccone, Vice President and CFO

Sameer, I'm sorry, can you repeat that? Were you were asking about inventory?

Sameer Joshi, Analyst

Yes. The inventory income increased by about $9.5 million to $10 million, and I was wondering if this is primarily due to Industrial Solutions.

Tom Ciccone, Vice President and CFO

I would say only partially. The main factor is that we are starting tower production again in Manitowoc, and it involves a large tower design. We have been increasing our inventory in the first quarter to prepare for shipments in the second quarter related to these tower builds. The majority of that increase is due to Manitowoc. Additionally, we are also seeing a small increase in Abilene as we transition to a larger tower design that has a higher material content. This is contributing to the inventory rise you are observing, and Industrial Solutions is also a contributing factor.

Sameer Joshi, Analyst

Got it. Understood. And then one last one on the PRS, I mean you talked about the demand in clean fields and also the L-70 low flow, which is performing well. Do you have sort of an aspirational goal revenue for 2026 from this particular product line or industry?

Eric Blashford, CEO

Certainly. We have previously stated that this product line represents about 10% of our revenue, so I would estimate it to be between $15 million and $20 million. We're noticing increased interest in South America for this product line, where we believe we offer an innovative solution. Additionally, there is growing demand for rentals. Customers who secure short-term jobs often prefer to utilize our rental units instead of making a capital investment, which can eventually lead to a purchase. Given all this, I feel confident that approximately 10% of our revenue will come from the PRS line.

Sameer Joshi, Analyst

And do you expect the gross margins to be similar or higher for this going forward?

Eric Blashford, CEO

Yes, we do. Yes, the L-70 has an attractive pricing point, but that doesn't mean that we're sacrificing gross margin for that. And obviously, with the rental and service, that comes naturally with higher margins. There's a capital outlay on Broadwind's part, but the return is quite a bit higher.

Sameer Joshi, Analyst

Got it. Understood. Thanks. I’ll turn it over.

Eric Blashford, CEO

Thank you.

Operator, Operator

Our next question comes from Eric Stine with Craig-Hallum Capital Partners. Please proceed with your question.

Eric Stine, Analyst

Hi Eric. Hi Sam.

Eric Blashford, CEO

Hi Eric. Good morning.

Eric Stine, Analyst

Good morning. Can we explore the wind sector further? It's interesting that you're starting tower production for a new opportunity in Manitowoc. Do you view this as a sign of a market shift or is it more of a one-time event? Additionally, regarding your long-term outlook for 2026, you mentioned noticing elevated quoting activity. When you say that's expected to remain flat year-over-year, do you believe this quoting activity will convert to orders? Is that necessary for it to be flat year-over-year, or is it flat based on what you currently have?

Eric Blashford, CEO

Well, I'll take the second part of your question. Well, the first part of your question has to do with Manitowoc. As you know, wind is basically project-based whether it be in the North or the South, that's where we have the two plants to address it. What's happening in the North are a couple of sizable projects that our customers are taking advantage of our capacity there in the North. And that's one of the reasons why we're building repowering adapters in both plants to keep those capabilities in the workforce ready for a tower build. So I would say that would be project-based. Again, I think demand is still stronger in the South in general than it is in the North. But regarding 2026, I do believe that the volume to be consistent in '26 versus '25. The backlog that we have now that is partially because of the long-term agreement we signed a couple of years ago, takes us through the end of 2025. So into 2026, those would be new orders with consistent customer base.

Eric Stine, Analyst

Got it. Okay. Did you mention the 45x tax credit that you recognized in Q1?

Tom Ciccone, Vice President and CFO

We did not, but it's about $2.5 million for Q1 is what we've recorded.

Eric Stine, Analyst

Okay. No, that's helpful. Yes. And then maybe last thing for me, just I want to make sure I understand it. So I know that you had identified $4 million in cost reductions for 2025. And I guess my understanding was that most of that had been put in place or achieved. But in your commentary, it seemed as if you may be considering targeted cost reductions in other areas, am I hearing that right? And if so, could you just provide a little bit more...

Eric Blashford, CEO

What we implemented last year were general cost measures, which stemmed from the overall decrease in wind output from 2023 to 2024. These cost reductions are currently in effect and will continue to be upheld. As I highlighted in my prepared remarks, we have made some adjustments in gearing to align our production capacity with demand. I anticipate that our output will start to recover as we expect an increase in orders throughout this year in key markets like power generation, infrastructure, defense, and even aerospace. The actions I mentioned in my remarks reflect our efforts in gearing to ensure that our capacity is balanced with demand.

Eric Stine, Analyst

Okay, that's helpful. Thank you.

Eric Blashford, CEO

Thank you.

Operator, Operator

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.

Eric Blashford, CEO

Yes. Thanks, everyone. I appreciate your interest and look forward to executing our strategy in Q2 and coming back before you at the end of Q2 to talk about our results. Thank you.

Operator, Operator

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