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spk03: Greetings and welcome to Broadwind's fourth quarter and full year 2021 results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tom Ciccone, Vice President and Chief Accounting Officer. Thank you. You may begin.
spk04: Good morning, and welcome to the Broadwind fourth quarter 2021 results conference call. Leading the call today is our CEO, Eric Blashford, and I'm Tom Ciccone, the company's vice president and principal accounting officer. We issued a press release before market opened today detailing our fourth quarter and full year 2021 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.
spk02: With that, I'll turn the call over to Eric. Thanks, Tom, and welcome to those joining us today.
spk06: During the fourth quarter, we delivered $26 million in revenue, reflecting a year-over-year decline in wind tower sections sold as we're in a temporary pause in some wind projects due to higher raw material costs and continuing uncertainty about the scope and scale of potential federal tax incentives. The net result of these conditions was that certain tower orders we expected to ship in the fourth quarter have been pushed into 2022. We're working with multiple turbine OEMs who have placed orders to secure about 50% of our optimal 2022 tower capacity so far and are in discussions for further orders. In February alone, we booked $29 million in new tower orders, which we believe is early evidence of stabilization and development activity as we look out over the next 24 months. Throughout the pandemic, we've continued to manufacture and ship products to our customers' precise fabrication requirements. Pandemic-related supply chain constraints continued in the fourth quarter, but were closely managed to minimize customer disruption as much as possible. Cost inflation on key materials remains a headwind for our wind turbine customers and one that has dampened near-term capital investment in wind. This is most apparent with respect to the cost of steel, which has increased significantly in the past year and remains at a multi-year high. While Broadwind absorbs only minimal direct commodity price risk, we believe some customers are waiting for raw material costs to normalize. when balanced against wind developers' efforts to align projects with a potential production tax credit, or PTC, extension, has pushed tower orders out several quarters. Our diverse end-market strategy performed as intended during the quarter as record order growth in our non-wind markets helped to offset softness in tower orders. Our gearing segment generated substantial year-over-year growth in both revenue, orders, and backlog. supported by demand from energy and mining markets, while our industrial solutions segment enjoyed record orders since becoming part of Broadwind in both the fourth quarter and the full year 2021. Our total orders for Q4 were $56 million, a year-over-year increase of more than 50%. Quoting activity in our non-wind markets remains robust, and we expect the good order flow to continue into 2022 especially from gearing in industrial fabrication. The full impact of the pandemic-driven labor and supply chain challenges remains uncertain at this time, but we continue to take actions to keep our people safe and our production flowing. We anticipate that our current cash and availability under our line of credit will provide us with adequate liquidity to support our business through this period of uncertainty. Within our heavy fabrication segment, revenue declined $15 million. partially driven by supply chain disruptions, which pushed some deliveries into 2022. We continue to quote and produce from multiple wind turbine OEMs, and our customer diversification in the wind energy segment will serve us well as the market recovers. Furthermore, the industrial fabrication product line continues to see strong order growth with a year-over-year increase of $12 million, or 72%. Within gearing, revenue increased 70% year-over-year, while orders more than doubled to nearly $17 million as the anticipated improvement in customer activity continues. Revenue for our industrial solutions segment dropped by $2.7 million, or 47%, as several customer orders were delayed into Q1 due to incoming supply chain constraints. Orders for this segment were strong, up 200% year-over-year as we continue to expand that business globally. In summary, I'm pleased that a diversification strategy is bearing fruit, which is evident by the growth in all of our product lines outside of wind. This provides the company with partially offsetting revenue as we work through the temporary pause in wind tower demand until the headwinds of commodity pricing and policy uncertainty resolve. Our team has responded quickly to the well-documented global supply chain challenges as we continue to meet our customers' needs and keep our people safe. We expect wind development activity to ramp up gradually over the medium term, particularly should we see a substantial extension of the PTC, which we believe has bipartisan support. With that, I'll turn the call back over to Tom for a discussion of our fourth quarter financial performance.
spk04: Thank you, Eric. Turning to slide five for an overview of our fourth quarter performance. Fourth quarter consolidated sales were 26 million compared to $40.3 million in the prior year quarter. Versus the prior year, Q4 sales declined primarily due to a decrease in wind tower sections sold as the wind market continues to experience a pause resulting from higher steel prices and policy uncertainty. In addition, we, like others in the industry, were hampered by material delays throughout the quarter given supply chain constraints. In Q4, we recognized an adjusted EBITDA loss of $1.2 million, a decrease of $1.4 million versus the prior year period. The decrease in adjusted EBITDA is reflective of the overall lower volume level and the resulting plant underutilization in the current year quarter. Turn to slide six and seven for discussion of our heavy fabrication segment. Fourth quarter sales were $14.7 million. down 51% when compared to the 29.8 million in the prior year quarter due to the aforementioned pause in wind tower activity. Fourth quarter orders were 31.1 million, a 13% increase from the prior year period. Despite the pause in overall tower activity, tower orders were flat versus the prior year. Tower demand out of our Manitowoc facility continues to be soft, but there continues to be strong interest in our Abilene production capacity due to ongoing or planned projects in that region. As a result of our continued focus on diversification and expansion of our industrial fabrication product line, related order intake remains strong, increasing over 150% to 9.1 million in Q4 versus the prior year. This product line experienced record quarter and annual order levels in Q4 and 2021 respectively. This volume has helped us to maintain our plant utilization given the near-term softness in wind tower demand. As of this call, and including the tower orders we announced earlier this week, we have booked nearly 50% of our 2022 optimal wind tower capacity. During the fourth quarter, we sold 79 tower sections, a 62% decrease versus the prior year period. This decrease combined with supply chain challenges and plant underutilization, resulted in a $2.8 million decrease in segment-adjusted EBITDA during the fourth quarter versus the prior year period. It is important to note that some raw materials used in turbine production have shown signs of stabilizing, which should incentivize increased project development over time. Turning to slide eight, I will cover our gearing segment. Gearing continues to operate in a robust commercial environment that improved starting in mid-2021. Led primarily by energy and mining markets, orders totaled $16.8 million in Q4, an increase of over $5 million sequentially and $11 million versus the prior year period. Full-year 2021 orders have rebounded to over $46 million versus $25 million in the prior year. The Q4 and full year 2021 order levels are modern records for the gearing segment. Year-to-date book-to-bill is approximately 1.6x, and our backlog has recovered to over $32 million, an increase of 8.5 sequentially, and more than 120% or $18 million versus the prior year. Fourth quarter segment sales increased to $8.3 million versus $4.9 in the prior year. a result of the strong recent order intake. We generated 0.1 million of segment EBITDA in Q4, an increase of 1.6 million versus the prior year period, as we benefited from increased production levels. Turning to slide 9 for discussion of our industrial solutions segment. Industrial solutions recorded 7.9 million of new orders in Q4, up over 5 million from the prior year quarter. Full year orders were 19.7 million versus 17.9 in 2020. Orders booked for both Q4 and 2021 represent the highest intake level since Bronwyn's acquisition of Red Wolf in early 2017. This strength was driven by the timing of orders with our biggest customer and a large follow-on order from a new international customer. We also experienced a sequential rebound in aftermarket orders, an indication of increased natural gas turbine upgrades. Fourth quarter segment sales dropped to 3 million versus 5.8 million in the prior year period, primarily as a result of decreased orders earlier in 2021 and supply chain delays on inbound materials. EBITDA decreased to break even due to decreased sales volume when compared to the prior year quarter. Turning to slide 10. Total cash and availability under our credit facility remains at an adequate level nearly $15 million of liquidity at quarter end. Operating working capital decreased almost $1 million sequentially, and despite a drop in fourth quarter activity levels, remained elevated at year end as we produced ahead of schedule and supply chain issues delayed deliveries, which would have otherwise occurred in fourth quarter. During the full year 2021, operating working capital increased by more than $13 million as customer deposits decreased reflective of a shift in customer order mix and inventories increased by nearly $7 million. On a full year-over-year basis, net debt decreased slightly from $10.8 million to $10.5 million as the significant working capital build was largely offset by the equity raise that we executed in the first half of 2021 and the PPP loan forgiveness, which was recorded in Q2. Our net leverage stood at 0.8 times trailing 12 months EBITDA as of year end. As noted in our press release issued this morning, we expect first quarter EBITDA loss to be approximately 0.5 million. That concludes my remarks. I will turn the call back over to Eric for an overview of end markets in addition to some concluding remarks.
spk06: Thanks, Tom. Turning to slide 11 for further discussion of our outlook for the domestic wind market. There are some encouraging signs for the medium to long term. as we expect more than 100 gigawatts of onshore wind energy capacity to be added through 2030. In the near to medium term, we view the potential PTC or production tax credit extension, rising commercial and industrial demand, and repowering activity as catalysts for increased installations. Last week, the DOE or Department of Energy released a document titled America's Strategy to Secure the Supply Chain for a Robust Clean Energy Transition. which lays out the challenges and opportunities faced by the U.S. in the energy supply chain, as well as the federal government's plans to address them. It's accompanied by several deep dive assessments produced in response to Executive Order 14-017 addressing America's supply chains, which directs the Secretary of Energy to report on supply chains for the energy sector. This executive order is spurring the federal government to build more secure, and diverse U.S. supply chains, including energy supply chains. In this document, we're happy to see that the DOE reaffirms the need to extend and revise tax credits, such as the PTC and the Investment Tax Credit, or ITC, to support the continuing domestic construction of renewable energy projects using domestic manufacturing. Broadwind certainly welcomes this. In this revised forecast on slide 11, Wood Mackenzie, a recognized independent energy research firm, maintains its installation forecast for 2022 while showing a slight softening in 2023 before steady growth through the end of the decade, echoing our confidence in wind. The long-term outlook remains positive as the energy market transitions from fossil fuels to renewable energy, which includes wind power. As we look outside of wind, our progress continues across a number of diverse end markets, always mindful of our long-term strategy to support the world's transition to a cleaner future. Our customer and market diversification initiative remains central to our overall plan, which allows us to optimize our production facilities and leverage our talented workforce as wind projects vary from quarter to quarter. Renewables and other forms of clean power remain quarter-broadwind. even as we expand our revenue streams outside of wind. Today, our fastest-growing non-wind segments include power generation, mining, steel production, and the industrial segment, including our increasing penetration into the infrastructure, material handling, and marine markets. In our heavy fabrication segment, we're working to sell the remaining 2022 capacity in both wind towers and other industrial fabrications, while adding capabilities to improve our plant utilization and reduce costs. We continue to invest in new product development. Our broadwind PRS, or pressure reduction system, we introduced in 2021 to service the growing natural gas virtual pipeline market, continues to gain momentum, and we are ramping up production to address demand. A primary focus of our NPD activity in 2022 will be expanding our offerings to this market. In our gearing segment, we are working to shift our sales mix toward markets which tend to be less cyclical and offer a more balanced revenue stream. We've upgraded personnel on our commercial, project management, and quality teams to quicken our pace of growth in these new segments. We're adding some new cutting-edge machining capabilities to expand capacity, reduce cost, and most importantly, open new markets. We continue to grow our custom gearbox business with special emphasis on our repair and upgrade categories to help our customers improve their process reliability and plant utilization. In our industrial solutions segment, we're expanding our market share both domestically and internationally. We're adding resources in both operations and engineering to speed up our growth in natural gas and wind turbine markets, as both segments seek to increase U.S. content due to global supply chain challenges. In summary, Frywall remains an enthusiastic participant and the development of technologies integral to the ongoing clean energy transition. We see long-term growth for the domestic wind market, given that the cost of wind energy has dropped dramatically in the last decade, making it one of the most competitive energy technologies available. And we have increasing adoption in the commercial and industrial sector, along with support on the federal and state levels. We have an increasingly diverse customer set, whose order volume helps offset the normal order fluctuations in the markets we serve. We're investing in productivity and capability improvements in all divisions to improve throughput, reduce costs, and address new market opportunities. And lastly, we're well capitalized to pursue both organic and inorganic opportunities that further support our growth strategy. With that said, I'll turn the call over to the moderator for the Q&A session.
spk03: Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Justin Clare with Roth Capital Partners. Please proceed with your question.
spk07: Hey, good morning. Hey, Justin. Hey. So I guess first, typically for guidance, you would provide revenue and adjusted EBITDA for the upcoming quarter. This quarter, you just provided adjusted EBITDA. So just wondering, is it possible to provide the outlook for Q1-22 revenue Or is there more uncertainties than usual that would make that difficult? And then also, if possible, could you give us a sense for how you see revenue by segment trending in Q1 here?
spk06: Yeah, for the first quarter, it's difficult because of the supply chain. We've got things that are in production now, particularly towers and adapters, Justin, that we're still waiting for some components to come in. So we're going to get the capacity utilization on those, but if the components don't come in to finalize them, we just can't recognize the revenue. So that's why it's challenging for Q1. Regarding gearing and industrial fabrications, we do expect that revenue to be sequentially up, reflecting the strong orders we've had in both those segments, the gearing and industrial solutions.
spk07: Okay, great. That's helpful. And then, you know, you mentioned that you have orders for nearly 50% of your 2022 optimal tower production here. Just given where we are in the year, how much more of 2022 capacity for towers do you think you could book? And are you primarily booking for Q4 at this point? Or do you have the potential to increase bookings for Q3 or even Q2 delivery?
spk06: At this point, given the supply chain length, and it's actually lengthened a bit longer than normal because of all the things that are all well publicized, really it's Q4, Justin, maybe towards the end of Q3, depending if we could get the materials, especially the internals, but it's effectively to Q4. Got it.
spk07: Got it. Okay. And then just shifting to the gearing segment, backlog is up meaningfully here to $32 million. what is the timeframe that you expect to deliver that revenue? Is that Q1 and Q2 or potentially later in the year? And then for that segment, are you seeing any supply constraints, labor constraints, or anything that would cause deliveries to slip? Or is there anything that could impact the cost structure of that particular segment as well?
spk06: Well, first of all, let me address the cost structure. When we, most of what we do, in fact, nearly all of what we do is project-based. And as we get the orders, as we do the quotes, as we get the orders, we place material orders right then. We are factoring in in our quoting model some anticipated increases and some incidentals, welding wire, gases, things like that, Justin. So I think we've got a pretty good handle. on that. With regard to when that backlog ships, gearing tends to have a bit of a longer backlog than some industrial fabrications. Some can ship within, say, a quarter of when the orders are received, some two and three quarters out. We're actually pretty well – the backlog lasts all through 2022 at this time.
spk07: Okay, great. Thanks.
spk02: That'll do it for me. Thanks, Justin. Appreciate the questions. Our next question comes from the line of Eric Stein with Craig Hallam.
spk03: Please proceed with your question.
spk08: Hi, Eric. Hi, Tom. Hi, Eric. Hey, so maybe I'll just stick with gearing a little bit here. I mean, obviously backlog. Order trends have been very good and expectation that that continues. I mean, is it fair to say that 2023 then, given the length of time that this flows through, The 2023 is when, I mean, you likely are at 2018 levels, which I think would be your previous record, or above that. And then, you know, assuming what you just discussed on the cost side, I mean, should we still think about the same margin profile when you get to those 2018 levels and higher?
spk06: Yeah, I think as far as the margin profile, the answer is yes. This is heavily leveraged. You know, it's capital-intense. So once we, a lot of machines over there, so once we get to a certain level, we really start throwing that kind of EBITDA percentage as you've seen before in 2018. Regarding the strength throughout 2022 and 2023, the answer is yes. You know, our power generation, our energy, which is oil and gas, which, you know, we participate in, we think that's going to remain strong throughout 2022 and into 2023. It may soften a bit in 2023, but we expect other segments to such as steel infrastructure, mining, material handling to offset that because we're growing those segments in anticipation of a bit of a softness in oil and gas coming here in 18 months or so because that's cyclical. Oil and gas is a market that tends to run in 18-month to two-year cycles.
spk08: Yep, absolutely. Absolutely. Okay. That's helpful. Maybe, maybe just turn into wind that you mentioned. And obviously we, you know, we all know the, we know the challenges in wind right now, but you have, you know, you've gotten what 29 million in orders here as of late, but talking about orders postponed to the second half. I mean, do you have any, any thoughts or any details on maybe the quantity of those orders pushed to the second half? And, you know, we just love your thoughts. I mean, is it, It's the PTC uncertainty as the number one factor in all this, or do you think that it's equal versus some of the supply chain concerns?
spk06: My take is, and this is just my take in researching and participating in the industry, I think it's mostly the PTC. I think the cost of materials is a bit of a doubling down. of some of the financials of the projects. But I think the PTC, that uncertainty, is really what has people remaining on the sidelines as they wait for their projects to mature. Again, I'm looking for some sort of clarity. I did hear President Biden last night on his State of the Union did mention this support for climate and U.S. production. So I'm encouraged that Congress may do something Something smaller, something specific to climate change, PTC, ITC, as I mentioned in my prepared remarks. I think that's the primary driver causing the pause.
spk08: And I mean, anyway, to quantify, you know, the magnitude of the orders that you think have been pushed, or is that more about just why? I mean, you're clearly cautiously optimistic that as you get into the back half of the year, things do start to improve in terms of the outlook.
spk06: Yeah, what I think is happening is our customers are really looking at 2023 as a stronger year. So again, they're cautious as well. So what they're talking about is capacity to both plants, ramp up plans. So they're optimistic about 2023. I think they're waiting for the news as the rest of us are. So when you're talking about the quantity of orders, that's tough for me to answer. I just believe that there's going to be a lift towards the end of 2022 as they prepare for 2023 installations.
spk08: Gotcha. Okay. Maybe last one for me, and this is a, and I thought it was a pretty interesting product announcement or offering announcement a few quarters ago, but your presser reducer systems at the time you'd gotten some initial orders and we're seeing some interest, just would like an update on that.
spk06: Yeah, that product is, again, for those of you who don't know, that's participating in the virtual pipeline, which we see as natural gas as a transitional fuel. And so what that product does is when some gas is flared or wasted at the site where it's generated, that gas is captured, compressed, shipped to where it's used, and then decompressed at the point of use, whether it be a hospital, a different pipeline, a factory, or whatnot. So we see that as as very, very much supportive of our participation in clean energy and a cleaner future. So what that does is, again, it reduces the pressure at the point of use. So we're putting that through its paces in the field. It's performing very well, Eric, and demand is up. In fact, we're ramping up our capacity to meet that demand. So I expect that product line to be solid for us. And I also expect our NPD focus to be broadening that product line and other products that are used in that virtual pipeline market.
spk02: Okay, that's great. Thanks. Thank you.
spk03: Our next question comes from the line of Emmett Dale with HC Wainwright. Please proceed with your question.
spk01: Thank you. Good morning, everyone. I appreciate you taking my questions. Good morning, Emmett. Good morning. Hey. My other questions, you've already gone through them. With respect to the oil and gas segment, if that slows down for you or softens for you over the next few quarters, what other sectors can fill any gaps from that slowing down?
spk06: Yeah, and that's also where we did some investing in capabilities in that particular business. We're working on mining gas turbines, which is, you know, CAT, Caterpillar or Solar, small gas turbines. Transportation, rail, we can do things for railroads and whatnot. Even medical, this capability allows us to get into the medical field. And in dealing with the infrastructure segment, steel mills use our products as do cement processing mills. So we are aggressively working to grow our business outside of energy or outside of oil and gas for just that eventuality. We're also trying to make certain that we limit, frankly, how much capacity that we offer to the oil and gas market to make sure that we've got available capacity for those other customers and other segments that are coming to us.
spk01: Okay. Thank you for that, Rick. You're welcome. You know, the increase, sort of the improvements in backlog and, you know, the new orders on the wind tower side, you know, Are these at normal margins, or are you having to give up some margins from inflationary pressures? Just trying to see how you're managing your own pricing relative to current trends in the market from all these different macro factors.
spk02: Yeah, those would be at historically consistent margins.
spk01: Okay, okay. Thank you.
spk06: Historically consistent margins.
spk02: Yeah, that's all I have. I'll take my other questions offline. Thank you. Thank you. Our next question comes from the line of Martin Malloy with Johnson Rice.
spk03: Please proceed with your question. Good morning.
spk05: Thank you for taking my question. Good morning. I wanted to talk to you about liquidity at the company. When I look at last year's results, the $1.2 million EBITDA that benefited from $7 million in employee retention tax credits and $9.2 million PP loan forgiveness that occurred during first half of 21 and still operating cash flows for negative, I believe 12.8 million for the year. What happens with the availability under your revolver, your credit facility as these government, the ERTC and the PPR anniversary in the second quarter?
spk04: Yes, our liquidity, you know, we feel it's going to be adequate going forward based on our projections. We just recently signed a new agreement with CIBC, our bankers, which is disclosed with our – we filed this morning. Within that agreement, we were able to automatically increase our liquidity by – another $2.5 million based on, you know, reducing some of the or backing off some of the reserves that were put in in Q3. So, you know, we feel that, you know, given our rising asset base during the year, we're going to have adequate liquidity underneath the revolver that we have.
spk05: So you don't think you'll need to issue equity?
spk02: At this point, no, Marty. Okay. Okay. Thank you. Those are my questions. Thank you.
spk03: If there are no further questions in the queue, I'd like to hand the call back over to Mr. Blashford for closing remarks.
spk06: Yeah, thank you for your attention and your interest in Broadway, and we look forward to reporting our results to you after the first quarter. Have a great day.
spk03: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day.
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