Broadwind Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
March 5, 2025
Skip to Participants
Operator

Greetings and welcome to Broadwind's Fourth Quarter and Full Year twenty twenty four Results Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr.

Operator

Tom Ciccone. Thank you. You may begin.

Thomas Ciccone
Thomas Ciccone
VP & CFO at Broadwind

Good morning, and welcome to the Broadwind Fourth Quarter and Full Year twenty twenty four 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 fourth 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.

Thomas Ciccone
Thomas Ciccone
VP & CFO at Broadwind

For a discussion of some of the factors that could cause our 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
Eric Blashford
CEO, President & Director at Broadwind

Thanks, Tom, and welcome to those joining us today. In a transitional demand environment, Broadband delivered strong commercial and operational execution during 2024, culminating in full year revenue and adjusted EBITDA of $143,000,000 and $13,300,000 respectively. While we continue to experience a near term pause in demand for new wind towers and oil and gas gearing during the fourth quarter, recent cost actions together with stable demand and improved order activity across many of our diverse markets resulted in a strong fourth quarter performance, which included revenue and adjusted EBITDA of $34,000,000 and $2,100,000 respectively. Importantly, while fourth quarter demand conditions were mixed, our order rates increased materially during the period with orders increasing 85% from the fourth quarter twenty twenty three to $37,000,000 Order growth was broad based, moving higher across nearly all of our end markets. Orders within our heavy fabrications business saw continued strong demand for the adapters used to repower wind turbines, increased demand for our natural gas pressure reduction systems and from our industrial sector, which includes our first sizable order in the hydroelectric market.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Gearing orders nearly doubled year over year, led by increasing demand from the industrial and steel markets. Orders from our Industrial Solutions segment increased 21% year over year due to continued 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 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 markets. Interestingly, we're also beginning to see some meaningful activity from the oil and gas gearing market for the first time in nearly two years.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

We're pleased to see that the investments made in the quality certifications over the last year are generating new quote opportunities and bookings in the aeroderivative turbine and aerospace verticals. Operationally, we continue to prudently invest in equipment technology to improve our process capabilities, reduce costs and improve our profitability. We've upgraded key fabrication equipment in our manufacturing facilities as we seek to capitalize on demand growth, which includes recent orders for larger scale towers ordered by our customers for twenty twenty five production runs. Gearing continues to invest in quality and security certifications, such as the AS 9,100 and ITAR registrations earned in 2024, followed by the CMMC two point zero, a cybersecurity requirement for the defense industry, which we will achieve in 2025. Beginning in the first quarter of twenty twenty four, we undertook significant cost actions to align our structure with the current demand environment.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

These actions equated to about $4,000,000 in annualized cost savings, which is evident in our 2024 results and will continue to into 2025. As demand conditions begin to improve, we believe these actions position Broadwind to realize improved operating leverage in 2025. Q4 revenue was behind the prior year quarter, primarily due to reduced activity within our wind and oil and gas markets. Our non wind activity levels remain relatively stable as we see demand for our precision manufacturing capabilities across multiple markets, most notably in Power Generation and Industrials. Within our Heavy Fabrication segment, Q4 revenue was $20,000,000 down 31% from a year ago, mostly due to the decline in tower production and natural gas pressure reducing systems or PRS shipments, partially offset by increased sales of mining equipment.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Gearing revenue was $7,600,000 a 31% reduction year over year due to broad based softness in the oil and gas and steel markets, partially offset by strength in mining and aftermarket win. Industrial Solutions revenue was $5,900,000 down slightly year over year, primarily due to the timing of certain aftermarket shipments into the natural gas turbine market. In summary, the operating performance of all divisions continues to be strong as we quickly respond to demand fluctuations in business, while maintaining profitability. With that, I'll turn the call over to Tom for a discussion of our fourth quarter financial performance.

Thomas Ciccone
Thomas Ciccone
VP & CFO at Broadwind

Thank you, Eric. Turning to Slide five for an overview of our fourth quarter performance. Fourth quarter consolidated revenues were $33,600,000 compared to $46,600,000 in the prior year quarter. This represents a 28% decrease versus the prior year quarter as our production levels continue to be impacted by the ongoing pause within the onshore wind industry, as well as the extended slowdown within the oil and gas sector. Adjusted EBITDA margin fell to 6.4% due primarily to lower capacity utilization, partially offset by the targeted cost reductions we took earlier this year.

Thomas Ciccone
Thomas Ciccone
VP & CFO at Broadwind

From an order perspective, we experienced a rebound in activity during the quarter with consolidated orders of almost $38,000,000 representing our highest intake level in nearly two years. It should be noted that within all three segments, orders increased sequentially quarter over quarter and on a year over year basis. Turning to Slide six for a discussion of our Heavy Fabrication segment. Fourth quarter orders of $22,400,000 are up both sequentially and versus the prior year period, as we continue to recognize orders related to wind repowering projects and strength within our industrial market. Fourth quarter revenues were $20,400,000 down almost $9,000,000 versus the prior year quarter, reflective of lower tower volumes as well as lower PRS shipments.

Thomas Ciccone
Thomas Ciccone
VP & CFO at Broadwind

During the fourth quarter, we recognized adjusted EBITDA of $2,600,000 a decrease of $1,100,000 versus the prior year period. Despite the decreased revenue levels, we were able to maintain our adjusted EBITDA margin as our drop in capacity utilization was partially offset by targeted cost actions taken towards the end of twenty twenty three into 2024. Turning to Slide seven, gearing orders of $7,000,000 are up sequentially and versus the prior year. Although we continue to experience softness in oil and gas demand, we've made investments in machine technology, which are capable of finishing products to tolerances within a millionth of an inch. This level of precision is needed to serve the aerospace and aero derivative markets.

Thomas Ciccone
Thomas Ciccone
VP & CFO at Broadwind

This technology along with our expanded commercial team and new quality certifications is bearing fruit as we win orders in these strategic markets, in addition to growth from legacy markets. Segment revenue was $7,600,000 down $3,400,000 versus the prior year quarter. Q4 segment adjusted EBITDA was $100,000 a decrease of $1,200,000 versus the prior year quarter. These decreases are reflective of the lower order intake levels we've experienced in recent quarters. Turning to Slide eight, Industrial Solutions recorded orders totaling $8,000,000 in the fourth quarter.

Thomas Ciccone
Thomas Ciccone
VP & CFO at Broadwind

The $8,000,000 of Q4 orders as well as the $27,000,000 of full year orders, both represent record booking levels for the segment. The segment continues to experience strong commercial interest for natural gas turbine content, most notably for new gas turbines, and we've seen order strength continue into 2025. Q4 segment revenue was $5,900,000 and Q4 segment adjusted EBITDA was 600,000 both small decreases versus the prior year period. But it should be noted that in addition to the aforementioned order activity, full year 2024 revenue and adjusted EBITDA totals are both record levels for the segment. Turning to Slide nine, we ended the fourth quarter with total cash and availability on our credit facility of approximately $33,000,000 This is a significant sequential improvement resulting from a $13,000,000 reduction in our operating working capital as we experienced an increased level of advanced payments from a major customer.

Thomas Ciccone
Thomas Ciccone
VP & CFO at Broadwind

The decrease in operating working capital drove strong free cash flow generation in Q4. Moving forward into 2025, we expect deposit balances to return to more typical operating levels. Finally, with respect to our financial guidance, today we are introducing financial guidance for the full year 2025. Given our current expectations and beliefs, we anticipate full year revenue to be in the range of $140,000,000 to $160,000,000 and adjusted EBITDA to be in the range of $13,000,000 to $15,000,000 That concludes my remarks. I will turn the call back over to Eric to continue our discussion.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Thanks, Tom. Now allow me to provide some thoughts as we enter 2025, beginning with our Heavy Fabrication segment. We believe that domestic onshore wind tower activity will likely continue at its present rate through 2026. We're encouraged by the continued momentum in the wind repowering market as we're seeing sustained demand from our OEM customers for the adapters we manufacture, which are required to upgrade most legacy turbines. We believe that the new tariffs announced recently combined with the existing anti dumping measures in place we'll continue to benefit the domestic wind tower manufacturers.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

We continue to reallocate production capacity towards stable recurring project revenue streams across diverse end markets with recent notable wins occurring in the mining and hydroelectric verticals. We're seeing increasing quote activity from the power generation space, especially for products supporting the nation's electrical infrastructure, such as the large transformers required to support the grid. We're excited about the launch of our newest model in the family of PRSs, the Broadwind Clean Fuels L70 low flow PRS unit. This is the third model in this product family and is now in customer field trials with favorable results so far. We're seeing strong customer interest in this model and are increasing our production plan to meet the anticipated demand.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

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 or pipeline integrity projects. In our Gearing segment, we continue to execute our strategy to move beyond traditional gearing toward other precision machine products. We're pleased at the increasing level of customer activity we're seeing in various new markets, such as aeroderivative gas turbines, use in data center primary or backup power, aggregate material processing and large high speed compressors to name a few. Our content for these markets includes products such as airfoils, fan blades and impellers, in addition to our more traditional gearing and shaft products. We expect that the customer assuring efforts we've seen in 2024 will accelerate with the recently announced tariffs and are well positioned to provide customers a quick high quality and competitive domestic alternative to their legacy suppliers.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Additionally, the organization upgraded and brought online two additional heat treat furnaces at our Pittsburgh location to address increasing demand and provide additional scheduling flexibility for our external heat treat customers. In Industrial Solutions, the momentum that we've experienced in the gas turbine industry this year continued through the fourth quarter and remained strong as we enter 2025. Our key customers, which are seeing strong demand for gas turbine equipment and services are reporting strong backlogs and are increasing their production capacity in response. Accordingly, quoting activity remains high and we're adding resources in quality, procurement and project management to respond to customer demand. As a reminder, Industrial Solutions business provides supply chain solutions, custom fabrications and control panel manufacturing for the growing combined cycle natural gas turbine market worldwide, which is driven by demand growth attributable at least in part to data centers and other sources of increased electrical load.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

As a result, we achieved record orders again this year, surpassing the previous record set last year in 2023. In summary, I'm pleased with the strong operational performance from our team this quarter. As we continue to demonstrate strong execution on our strategic priorities. Our quality, quick response and reliable deliveries continue to win new customers for us, particularly in the Gearing and Heavy Fabrications businesses. 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 and product expansion.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

We're committed to keeping our people safe and productive. Our focus on team member safety has yielded a 55% reduction in our recordable incident rate in 2024, well below the industry average. And we had zero lost time incidents. We have five plants, 100% U. S.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Based. So we're prepared to capitalize on any opportunities afforded by the pro domestic manufacturing policy backdrop afforded by the current administration. While potential impacts of both tariffs and renewable energy policy changes are unknown, we're optimistic that the new policies will support the necessary rebuilding of the country's infrastructure. We're encouraged by the pace of order growth within our core non wind markets, which positions us for improved optimization 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, I'll turn the call back over to the moderator for the Q and A session.

Operator

Thank you. At this time, we'll be conducting a question and answer session. Our first question comes from Eric Stine with Craig Hallum. Please proceed with your question.

Eric Stine
Senior Research Analyst at Craig-Hallum Capital Group LLC

Hi, Eric. Hi, Tom.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Hi, Eric.

Thomas Ciccone
Thomas Ciccone
VP & CFO at Broadwind

Good morning, Eric.

Eric Stine
Senior Research Analyst at Craig-Hallum Capital Group LLC

Good morning. So first of all, just on wind, just to confirm. So I know in your release you were talking about expecting wind softness through 'twenty five, but I believe just to confirm, you said you kind of expect this to be the situation through '26 and I guess meaning some improvement in '27. So that would be first. And then second, can you just remind me of the visibility you've got for the GE work you're doing under the contract that you received a number of quarters ago?

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Sure. Yes, I see the demand as muted. Certainly, we can be optimistic beyond '25, but I'd expect '26 to be about the same as '25 just based on indications we're getting from customers and some conversations I've had with industry peers and whatnot. Regarding the visibility we have through 2025, we have, I would say, firm visibility through really through the whole year 2025. We know exactly the towers we're going to build through September and have indications beyond that, Eric.

Eric Stine
Senior Research Analyst at Craig-Hallum Capital Group LLC

Got it. Okay. And then maybe sticking with that, when you think about 2025 and I know you gave the guidance range, but how should we think about the linearity of that? Maybe helpful just something on Q1 and then just the remainder of the year given some visibility from wind, but also I would think some visibility in your backlog across the rest of the business?

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Sure. Well, I think wind is going to be relatively stable through the full year, except we did have some pull in at the end of 2024 that we thought we're going to be able to recognize revenue in Q1 twenty twenty five. So that benefited Q4 twenty twenty four to the somewhat detriment of Q1 twenty twenty five. Not really hurting the year, but it actually moves some things around. So I would say regarding the pace of the year, I would say it's ratably increasing through the year.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Q1 is going to be probably the lowest quarter because of the pull ins. We had pull ins by the way, Eric, not only in towers, but also in gearing and in industrial solutions. So it made for a strong Q4, but a little bit of a softer Q1 based on the backlog we have. And then I'd say, like I said, ratable through the year increases.

Thomas Ciccone
Thomas Ciccone
VP & CFO at Broadwind

Yes. Eric, the only thing I would add to that is in addition to kind of a ramping up throughout the year, I think Q1 will be a little will be adversely impacted by some lower production levels within our gearing segment just as we start the year as we had some lower order intake quarters earlier in the year.

Eric Stine
Senior Research Analyst at Craig-Hallum Capital Group LLC

Okay. That is very helpful. And then maybe lastly, just sticking on the order front, it sounds like I mean, certainly you had I think you cited very strong quoting activity on your Q3 call and obviously that played out with order strength in Q4. It sounds like you continue to see that quoting activity and maybe thoughts on what you see in terms of book to bill throughout 2025?

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Yes, it's exciting. Frankly, it's nice to see what we've done in our non win markets. We've I know I've said on previous calls, we first set forth the process capabilities, so we built that up in multiple divisions. Then we had the quality certifications that we won, the ITAR, the CMMC, the AS9100, the ASME DIV2. So we have those all in place now, which customers want.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

And then we've improved our sales force, so we can reach these customers. So it's nice to see that that really manifest itself in some strong quoting activity in three and four and now the order activity is following that. We don't win them all, but we're excited about what we are winning, especially in the strategic markets like Power Gen, Aero Derivatives, a little bit of Aerospace that takes a little bit longer and then even Medical.

Thomas Ciccone
Thomas Ciccone
VP & CFO at Broadwind

In terms of book to bill, Eric, I think within our Gearing segment, we can expect it book to bill greater than one within industrial solutions with a strong backlog closer to one. But in heavy fab, because we're working off the LTA and we're not announcing new orders, as you know, that until we start announcing new orders or counting orders, that would probably won't be greater than one in terms of book to bill.

Eric Stine
Senior Research Analyst at Craig-Hallum Capital Group LLC

Okay. Thank you.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Thanks, Eric. Appreciate it.

Operator

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

Amit Dayal
Managing Director & Senior Technology Analyst at H.C. Wainwright & Co.

Thank you. Good morning, guys.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Good morning, Amit.

Amit Dayal
Managing Director & Senior Technology Analyst at H.C. Wainwright & Co.

Just trying to understand from your previous release, you're saying project activity is low, but order activity has improved. Can you help us understand what that means in terms of the setup you have right now?

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Well, we're talking about if we're talking about project activity in forms of wind, wind is muted right now. We have a strong backlog. We've got good customer communications and visibility. But for new orders for wind, it would be somewhat would it be somewhat muted. Is that the question you're asking?

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

I'm not going to make sure I'm answering the correct question.

Amit Dayal
Managing Director & Senior Technology Analyst at H.C. Wainwright & Co.

Yes.

Amit Dayal
Managing Director & Senior Technology Analyst at H.C. Wainwright & Co.

I'm just trying to reconcile those two things. So the project activity that you are talking about is more on the customer side and the order activity is more on what you are from a backlog perspective, I guess, right? So just trying to see how these two are sort of balancing each other out or how they're impacting the guidance you provided basically?

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Sure. When we talk about project, we're talking about active orders that we have and then we're talking about prospective orders and booking, which would be in the future. Future orders that we expect. That's the whole positive book to bill that we're talking about. I think that's the answer to your question.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Again, we've got good visibility on our wind, wind backlog, wind production through most of 2025 and not only just towers, but we also have nice backlog on the adapters that I mentioned in the press release, which are used to upgrade legacy turbines. So we're doing both and those run down the same line. So that's good capacity utilization for wind, but the rest of it, we are entering with a pretty strong backlog in industrial fab outside of wind, quite a strong backlog industrial solutions that we mentioned before. And I would say a growing backlog in Bradford and Gearing because we did have soft orders in Q2 and Q3 and those are the orders we're actually building now in Q1 twenty twenty five.

Amit Dayal
Managing Director & Senior Technology Analyst at H.C. Wainwright & Co.

Understood. No, that's helpful. Thank you. You talked a little bit about tariffs.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Sure.

Amit Dayal
Managing Director & Senior Technology Analyst at H.C. Wainwright & Co.

Is that already reflected as much as you can, I guess, in the guidance you provided? I mean, there could be some other developments that could impact this, but for what would be some sort of the positives and the negatives that we should sort of keep an eye on as the year plays out from a tariffs perspective?

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Well, we're very transparent with our customers and our suppliers and we've all kind of been through this before. So we understand how to deal with it. We quote, as you may remember, a lot of first of all, some of our products are pass through, wind as example is pass through. So anything we any increases we would get would be automatically pass through for the most part with heavy steel plate and whatnot. But outside of that, we quote to order.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

So we need to be very prudent in how we quote, make sure that the lead times and the quotes that we're getting from our suppliers are current and then we're actually limiting the quote life of the quotes we're providing to our customers to make sure that we have time to react to any possible inflationary increases we get from suppliers. Again, we're transparent, we're going to pass them forward, so we can maintain our margins.

Amit Dayal
Managing Director & Senior Technology Analyst at H.C. Wainwright & Co.

Okay. So at least until so far, the order activity has you haven't seen too much of a disruption in that process from this tariff related news flow?

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

No, we really haven't seen anything other than customers are let's say the inquiries for onshoring. We used to get this from an offshore supplier and we know that the onshore prices might be a little bit higher than an offshore foreign supplier, but we want to come back and make sure that we've got a refresh quote from industrial fab or from gearing. So that kind of activity, our customers are looking out. And so I'd say our order activity is increasing as a result. Our booking are few activities increasing as a result.

Amit Dayal
Managing Director & Senior Technology Analyst at H.C. Wainwright & Co.

Thank you. Thank you. That's helpful. Just last one for me. You mentioned this hydroelectric offering.

Amit Dayal
Managing Director & Senior Technology Analyst at H.C. Wainwright & Co.

Is this sort of a new product and could this become a steady stream of revenues or is it a little bit like one time type?

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Well, we think what this is, is actually as hydroelectric dams are being refurbished, there's a lot of heavy fabrication that are inside these dams that need to be replaced, refurbished, repaired. And we're capable because we have this capability as you know to build large cylindrical type of things that are very precise and very robust. Our customers are coming to us for this. So I think it is repeating. It's these are for these are dams that are existing.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

So as the infrastructure in the country needs to be upgraded and frankly it all does, we do see this to be a repeating revenue stream. Not nearly a significant like would be towers or whatnot, but repeating seven digits.

Amit Dayal
Managing Director & Senior Technology Analyst at H.C. Wainwright & Co.

Understood. I mean

Amit Dayal
Managing Director & Senior Technology Analyst at H.C. Wainwright & Co.

it helps with the capacity utilization aspect of the store.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

It definitely helps because it's essentially run down the same lines as the towers do because big cylindrical things.

Amit Dayal
Managing Director & Senior Technology Analyst at H.C. Wainwright & Co.

That's all I have guys for now. I will take my other questions offline. Thank you.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Thank you.

Thomas Ciccone
Thomas Ciccone
VP & CFO at Broadwind

Thanks, Amit.

Operator

Our next question comes from Justin Clare with Roth MKM. Please proceed with your question.

Justin Clare
MD & Research Analyst at Roth Capital Partners, LLC

Hi, good morning. Thanks guys.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Good morning, Justin.

Thomas Ciccone
Thomas Ciccone
VP & CFO at Broadwind

Good morning.

Justin Clare
MD & Research Analyst at Roth Capital Partners, LLC

Good morning. So wanted to just touch on the 2025 guidance. It implies mid single digit revenue growth for 2025. And then just wondering if you could speak to the growth that you're for the segments, which segments might grow faster than the corporate average, what might be a little bit slower? It sounds like gearing might be a little on the slower side, but if you could just give us a little bit more granularity, that'd be helpful.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

I would say as far as industrial solutions, I would say the pace of growth that we've seen over the last couple of years shows no sign of slowing down. And just a reminder, that's based on natural gas turbine and air derivative turbine, which is really the same thing, different size across the world. And so as electricity demand increases, the demand for those products increases and the demand for our products increases. So I'd say pace of growth would continue there. I'd expect through '25.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Gearing starting from a bit of a slower start because of the orders that we had or the lack of orders we had in Q2 and Q3 primarily driven by oil and gas. I do expect that to grow prospectively going forward kind of ratably, but reasonably. Towers is going to be flat as we indicated. So the growth that you're seeing that we're guiding to is really going to come from those other divisions.

Justin Clare
MD & Research Analyst at Roth Capital Partners, LLC

Okay, got it. And then when I look at the adjusted EBITDA margin that's implied for 2025, '9 point '3 percent at the midpoint. It's similar to what you guys experienced in 2024. So just wondering, it sounds like you're anticipating improvement in utilization. So is there potential to lift that margin above that 9.3% in 2025?

Justin Clare
MD & Research Analyst at Roth Capital Partners, LLC

Maybe just speak to the opportunity there.

Thomas Ciccone
Thomas Ciccone
VP & CFO at Broadwind

Sure. That's correct. So at our midpoint, it's pretty close to where we ended 2024. And I think if we end up with at the higher end of our guided range, there's definitely an opportunity there as we better utilize our capacity, our plant capacity. So I would definitely say that that's an opportunity.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

But to add some

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

color to that, Justin, the capacity utilization will benefit it, but as we pursue new markets, they tend to start a little bit slower with PPAPs. There's a lot of quality requirements that are required for some of these new customers and markets. So they tend to come with lower initial margins, especially with the smaller quantities. And then once you get your PPAP passed or your first run passed, then the customers tend to give us larger quantities, so we can use our machines on longer runs, less setups, and that would improve the margins. But that's part of the reason we have that built in is the expectation that it's going to come with increased PPAPs, which are shorter runs, a little bit more margin pressure on those.

Justin Clare
MD & Research Analyst at Roth Capital Partners, LLC

Got it, got it. Okay, understood. And then just thinking through the executive order on wind permitting that was put in place by the new administration here, wondering if that's had any effect on order activity that you're seeing. I'm guessing maybe not at this point, but I'm wondering if there could be an impact as we get into toward the end of twenty twenty five, into 2026. Like in discussions with your customers, are customers potentially pausing projects?

Justin Clare
MD & Research Analyst at Roth Capital Partners, LLC

Are you seeing any delays? Maybe just speak to potential impact there.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Yes, I'd say, Justin, that's really the root of the comments and the beliefs that we have that 2026 might be about the same as 2025. Just as a reminder, about 4% of wind projects are on federal lands, federal lands. So those are kind of blocked off right now, which leaves 96% on state or private land. So most of the wind activity is on onshore wind activity is on state or private lands. Now, they still require FAA permits and to a certain extent EPA permits for environmental protection, for wildlife and whatnot.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

So to the extent that that could be slowed down by a permitting slowdown for the federal government, that has the potential to slow projects, which is why we're thinking 2026 might be muted, meaning the same as 2025.

Justin Clare
MD & Research Analyst at Roth Capital Partners, LLC

Got it. Okay. That makes sense. All right. Go ahead.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Yes. Customers is developers, if there's uncertainty, it could cause them to pause. So customers are saying they really hadn't seen that yet, Justin, but there's always that backdrop that it could happen.

Justin Clare
MD & Research Analyst at Roth Capital Partners, LLC

Got it. Okay. Thank you.

Eric Blashford
Eric Blashford
CEO, President & Director at Broadwind

Thanks, Justin.

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
Eric Blashford
CEO, President & Director at Broadwind

Yes. Thanks, everyone. I really appreciate your attention. We're excited about what's happening at Broadwind and we look forward to coming to you at the end of Q1 to report our earnings then. Thank you.

Operator

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

Executives
    • Thomas Ciccone
      Thomas Ciccone
      VP & CFO
    • Eric Blashford
      Eric Blashford
      CEO, President & Director
Analysts
    • Eric Stine
      Senior Research Analyst at Craig-Hallum Capital Group LLC
    • Amit Dayal
      Managing Director & Senior Technology Analyst at H.C. Wainwright & Co.
    • Justin Clare
      MD & Research Analyst at Roth Capital Partners, LLC
Powered by Quartr
Earnings Conference Call
Broadwind Q4 2024
00:00 / 00:00

Transcript Sections