Broadwind Q1 2025 Earnings Call Transcript

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May 13, 2025

There are 6 speakers on the call.

Operator

Greetings and welcome to Broadwind's First Quarter and Full Year twenty twenty five 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 Cicconi. Thank you. You may begin.

Speaker 1

Good morning, and welcome to the Broadwind First Quarter twenty twenty five Results Conference Call. Leading the call today is our CEO, Eric Blashford and I'm Tom Cicconi, 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.

Speaker 1

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.

Speaker 2

Thanks, Tom, and welcome to those joining us today. Rodwin delivered solid commercial and operational execution during the quarter, with revenue and adjusted EBITDA of $37,000,000 and $2,400,000 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 $30,000,000 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.

Speaker 2

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 upward sequential trajectory, increasing 13% versus Q4 twenty twenty four, 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.

Speaker 2

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.

Speaker 2

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 $25,000,000 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 $6,000,000 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.

Speaker 2

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 $5,600,000 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.

Speaker 1

Thank you, Eric. Turning to Slide five for an overview of our first quarter performance. First quarter consolidated revenues were $36,800,000 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.

Speaker 1

Q1 orders totaled $30,500,000 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 six for a discussion of our Heavy Fabrication segment. First quarter orders of $12,400,000 are up versus the $11,200,000 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.

Speaker 1

First quarter revenues of $25,200,000 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 $3,400,000 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 seven. Gearing orders of 8,000,000 are down approximately 2,500,000.0 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.

Speaker 1

S. Trade policies. Segment revenue was $6,000,000 down $2,400,000 versus the prior year quarter. We experienced an adjusted EBITDA loss of $200,000 driven by lower revenue resulting from softer order intake levels in recent quarters, in addition to operational inefficiencies experienced in Q1. Turning to slide eight.

Speaker 1

Industrial Solutions recorded more than $10,000,000 of orders in the first quarter, surpassing the previous $8,000,000 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 $23,000,000 at the end of the first quarter, eclipsing the previous record of 18,500,000 set in Q4 twenty twenty four. Q1 segment revenue was $5,600,000 and Q1 segment adjusted EBITDA was 500,000 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.

Speaker 1

Turning to Slide nine. We ended the first quarter with cash and availability on our credit facility of approximately $23,000,000 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 $140,000,000 to 160,000,000 and adjusted EBITDA to be in the range of 13,000,000 to $15,000,000 That concludes my remarks.

Speaker 1

I will turn the call back over to Eric to continue our discussion.

Speaker 2

Thanks, Tom. Now allow me to provide some thoughts as we move into Q2. Beginning with our Heavy Fabrication 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.

Speaker 2

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 L70 Low Flow unit, continues to perform well in field trials and will be ready for full release this summer.

Speaker 2

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 will 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 machined 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.

Speaker 2

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.

Speaker 2

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, 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.

Speaker 2

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 and A session.

Operator

Thank you. At this time, we'll be conducting a question and answer session. Please proceed with your question.

Speaker 3

Hi, good morning. Thanks for the questions here. So 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 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.

Speaker 3

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?

Speaker 1

Yes. Thanks, Justin. I think some of the strength that we've seen in Q1 really had to do with strong demand for our repowering adapters that we produce for our customers. So that seems to be a very strong market right now. And we're billing for several OEMs in both of our plants right now.

Speaker 1

So that's been a real good tailwind for us. As it relates to the rest of 2025, we are expecting to see some increase in our overall revenue in that segment, particularly in Manitowoc as we are starting we did start a tower run-in Q2. I mean, we expect to start reaping some of the revenue recording some of that revenue in Q2 and Q3.

Speaker 2

Yes. And Justin, is Eric. Just to add on to that. Regarding '26, we expect '26 to be about the same from a new wind tower perspective and repowering adapters to be at the same level, if not a hair higher. Actually for multiple OEMs and another one is actually interested in our capacity too in repowering.

Speaker 3

Got it. Okay. That's good to hear. Maybe just shifting over to tariffs. I know all your manufacturing is in The US, but wondering if tariffs are having any effect on your cost structure, any materials that you might source from overseas.

Speaker 3

And then just wondering on the competitive environments, are the tariffs changing anything in terms of your relative cost structure to others you may compete against really across any of your segments?

Speaker 2

Well, we start with wind. Wind, as you know, has some components that are sourced from overseas. Our OEM partners saw this coming and they've shifted some of their some of the internals, which typically come from China out to other countries that are less suspect or less impacted by tariffs. So I think it could have a minor impact, but that would be a pass through for us. So we don't see a lot of impact because of the kind of advanced change that we did within our supply chain.

Speaker 2

With regard to the other locations, the other divisions that we have, we're seeing a little bit of lift in terms of the consumables, such as welding wire and whatnot that we're able to pass through to our customers because as you know, we quote virtually every job independently. On the flip side, we're starting to see some potential onshoring activities even with oil and gas gearing that we haven't seen before. We're seeing a lift and we suspect that it could have something to do with our customers' concerns with regard to tariffs out of especially the Far East. And so looking to re shore or onshore more gearing and gearing components to The U. S.

Speaker 3

Okay, got it. And then I guess just following up on gearing, we have seen oil prices drop this year and are 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?

Speaker 2

As far as oil and gas gearing, know, as we reported before, that's on a certainly eighteen months to two year lull because fracking new frac rigs and whatnot are not being brought online. We are seeing some upgrades, updates to existing fleets, and we're selling into the aftermarket there. So I would say that would be soft to a little bit of a lift. We had some stronger orders and revenue in gearing that we have seen in several years, which is interesting and certainly attractive to us. But the power gen sector, which is obviously not drilling, it's using natural gas and oil, we're seeing a lift in.

Speaker 2

And that's those were strategic target markets we went after, specifically with gearing, with this AS9100 certification, that's air derivatives and whatnot. We're starting to see some green shoots in that. So notwithstanding the price of oil and gas being down, we're seeing some real opportunities in power generation from that sector.

Speaker 3

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

Speaker 2

Thanks Justin. Thanks Justin.

Operator

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

Speaker 4

Hey, good morning and thanks for taking my questions.

Operator

Thanks, Rick.

Speaker 4

I'll focus on the Industrial Solutions segment. It seems, and correct me if I'm wrong, but the drop in revenue could be attributed to supply chain and delays. And also, looks like the outlook and the backlog seems to be quite strong here. Is the assessment that the Q1 performance only attributable to supply chain or delivery pushouts the correct assumption?

Speaker 1

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.

Speaker 2

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.

Speaker 2

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 is being absorbed by Broadwind, our customers and the supply chain.

Speaker 4

Understood. And maybe I'm reading too much into the inventory growing up almost $10,000,000 this quarter. Was it because of these sort of delayed shipments or any work in progress inventory that increased from particularly from the industrial solutions?

Speaker 1

Samir, I'm sorry. Can you repeat that? Were you asking about inventory?

Speaker 4

Yeah. So the inventory increased by around 9.5 to $10,000,000 Yeah. And I was wondering if it is mainly attributable to Industrial Solutions.

Speaker 1

Well, I would say only partially. The real driver there is we're beginning tower production again in Manitowoc and it's a rather large tower design. So we've been increasing our inventory during Q1 to accommodate that. We're going to begin shipments in Q2 related to that tower build. So we have the lion's share of that increase is related to Manitowoc.

Speaker 1

I'd also say that we're seeing a slight increase in Abilene as well, because we're moving to a bigger tower design with a higher material content. So that's really driving up some of the inventory that you're seeing. But biz is also a contributing factor as well. Industrial solutions, that is.

Speaker 4

It. Understood. And then one last one. On the PRS, Minim, you talked about the demand in clean fuels and also the L-seventy low flow, which is performing well. Do you have sort of an aspirational goal or revenues for 2026 from this particular product line or industry?

Speaker 2

Certainly. We have said before, we see that to be about 10% of our revenue. So I would say between 15,000,000 and $20,000,000 should be a comfortable assumption for that product line. We're starting to see some more interest in two things, in international, in South America for that product line, which we believe we've got certainly an innovative solution for that geography, but also some increased demand for rentals. So if a customer takes on a new job and it's a short term job and they're not comfortable with investing in capital, they'll often take advantage of one of our rental units or unit processes, and eventually that can turn into a buy.

Speaker 2

So with all that, we think I feel comfortable with about 10% of our revenue being out of the PRS line.

Speaker 4

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

Speaker 2

Yes, we do. Yes, the L70 has an attractive pricing point, but that doesn't mean that we're sacrificing gross margin for that. And obviously, with the rentals 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.

Speaker 4

Got it. Understood. I'll turn it over.

Speaker 1

Thank you. Thanks, Meyer.

Operator

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

Speaker 2

Hi, Hi, Tom. Hi, Eric. Good morning.

Speaker 5

Good morning. So can we just dig into wind a little bit more? So interesting starting tower production for a new opportunity in Manitowoc. I mean, do you see that as kind of indicative of something changing in the market or more of a one off? And then also just want to think about kind of your longer term view in 2026.

Speaker 5

You talked about seeing elevated quoting activity. When you're talking about that being flat year over year, are you anticipating that that quoting activity turns to orders? Do you need that for it to be flat year over year? Or is it kind of flat year over year based on what's in hand today?

Speaker 2

Well, I'll take the second part of your question. Well, the first part of your question has to do with Bantouac. As you know, wind is basically project based, whether the North whether it be in the North or the South, that's why we have the two plans 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 are building repowering adapters in both plants to keep that those capabilities in workforce ready for a tower build.

Speaker 2

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 to be the volume to be consistent in 2026 versus 2025. 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 twenty twenty five. So into 2026, those would be new orders with consistent customer base.

Speaker 5

Got it. Okay. And then did you and I can't remember if you do this on the call or if it's in the queue, but did you call out the 45x tax credit that you recognized in q one?

Speaker 1

We did not. It's about $2,500,000 for Q1 is what we've recorded.

Speaker 5

Okay. No. That's helpful. Yeah. Thanks for that.

Speaker 5

And and then maybe last thing for me. Just I want to make sure I understand it. So I know that you had identified $4,000,000 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.

Speaker 5

Am hearing that right? And if so, could you just provide a little bit more Sure.

Speaker 2

Yes, sure. What we did last year was general cost actions, and really that was a result of the overall reduction in wind output from 2023 into 2024. Those cost reductions are they're being maintained. They're in place and they remain in place. What I mentioned in the prepared remarks is with varying capacity utilization and gearing, we've taken some cost actions in gearing to balance our output capability with demand.

Speaker 2

And I expect that to kind of return back as we expect orders to increase throughout this year through these target markets I mentioned earlier, such as power generation and infrastructure and whatnot, defense and even aerospace out of that division. But that's what I'm referring to in the remarks is we took further actions in gearing to balance our capacity with demand.

Speaker 5

Okay. That's helpful. Thank you.

Speaker 2

Thank you.

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.

Speaker 2

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

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

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Key Takeaways

  • Broadwind reported Q1 2025 revenue of $36.8 million and adjusted EBITDA of $2.4 million, achieving sequential growth in both metrics and a 6.4% EBITDA margin despite a lower-margin mix and supply chain delays.
  • Q1 orders rose 5% year-over-year to $30.5 million, with heavy fabrication orders up 10%, gearing orders up 13% sequentially, and industrial solutions orders up 38%, driving a record backlog in that segment.
  • Strong demand for wind repowering adapters and natural gas turbine content more than offset softer mining and PRS sales, highlighting the resilience afforded by a diversified customer base amid U.S. trade policy uncertainty.
  • The company is investing in new milling and beveling equipment in its heavy fabrications business and advanced testing equipment plus UL certification in industrial solutions to expand capabilities, reduce costs, and enter adjacent higher-margin markets.
  • Management reiterated full-year 2025 guidance of $140 million–$160 million in revenue and $13 million–$15 million in adjusted EBITDA, while expecting sustained wind repowering activity into 2026 and continued quoting momentum in power generation and infrastructure sectors.
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