U.S. markets close in 5 hours 37 minutes

Edited Transcript of BWEN earnings conference call or presentation 27-Feb-20 4:00pm GMT

Q4 2019 Broadwind Energy Inc Earnings Call

Naperville Mar 7, 2020 (Thomson StreetEvents) -- Edited Transcript of Broadwind Energy Inc earnings conference call or presentation Thursday, February 27, 2020 at 4:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Eric B. Blashford

Broadwind Energy, Inc. - COO

* Jason Lee Bonfigt

Broadwind Energy, Inc. - CFO, VP, Principal Accounting Officer & Treasurer

* Stephanie K. Kushner

Broadwind Energy, Inc. - President, CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Justin Lars Clare

Roth Capital Partners, LLC, Research Division - Director & Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Greetings, and welcome to the Broadwind Fourth Quarter and Full Year 2019 Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I will now turn the conference over to our host, Jason Bonfigt, Chief Financial Officer. Thank you. You may begin.

--------------------------------------------------------------------------------

Jason Lee Bonfigt, Broadwind Energy, Inc. - CFO, VP, Principal Accounting Officer & Treasurer [2]

--------------------------------------------------------------------------------

Good morning, and welcome to Broadwind's Fourth Quarter and Full Year 2019 Results Conference Call. Leading the call today are our CEO, Stephanie Kushner; COO, Eric Blashford; and I'm Jason Bonfigt, the company's CFO.

We issued a press release before the market opened today, detailing our fourth quarter and full year 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 our press release we 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 Stephanie.

--------------------------------------------------------------------------------

Stephanie K. Kushner, Broadwind Energy, Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Thank you, Jason, and welcome to everyone on the call. Our fourth quarter results came in line with expectations, capping off our strongest annual performance since 2016. Orders were robust in 2019, more than double the prior year with a book-to-bill ratio of 1.24. We finished the year with backlog of $142 million, up 80% (sic) [48%] year-over-year. The majority of the increase is in our Heavy Fabrications business, where both the tower product line and the industrial fabrication business book expanded significantly. Alongside the evident growth in wind, we continued to expand our business across a diverse range of industries and customers throughout the year, including those in shipbuilding, mining, solar farms and even wave energy.

Fourth quarter revenue of $49 million was up 81% from the prior year, with big growth in tower volume. Demand for Gearing to support fracking remains subdued, although we are seeing some resurgence in early 2020.

Our Heavy Fabrications segment was up 76% year-on-year for the full year. We've ramped up our production to meet strong multiyear demand for towers, while dedicating specific satellite plants and production base to support our growing industrial fabrications product line.

Fourth quarter Gearing revenue was down 30% due to the pullback in frac gearing. But notably, we remain profitable at the lower production volume because margins were higher, and we continue to benefit from the process improvements and cost reductions that have been implemented in recent years. The Gearing segment posted record total operating income for 2019 of $3.2 million, 9.2% of revenue and EBITDA of $5.6 million, 16% of revenue.

Industrial Solutions, previously Process Systems, had flat revenue but significantly improved EBITDA. The delivery of a $700,000 order to support solar farm installation represented a notable entry point into a new industry.

Broadwind's total adjusted EBITDA of $1.8 million was in line with Q4 guidance and sharply above a weak 2018. I'm proud of the way our tower business overcame supply chain chaos during the second half of the year and continued to deliver its projects 100% on time.

The working capital management programs and incentives we've put in place a year ago helped strengthen our balance sheet. We had available liquidity of $19 million at year-end, including $2.5 million of cash.

In December 2019, the federal government announced a 1-year extension of the production tax credit that will provide a $0.015 per kilowatt hour subsidy for new wind projects commenced in 2020, and either completed by the end of 2024, or which are in continuous construction and completed beyond 2024. This tax credit extension provides a boost for onshore wind over the near term, and we expect will help the industry bridge to the emerging offshore wind industry.

We were also encouraged to see that the U.S. Tower Trade Coalition received a second favorable preliminary ruling on trade litigation, the challenged towers imported from Vietnam, Korea, Indonesia and Canada. These preliminary tariffs, which ranged from a low of 6% to a high of 68%, in the case of Vietnam, will discourage imports. A favorable final determination due later this year will ensure a level playing field and allow U.S. tower manufacturers to increase production and sales.

In closing, as this is my final conference call as CEO, I'd like to say that I am deeply grateful for the opportunity to have served our employees, customers and shareholders during my tenure. As we announced last week, I will continue to support Broadwind as the incoming Chairman of the Board. I'm delighted to turn the reins over to Eric Blashford, whose appointment to CEO is effective March 1. The company is in good hands as we transition into a stronger, more profitable future. Thank you.

--------------------------------------------------------------------------------

Jason Lee Bonfigt, Broadwind Energy, Inc. - CFO, VP, Principal Accounting Officer & Treasurer [4]

--------------------------------------------------------------------------------

Thank you, Stephanie, and good morning to those joining us on the call. Beginning on Slide 6. Order activity reached a multiyear high in 2019, with total orders up more than $138 million year-over-year to $222 million as we continue to capitalize on improved demand conditions within the U.S. onshore wind market. While total wind energy installations increased by approximately 9% in 2019 to 9 gigawatts, Wood Mackenzie projects total installations to grow up to 15 gigawatts in 2020, driven mainly by increased activity ahead of the PTC phase-out. Further, as Stephanie mentioned earlier, a trade case was filed against tower importers from several countries, alleging that towers are being imported at less than fair value. As a result of the stronger demand environment and this trade case, we recorded $152 million of tower orders in 2019, most of which were replaced by our customers to secure 2020 production slots.

Absent any anomalies that we had in 2016 were a 3-year framework agreement with a major tower customer triggered record orders, we expect that our future orders will be a better representative of annual revenue. Our year-end backlog is up 48% and our plants are now operating at vastly improved utilization levels as a result.

Moving on to Slide 7. Fourth quarter consolidated sales were $49.3 million, up from $27.2 million, due primarily to improved plant utilization in our Heavy Fabrications segment, both for towers and industrial fabrications. This was our fourth consecutive quarter of exceeding the $40 million per quarter guidance we committed to earlier this year.

Full year sales increased to $178.2 million, a 42% year-over-year change, again driven by increased plant utilization, the expansion of our customer base into new markets and increased content within our existing customers. Fourth quarter gross margin expanded to 8.1%, up from negative 1.9% in the prior year quarter, again due to improved operating leverage, a more profitable product mix in each of our nontower product lines and better operational performance in each segment. During Q4, we managed through a temporary period of lower-margin tower contracts, which weighed on our margins. These tower contracts were executed in 2018 at a time when unfairly priced tower imports were surging into the market.

As we move into 2020, we expect margins to improve as the majority of these lower-margin contracts were fulfilled in Q4 and further efficiencies should be realized due to increases in production volume. Full year gross margin was 8.6% or $15.4 million compared to 2.4% in the prior year.

Operating expenses as a percent of sales, excluding onetime items, was managed down to 9.2% in Q4 2019 from 15% in the prior year quarter, and we expect to manage our operating expenses near these levels throughout 2020.

We generated $1.8 million of EBITDA in Q4, a $3.5 million increase year-over-year. And for the full year, we generated $7.2 million EBITDA compared to a $1 million loss in the prior year. Each of our segments contributed positive EBITDA during the fourth quarter and for the full year.

We reported a net loss of $0.09 per share in the fourth quarter versus a net loss per share of $0.79 in the prior year period, due mainly to a noncash $0.49 per share impairment in the prior year. The current year quarter included a $0.05 charge related to the accelerated amortization of the Red Wolf trade name, in conjunction with Broadwind's rebranding initiative.

Turning to Slides 8 and 9. We renamed our Heavy Fabrications segment in Q4 to coincide with our rebranding initiative. Within this segment, we include tower and industrial fabrication product lines. These product lines are produced in both our Manitowoc and Abilene plants. We booked $21 million of industrial fabrication orders in 2019, a 37% increase year-over-year and up from an annualized run rate of approximately $5 million several years ago. We have been adding machine capability to support OEM and aftermarket customer demand for large-scale fabrication, which are used in demanding applications and environments in mining, construction, material handling, shipbuilding and other industrial markets.

One of our significant customers is currently installing a large staging pad adjacent to our plant in Manitowoc to facilitate barge shipments of large fabrications. This investment positions our facility well to take advantage of our deepwater port and access to the Saint Lawrence Seaway.

For the quarter, Heavy Fabrications revenue was $37.6 million compared to $12.1 million in the prior year. Our plant utilization increased to 75% in Q4 following near-shutdown levels in Q4 2018. The management team rebuilt the business in 2019 with good commercial progress and improved operational performance. Industrial Fabrication sales rose to over $5 million of revenue in Q4, an 18% increase year-over-year. And demand for towers strengthened throughout 2019, leading to over 900 sections produced, a 72% year-over-year increase.

Q4 EBITDA was $2.4 million compared to a loss of $1.3 million in the prior year. The improvement was primarily driven by higher demand and more consistent product growth through our plants. However, supply chain challenges persist, specifically on tower internal components, which are sourced globally. These supply chain challenges manifest themselves and their margins when the final production process assembly is suboptimized.

Full year EBITDA for the segment improved by $5.6 million to $6.7 million. Full year orders were $179.7 million, up from $28.6 million in the prior year. A majority of these orders were placed by our tower customers to support 2020 production. And included in the 2019 orders is the addition of 2 material contracts from new customers, including an order from a turbine OEM that we have not produced for in several years and an order to support the repowering of a wind farm.

Our backlog ended at $120.3 million due to higher activity levels in our tower product line and a doubling of our industrial fabrications backlog.

Book-to-bill was 1.4 in 2019. We have 65% of our 2020 production in backlog, the best visibility we've had in several years.

Turning to Slide 10. Our Gearing business performed well in 2019, generating $3.2 million of operating income and a 16% EBITDA margin. Operational improvements, pricing actions and an improved product mix led to a $3 million EBITDA improvement year-over-year on $3.5 million loss of sales.

Q4 sales declined from $10.9 million in 2018 to $7.6 million in 2019, driven primarily by a reduction in oil and gas frac years. In Q4, oil and gas shipments declined by $5 million. Throughout 2018 and into early 2019, oil and gas frac market was rebuilding its supply chain and locking in production slots in the face of long lead times to support a significant increase in horsepower demand. This market has been historically volatile and has quickly moved into a more challenged environment. These challenges now include: low frac fleet utilization; cannibalization of equipment; and an overall low CapEx environment. Uncertainty of the timing of the recovery remains, but over time we expect demand to improve as cannibalization can only occur for so long.

Despite these headwinds, we have taken share in this market during the past year, which has helped compensate with the overall softness in that market.

Orders declined on a year-over-year basis from $41.6 million to $25.5 million in 2019, driven primarily by lower oil and gas and the absence of a large wind aftermarket multiyear order in the prior year. From a revenue perspective, aftermarket wind gearing, mining, steel and other industrial markets each improved in 2019. Importantly, the product margins in these industries are typically higher due to less foreign competition. And growing our custom gearbox product line has been a key focus for us, as margins typically are healthier due to the nature of an engineered product and an increase in our content. We grew this product line by 28% in 2019.

Turning to Slide 11. We renamed our Process Systems segment in Q4 as part of our rebranding initiative to Industrial Solutions. Within the Industrial Solutions segment, we provide supply chain solutions, inventory management, kitting and assembly services. We primarily serve the combined cycle natural gas turbine market, although we are expanding into other markets. Q4 sales were flat year-over-year and up to $14.7 million for the year, an 18% year-over-year increase. We achieved our third consecutive positive EBITDA quarter. Following good commercial progress, targeted price actions and operational improvement actions taken earlier in the year, we improved EBITDA by $1.6 million year-over-year, ending the year at $400,000. As a result of the company's rebranding initiative, we accelerated the amortization of the value of the Red Wolf trade name by recording a noncash $900,000 charge in Q4.

Our orders were up 25% year-over-year, driven by the solar order in Q4 and growth in natural gas turbine content. This growth was driven by the following items: the primary gas turbine customer recovered share in 2019 back to 2017 levels. We are also encouraged by the positive momentum in the global gas turbine market as industry orders of large turbines increased by nearly 50% year-over-year. Additionally, we have had success improving our share within our primary customer to provide overseas natural gas turbine content. And lastly, we expanded our customer base, supporting the next 2 dominant gas turbine OEMs. As a result, our year-over-year backlog has risen to $7.7 million, up nearly 25%.

Turning to Slide 12. Operating working capital at 12/31/2019 was $5.6 million or 3% of sales. Along with Q3, this represents a low point for our business over the past several years. Our cash conversion cycle initiative was effective in 2019. We held cash conversion training events for over 100 employees, driving the connection between daily decisions and actions to improve cash flow. Cash conversion declined to average 29 days in 2019 compared to 45 days in 2018. This focus will continue in 2020 and will remain a key element of the broader organization's incentive compensation program. Our DSO declined to 34 days at year-end 2019 from 59 days in the prior year. This was driven by improved receivables management and the introduction of additional cash flow financing programs from our customers. Days in inventory declined to 64 days from 75 days in the prior year as we liquidated low-cost steel plate that we procured at our customer's request in 2018. Inventory turns are approaching a much healthier 6 turns.

Customer deposits have also been a driver of past working capital fluctuation. Overall, customer deposits were flat in the current year, but they have been volatile historically and typically follow order patterns from our customers. We expect this volatility to continue in 2020.

Total liquidity, which is cash on hand and availability under our credit line, remained flat sequentially at $19 million and continues to be well above 2018 levels. We had $11.5 million drawn under our $35 million credit facility and had $2.4 million of cash on our balance sheet. And we expect our line of credit to support our working capital growth in 2020.

Turning to our outlook. We expect to have favorable year-over-year comparisons in the first quarter due to growth in our Heavy Fabrications product -- production and expansion of margins. We anticipate total revenue will be in the range of $48 million to $52 million in the first quarter of 2020 versus $41.7 million in 2019. While this is a wider range than we typically provide, ongoing challenges within our supply chain and several wind tower design changeovers contribute to a more conservative outlook.

Our Heavy Fabrications segment revenue is expected to grow from $28.3 million in Q1 '19 to $37 million to $40 million based on growth in towers and industrial fabrication demand. Gearing is expected to decline to $7 million to $7.5 million from $10 million in the prior year, due mainly to decreased oil and gas demand. And Industrial Solutions will partially offset the gearing decline, moving from $3.3 million last year to $4 million to $4.5 million in Q1.

In the first quarter 2020, total adjusted EBITDA is expected to be between $2.8 million to $3.5 million, positioning us to achieve profitability in the period. The sequential and year-over-year improvement is driven by improved margins on our tower product line. Gearing EBITDA will step down due to the revenue decline and corporate expenses will be higher, primarily due to incentive compensation and as the prior year benefited from low self-insured costs, which can be volatile period to period. For the full year 2020, we anticipate revenue to be between $200 million to $220 million, and EBITDA is expected to be nearly double year-over-year to $12 million to $14 million.

Turning to Slide 15. We are showing a high-level revenue and EBITDA bridge, laying out the components of our growth. We steadily rebuilt our tower business in 2019. We have added skilled labor and are making small capital investments to support the evolving tower weight and dimension.

Our commercial progress is also encouraging. We have 100% of our tower capacity sold out through midyear, and we have 65% of our tower capacity sold out for the full year. Given conversations with our customers, we believe we will close the remainder of the orders for 2020 in the next few months. And we expect customer diversification to continue in other product lines. We will continue to monitor the frac market. And based on conversations with our customers, believe oil and gas demand will be flat year-over-year.

We expect tower mix and efficiency improvements to be a large benefit to EBITDA in 2020. Tower pricing has firmed in our backlog, and we are encouraged by the preliminary affirmative ruling and the investigations of unfair trade practices against importers.

We expect tower mix and efficiency improvements to be a large benefit to EBITDA in 2020. Tower pricing has firmed in our backlog, and we are encouraged by the preliminary affirmative ruling and the investigations of unfair trade against importers. Based on these factors, we expect EBITDA to be between $12 million to $14 million in 2020 and for the company to be profitable.

I'll turn the call over to Eric Blashford to provide an update on our strategy and end markets.

--------------------------------------------------------------------------------

Eric B. Blashford, Broadwind Energy, Inc. - COO [5]

--------------------------------------------------------------------------------

Thanks, Jason. Welcome to everyone on the call.

On March 1, I have a privilege of assuming leadership of Broadwind as the company's incoming CEO. In the years leading up to this planned leadership transition, I've been fortunate to work closely with Stephanie and our Board of Directors. Together, we've developed a long-term strategic plan for our company, one that positions us for profitable growth in the years to come.

Central to this growth strategy is to carefully invest in the right people and processes, so we can capture the new and existing market opportunities we are uniquely qualified to serve. We've made early progress on this plan. And as we continue to execute, we believe we will create value for our shareholders.

Today, Broadwind is a leading precision manufacturer of structures, equipment and components, serving the clean tech and other specialized industrial applications. We've made some great progress in improving our position within the wind energy space while expanding into other markets. However, we will stay disciplined in pursuing opportunities where our unique value proposition and experience position us to win.

Our strategic focus is supported by a number of tactical priorities. Diversification of our products, markets and customers is vital to our long-range plan, and we are dedicating a lot of attention to these efforts. Additionally, we experienced good operational leverage when our plants are running at higher volumes. So we're expanding our manufacturing capabilities and taking continuous improvement actions to optimize throughput.

And finally, our company-wide focus on cash conversion and prudent balance sheet management will ensure that we have the resources available to capitalize on growth opportunities when they arise.

Moving on to our priorities. First, let's discuss the Heavy Fabrications segment, which includes 2 primary product lines: towers and industrial fabrication. In that business, our top priority is to sell all remaining 2020 tower capacity as we expand our customer base for both new onshore towers and repowering projects. We're also developing our offshore tower market strategy to address that growing market. We're unique among all domestic tower manufacturers and that we have a very capable plant in Manitowoc, Wisconsin, where, with some investment, we can produce and ship by barge the large tower sections required for offshore turbine installation, all the way to the East Coast. We are expanding our engineering and supply chain organization to address both our increasing industrial fabrications product line and our improving towers volume.

We recently added a second large machining center at our Manitowoc plant to expand our capabilities to meet increasing demand. Additionally, we're focusing our quality teams on a 0-defect initiative to improve throughput of our production line.

In our Gearing segment, we are accelerating our end market diversification beyond oil and gas and continue to expand our custom gearbox business by adding sales resources, engineering resources and a third gearbox service and repair location to serve the Southeastern market. So now we'll have centers to serve customers in the Midwest, the Northeast and the Southeast region. Additionally, to deal with the increasing complexity of our customer and product mix, we are leveraging our recently completed systems investments to improve our scheduling, maintenance and quality performance.

Key initiatives for our Industrial Solutions segment include expanding our core business within the new gas turbine space and its aftermarket support, while expanding our customer base serving that market. We're excited that we now provide content for natural gas turbines produced by all 3 major OEMs in that market. We've received and shipped our first sizable order in the solar energy installation space, and we'll continue to pursue opportunities in solar that fit our core competencies.

And finally, we're continuing cross-selling efforts between all Broadwind business units to provide our customers with a more complete solution. In recent quarters, we have discussed efforts to leverage our substantial process capabilities to broaden our customer portfolio. Our roots are in wind energy and wind remains a key priority for us. At the same time, we want to insulate ourselves from the spikiness of that market by expanding into new growth opportunities. We're making real progress with this initiative. For example, on the diversification front, in 2019, our top 5 customers represented only 79% of our revenue. While in 2016, the top 5 represented 91%.

Regarding market diversification, our efforts to grow our business outside traditional wind installation are also yielding good results. For instance, in 2019, $67 million or 38% of our revenue was generated outside the new wind installations. While in 2016, only about $25 million or 14% was outside of traditional wind. We are pleased with this progress and expect to continue.

Turning back to wind. We are encouraged that the market for new wind power installations continues to improve. The anticipated drop-off in installation post the PTC-extended phase-out plan looks to have leveled off versus previous estimates. We are pleased that Congress extended the PTC for another year at a 60% level and believe that, too, will benefit our wind energy business. Furthermore, offshore wind looks increasingly promising in both the medium and long term. As I mentioned earlier, we are exploring several options to serve this growing offshore tower market, including producing those larger towers at our Manitowoc plant. We are also participating in the repowering of older wind turbine through the sale of power adapters, which, for example, allow for a new tower to be placed on an existing foundation. Plus, our Gearing division provides products for the aftermarket repowering of older wind turbine.

Turning from the wind market to some of the other markets we serve, Broadwind has enjoyed solid growth within the U.S. mining, oil and gas and field equipment sector, and that overall sector is expected to expand nicely in 2020, with continued growth through at least 2024.

In addition to mining equipment, this sector also includes an oil and gas fracking segment, which has been facing headwinds and some short-term uncertainty. Our 2 largest businesses, Heavy Fabrications and Gearing, fell into this large sector, which includes, for us, several large customers such as Caterpillar, Joy Global, Komatsu, Weir, Gardner Denver, among others.

Within the U.S. industrial machinery sector, we're focusing primarily on the material handling OEMs and are making good progress. That sector is expected to shrink slightly in 2020, and we're experiencing a multiyear growth cycle. However, even though that sector is expected to weaken a bit, the addressable market is so large, there's ample room for us to increase our position with existing customers as we have new ones. The construction sector is expected to retract about 9% in 2020. And some of the business we've enjoyed last year will be in-sourced by our customers. However, growth in other markets, combined with customer expansion, should more than offset this expected reduction in peak shape work.

The turbines and power transmission sector includes natural gas turbine and is served by our Industrial Solutions business. While the total sector is expected to decline in the short term before recovering, we are expanding our position with our primary customer, which in turn is also growing its market share. Additionally, we are now providing content for turbine made by the other 2 primary OEMs in that segment. Once again, this is evidence that our customer, product and market diversification efforts are working.

We are a diversified manufacturer serving clean tech and other industrial applications. Our roots are in wind energy, whose customers demand high precision and very tight quality requirements for large and complex products. We're using these process capabilities to expand into the mining, oil and gas, power generation and material handling market, among others. Our multiyear revenue diversification plan has shown success and is gaining momentum. We entered 2020 with a strong backlog of $142 million, following a very strong order intake. The PTC extension and favorable preliminary trade case filings opened the door for continued growth of the Heavy Fabrications business. These tailwinds, combined with the disciplined management of working capital and the overall balance sheet, have us well positioned for growth in 2020 and beyond.

With that, I will turn back to the operator, who will open the call for your questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our question -- first question comes from Justin Clare with Roth Capital Partners.

--------------------------------------------------------------------------------

Justin Lars Clare, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [2]

--------------------------------------------------------------------------------

So I guess, first off, orders for Heavy Fabrications, they seem to slow in Q4 relative to very strong order flow in Q2 and Q3. Just wondering if you could help us understand the slowdown. Do you expect this to be a brief pause? And then how long do you think it could take before things kind of pick back up here?

--------------------------------------------------------------------------------

Jason Lee Bonfigt, Broadwind Energy, Inc. - CFO, VP, Principal Accounting Officer & Treasurer [3]

--------------------------------------------------------------------------------

So Justin, it's Jason. So we're in discussions with our customers to secure the rest of our 2020 production. And in the prepared remarks, we did comment that we'd expect that to be kind of have that resolved over the next 2 to 3 months. So we expect to be announcing more orders shortly.

--------------------------------------------------------------------------------

Justin Lars Clare, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [4]

--------------------------------------------------------------------------------

Okay. And then for your 2020 guidance, can you help us understand what utilization level you have assumed right now? I'm estimating it could be around 75%. So if you were able to book your full capacity, could you be beyond your revenue guidance level here?

--------------------------------------------------------------------------------

Jason Lee Bonfigt, Broadwind Energy, Inc. - CFO, VP, Principal Accounting Officer & Treasurer [5]

--------------------------------------------------------------------------------

The way we're thinking about this year is there's a few things going on. We have a number of changeovers that sometimes force you to lose some production slots. But the way we're planning is, what you saw in Q4 was about 300 tower sections produced and sold. That's how we're lining up Q2 and Q3, and that's running at the 70% to 75% range. That's the lower end of our guidance. So as we have more visibility or as we sell out more production slots, we could get to the higher end of the range.

--------------------------------------------------------------------------------

Justin Lars Clare, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [6]

--------------------------------------------------------------------------------

Okay. And then I was wondering if you could speak about the competitive landscape here. How is that evolving considering the recent results from the wind tower trade case? And then if you could comment on how is pricing changing and the margins that you're currently booking. Are they still at relatively high levels here?

--------------------------------------------------------------------------------

Stephanie K. Kushner, Broadwind Energy, Inc. - President, CEO & Director [7]

--------------------------------------------------------------------------------

So I'll start that and then maybe get some help. I think in terms of the preliminary trade case results, that actually addresses about 90% of the imports that have been coming in. And those imports had grown to be -- to start to approach 1/3 of the market. So think of it as kind of 1/3 of the supply more -- either -- made much less competitive.

In terms of pricing, we think things -- pricing has firmed. We've come through the low part of the pricing and the low part of the production of towers that were priced pretty aggressively. So things are improving.

Do you want to add to that at all? No?

--------------------------------------------------------------------------------

Jason Lee Bonfigt, Broadwind Energy, Inc. - CFO, VP, Principal Accounting Officer & Treasurer [8]

--------------------------------------------------------------------------------

I think you can see, Justin, if you compare sequentially Q4 to Q1 of 2020, producing about the same production levels with the same revenue levels, you can see kind of the increase in EBITDA in the Heavy Fabrications segment. That's a pretty good guidepost.

--------------------------------------------------------------------------------

Justin Lars Clare, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [9]

--------------------------------------------------------------------------------

Okay. Great. And then shifting gears to your supply chain, you mentioned the supply of internal components for towers continues to be an issue. Is there any risk that tower orders could be delayed as a result of that? And then there's wider supply chain concerns given what's happening in China. Do you see any risk as a result of that?

--------------------------------------------------------------------------------

Eric B. Blashford, Broadwind Energy, Inc. - COO [10]

--------------------------------------------------------------------------------

Yes. Thanks, Justin. I'll take this one. First, remind everyone that our sales are primarily to U.S. customers. So any impact on the sales front should be minimal, if at all.

With regard to inventory, and the whole coronavirus overall global supply chain, first, because of the trade war that's been going on for a couple of years now, the supply chain has shifted largely from China to other countries that are less impacted by corona. We still have a little bit that we're getting from China. But with regard to that, we're solid through Q1. We're solid through most of Q2 as far as incoming materials for our production. And beyond that, we're working with our customers and suppliers to work on backup plan, make sure we don't have a disruption in production.

--------------------------------------------------------------------------------

Justin Lars Clare, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [11]

--------------------------------------------------------------------------------

Okay, got it. And then related to this -- or do you have more?

--------------------------------------------------------------------------------

Eric B. Blashford, Broadwind Energy, Inc. - COO [12]

--------------------------------------------------------------------------------

Yes. One other thing which is kind of interesting is we are seeing a resurgence of in-sourcing into the U.S. as a result of trade wars and also this event. So we think that can also be beneficial to us and the overall U.S. manufacturing base.

--------------------------------------------------------------------------------

Justin Lars Clare, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [13]

--------------------------------------------------------------------------------

Okay. Okay. Great. And then in terms of the internals for the towers, I think you mentioned there was a margin headwind there. Can you quantify how big a headwind that might be?

--------------------------------------------------------------------------------

Stephanie K. Kushner, Broadwind Energy, Inc. - President, CEO & Director [14]

--------------------------------------------------------------------------------

The -- it's basically what happens is that we start producing kind of out of sequence. So instead of having your towers flow right through the plant, you're stopping and you're pulling it off-line and you're installing your internals later when they come in. I think in 2019, where we had very little production, that was just exactly in process as it should be.

I think the impact that we're seeing is probably in the hundreds of thousands of dollars. I don't think it's as much as $1 million in the quarter. But we look -- we're enjoying right now a much smoother production as well.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

There are no further questions at this time. I'll turn it back to Stephanie Kushner for closing remarks.

--------------------------------------------------------------------------------

Stephanie K. Kushner, Broadwind Energy, Inc. - President, CEO & Director [16]

--------------------------------------------------------------------------------

All right. Well, thank you very much for your attention. As I'm moving off into retirement, I have to say I'm really excited about the progress we've made with all of our core business processes. We've got a strong and capable manufacturing workforce, which actually grew about 50% last year. We've repositioned ourselves with our branding change. We positioned ourselves in the market. We're getting some good momentum with our diversification. And at the same time, we've strengthened our competitive position in what is still our largest market for wind towers.

I've got confidence in the management team. It's a strong team. We're well positioned for a multiyear revenue and earnings growth. So thank you very much for your attention.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

Thank you. This concludes today's conference. All parties may disconnect. Have a great day. Thank you.