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Edited Transcript of BWEN earnings conference call or presentation 29-Oct-19 3:00pm GMT

Q3 2019 Broadwind Energy Inc Earnings Call

Naperville Nov 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Broadwind Energy Inc earnings conference call or presentation Tuesday, October 29, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* 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

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Conference Call Participants

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* Justin Lars Clare

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

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Presentation

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Operator [1]

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Good morning, and welcome to the Broadwind Energy's Third Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Jason Bonfigt, Vice President, CFO and Treasurer of Broadwind. Mr. Bonfigt, please go ahead.

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

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Thank you, Anita. Good morning, and welcome to Broadwind Energy's Third Quarter 2019 Earnings Conference Call. With me today are Broadwind's President and CEO, Stephanie Kushner; Broadwind's COO, Eric Blashford. This morning's earnings news release is available on our website at bwen.com.

Before we begin today, I would like to caution you that this call will include some forward-looking statements regarding our plans and market outlook and also will reference some non-GAAP financial measures. Actual results may differ materially from these forward-looking statements. Please refer to our SEC filings and consider the incorporated risks and uncertainties disclosed there, including our Form 10-Q and our Form 8-K in the attachments we filed with the SEC this morning. We assume no obligation to update any forward-looking statements or information.

Having said that, I'll turn the call over to Stephanie Kushner.

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

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Thanks, Jason. Good morning. Orders were healthy again in the third quarter, raising our quarter end backlog to $175 million. Power bookings were strong and margins are firming. And we booked a record $9 million in orders for other heavy fabrications distributed across a number of end markets.

Our revenue of $46.1 million was up 47% from a year ago and 12% higher sequentially. All of our operating segments were profitable. Our net loss per share was $0.06, mainly due to interest expense and corporate overhead.

We reported EBITDA of $1.9 million, just above the top end of our guidance. We faced some significant supply chain challenges during the quarter, and I'm proud of the way the team works through these challenges and met our customers' requirements.

Our liquidity improved significantly as we signaled last quarter. Receipts of customer deposits and conversion of steel inventories both contributed to free cash flow generation. At $76.5 million, our orders were up nearly fourfold from last year and exceed $205 million for the 9-month period for a year-to-date book-to-bill ratio of 1.6x.

In addition to Tower orders for 2020 production, we booked a significant order from a new customer for adapters to support a large wind repowering project, and we continue to add important new customers as we focus on expanding our production of other large industrial fabrications.

Gearing orders remained weak at $5.9 million, although up about 5% sequentially. Having said that, we are encouraged by an uptick in October with more than $4 million booked since the beginning of the month.

Process Systems orders continued to improve modestly, mainly due to increased demand for new gas turbine content.

I'm excited about our diversification progress. Referring to the chart on the left, recall that our objective is to continue to systematically grow sales outside of wind towers while we manage through the cyclicality of wind tower demand. Having said that, as you can see from the wind portion of the chart, we are in a cyclical upturn, which could be extended if the political environment is supportive.

On the right-hand side, we continue to make good progress booking business from a diverse set of customers. Through September 30, we've booked $45 million of our targeted full year $60 million dollars.

On the next slide is a good visual of the diversification progress we've made since 2016 when our business was dominated by a single large tower customer. As you can see from the logos on the bottom of the page, we've developed or expanded business with a number of important customers, many of whom buy product now from more than one of our operating segments.

The outlook for U.S. wind continues to brighten. Wood Mackenzie has upgraded the outlook for onshore turbine installations over the next several years. 2020 still is projected to be a peak, but there are indications that the demand will then soften less than originally feared. The cliff we have long foreseen continues to stretch out and moderate somewhat.

Utilities continue to identify economic wind projects, and coal- and oil-fired plants continue to be slated for retirement in favor of natural gas and renewables.

Shown on the right, commercial and industrial customers bought record amounts of wind energy last year, comprising nearly half the market. Across a wide range of industries, these customers increasingly favor renewable energy sources to meet their power needs.

On August 14, the tower manufacturing consortium received a favorable preliminary ruling in support of our request for protective tariffs and duties on tower imports from Canada, Vietnam, Korea and Indonesia. We expect preliminary duties to be established this quarter, although the final case will not be resolved until August of 2020.

The orders we are booking today for 2020 reflect some recovery in the low margins we've experienced in 2018 and 2019 due to the surge in unfairly-priced tower imports. So while we're working hard on diversification for the longer term, the medium-term looks stronger for our wind tower business.

Outside of wind, mining demand continues to be robust. We're seeing order growth in both Gearing and for Heavy Fabrications supporting crushers, shovels, motors and drill mass. For us, demand from oil and gas customers is mixed. Frac gears, which have comprised more than $20 million of annual sales for us, have been weak this year as the rapid frac fleet growth we experienced in 2018 has subsided and some frac fleet capacity has been idled. During 2019, most of our frac sales have been for aftermarket or replacement gearing. Our frac orders have declined less than the market because we have added a major new customer, which partially offset the industry weakness. We do expect some recovery of demand for new frac gears in 2020 as the fleet inevitably needs refreshing.

On the other hand, gas turbine demand appears to have bottomed and is maybe ticking up slightly, which has been helpful for our Process Systems business.

Demand from steel customers has been flat to soft as they have curtailed capital investments in view of weaker steel prices. And our other industrial markets have been healthy, and we've added some new customers consistent with our focus on growing our custom gearbox build and repair business.

As we continue to focus on diversifying our customer and product offerings, we are completing some key systems investments to support our broader, more complex sales mix. System improvements to improve scheduling, maintenance and profit by job are live or are about to go live in our gearing and fabrications businesses. In Towers, we face significant operational challenges as we raise production in a tight labor environment where the industry supply chains are stressed. With the impending tight tower market, it is critical that we retain our production slots and this has meant juggling multiple tower builds and experiencing some inefficiencies and inventory builds as we have had to sometimes hold more in-process inventory waiting for the components for final assembly. This will continue in Q4 and probably beyond.

We're monitoring the economy closely. The majority of our business, both wind towers and gas turbines, are largely insulated from general economic cycle, but the remaining 30% or so of revenue can be impacted by the cycle, particularly our Gearing business. Outside of oil and gas, we've not seen any significant softening, but we are beefing up our gearbox repair offering because that service can be in greater demand in a down cycle.

Lastly, earlier this year, we launched a relook at our branding and the way we go to market. Consistent with our diversification strategy, our product offerings have broadened and will continue to expand as we grow. We're finalizing our new look and feel and messaging and will provide details before year-end. This has been a fun project and underscores the way the business has matured in recent years.

With that, I'll turn it over to Eric for some more insight on our operating segments.

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Eric B. Blashford, Broadwind Energy, Inc. - COO [4]

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Thanks, Stephanie. Moving to our Towers and Heavy fabrication segment. Orders in our wind tower product lines were $56 million with slightly improved margins, due in large part to the trade case. This follows a strong Q2 in which we booked orders of $96 million. Quoting activity continues to be robust with customers expressing interest in capacity at both tower plants to meet the forecasted increase in installations.

Our Heavy Fabrication line, which operates in mining, construction, marine and other industrial markets, had record orders of $9 million this quarter, including our first order in the hydroelectric space. This particular project really demonstrates how our engineering team works with customers to take an innovative design and make it manufacturable.

We expect full year Heavy Fabrication orders for this line to exceed $20 million, which is impressive given that in 2015 our orders for the same line were less than $2 million. We sold 243 tower sections during the quarter, an 85% increase versus Q3 2018 and up 21% sequentially. The increase in tower volume is evident in the graph at the lower left-hand side of the slide and we are ramping up production to meet demand. We are pleased with our team's ability to respond to this increasing volume and our production flow has been less spiky in recent quarters, albeit with a varying mix of tower models. We are proud that both our safety metrics and employee retention level continue to improve, and that our quality and delivery remain at our historically high levels.

We continue to recruit great people into our plants and are pleased to leverage our internal wealth school to help quickly introduce our new team members to our best practices and processes. We're making investments in both tower plants to optimize production of the taller towers that are becoming a greater part of the product mix in the U.S.

We have key resources focused on cost-out efforts in welding, machining, assembly and coatings. Even with these improvements, our margins have recovered only slightly due to the adverse pricing impact of imported towers. Q3 sales were $33.8 million versus $18.8 million in Q3 2018, generating $1.8 million of EBITDA versus $700,000 in the third quarter of 2018.

Looking forward to the balance of 2019, it's shaping up to be a stronger year than '18 and we expect this trend to continue into 2020. As Stephanie mentioned earlier, we are seeing some challenges in our supply chain that are stressing our production flow. We were able to successfully mitigate those challenges in Q3 through lots of hard work by our team. The supply chain challenge continues in Q4, and we are working closely with our customers and suppliers to minimize this risk to our production efficiency.

The growth of our business at both plants has resulted in commensurate increases to our workforce, both in production and support positions. We have been able to recruit and are training great people with our workforce increasing by nearly 30% since June. But in a strong labor market we are competing for, and in many cases, developing internal skilled talent, which requires investments in both recruiting and training.

The fabrication product line continues to grow, and our commercial team has been effective in expanding our customer base. Our diversification efforts continue to bear fruit as our incoming orders reflect both new customers and new markets. This quarter, we were able to complete some impressive products for our other Heavy Fabrications customers, one such being a nearly 300-foot unloading boom for a large cargo ship. This single weldment was so long that it simply had to be shipped by barge, once again taking advantage of our on-site deepwater port.

Additionally, working in concert with the city of Manitowoc, Wisconsin, the Wisconsin Department of Transportation, a strategic customer and others, a HAP, or Harbor Assistance Program, grant of approximately $2 million was approved, which will be used to upgrade the port area, allowing us to build and shift even larger and heavier structures. This is a definite strategic advantage for us versus other fabricators in the region.

This quarter, we are going live with our computerized maintenance management system in the Abilene, Texas, plant and we'll migrate it to the Manitowoc plant shortly thereafter. This is the same system we deployed in our Gearing business last quarter with good results.

We are adding a second high-performance machining center to our Manitowoc facility to keep up with increasing demand and to continue our path toward a more turnkey solution for our customers. Site preparations have begun and we expect to have this additional machine online in early 2020.

In Q4 2019, we expect revenues to be in the $38 million to $40 million range, reflecting higher tower production with an EBITDA range of $2 million to $2.5 million.

Moving to Gearing. As stated last quarter, oil and gas markets have softened recently and our incoming orders reflect that trend. We booked $5.9 million of orders in Q3 2019 versus $11.5 million in Q3 '18. Our focus on diversification continues to bear fruit as we're seeing orders coming in from the mining, steel and industrial sectors which partially offset the softness in oil and gas. Our efforts to provide bundled customer solutions using the combined offering of Broadwind -- heavy fabrication, gearboxes, kitting and complex assemblies -- have yielded some exciting new orders and new quote opportunities that involved at least 2 and in some cases all 3 of our divisions.

As you can see on the graph that highlights our revenue by market, the reduction in revenue from the oil and gas sector was partially replaced by increases in our mining, steel, industrial and wind sectors. It reflects the more balanced blend of customers and markets we have been projecting.

Our efforts to grow the custom gearbox business continue to show good results. Our gearbox revenue has grown substantially since 2016 and we expect this to continue. In fact, in response to customer interest, we are considering expanding our gearbox service and repair business to a new center in the Southeast. This would be in addition to our existing service centers in Chicago and Pittsburgh, providing great overall regional coverage for our customers.

To support the growth in this product line, we are directing CI, or continuous improvement, efforts this quarter to improve the flow and efficiency of both our new build and service line. Q3 2019 revenue for our Gearing business was $8 million, down 20% from Q3 '18, reflecting reduced shipments to oil and gas customers. However, EBITDA for the quarter was $1.5 million, up 10% from Q3 '18, reflecting improved mix, productivity and pricing realization. This represents the fifth straight profitable quarter for this business, and we're excited that this positive trend continues.

As I mentioned during our last call, our improved financial results for Brad Foote began in Q3 2018, so our comps have become more challenging. We expect revenues in Q4 to be in the $7.5 million to $8 million range, yielding approximately $1 million of EBITDA.

Moving on to Process Systems. Orders for our Process Systems business were $5.1 million, up 45% from Q3 2018, driving our year-over-year order growth of 33%, primarily due to increased new gas turbine content for an international customer. Diverse bookings improved slightly, including 3 orders from the solar market. We continue to pursue the growing solar market as we believe customers in that market will benefit from the products and services we provide.

Revenues for the Process Systems business were $4.3 million, up nearly 60% versus Q3 2018, reflecting increased order activity, primarily for new turbine installations. This sales level plus the price and productivity actions implemented earlier in the year yielded $300,000 of positive EBITDA for the quarter versus a $400,000 loss in Q3 '18. Our efforts to diversify this business remain a key priority. We will expand our position with existing customers as we press forward into new markets and new customers. We are confident that our supply chain management, kitting, fabrication and assembly services will benefit customers outside the gas turbine business.

Our fourth quarter operating priorities include: continuing our customer and market diversification; expanding our share within existing customers by increasing the content we're able to provide for each of their projects, such as weldments and panels; while leveraging the capabilities of all Broadwind divisions to support processing modules for power applications. We expect Q4 revenue to be in the $4 million range with positive EBITDA consistent with last quarter.

Now I'll turn it over to Jason for his comments.

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

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Thanks, Eric. Q3 consolidated sales were $46.1 million, our third consecutive quarter of sales above our $40 million guidance we committed to earlier this year. Sales were up nearly 50% year-over-year, driven primarily by increases in tower production levels.

Our tower plant utilization has been building throughout the year, driven by the industry ramp-up to support the wind turbine installations that is underway. In Q3, tower plant utilization was roughly 60% and this will prove again in Q4. Our focus and corresponding growth in our Heavy Fabrication product line and a recent uptick in new gas turbine content in our Process Systems segment more than offset the decline in gearing demand. Growth in other markets has allowed the Gearing business to partially offset lower near-term demand in oil and gas.

Gross profit margins expanded to 8.7% from 4.7% in Q3 last year. Tower plant utilization continues to be an important driver of this margin expansion. Additionally, we have taken price actions on certain product lines and have a better mix of production in Gearing and in Process Systems. Overall, we have had improved operational performance in each of these businesses year-over-year. We are managing through a temporary period of lower-margin tower contracts which are weighing on our financial performance. These tower contracts were executed last year at a time when unfairly priced tower imports were surging into the market.

As we move into next year and due to the filing of the trade case, we expect margins to improve as the majority of these lower-margin tower contracts are fulfilled in Q4 and further efficiencies should be realized due to increases in production volume.

Operating expenses were $4.3 million during the quarter, a modest increase year-over-year. Operating expense as a percent of revenue was approximately 9% during the quarter compared to 13% in the prior year, demonstrating our operating leverage and our focus on cost management.

Our medical and insurance program costs are running below last year, which is offsetting the impact of increases in incentive compensation expenses.

Our consolidated EBITDA was $1.9 million in Q3, above the upper end of our guidance range and representing a $1.7 million improvement year-over-year. And all operating segments delivered operating income during the quarter.

Year-to-date, EBITDA is $5.5 million compared to $700,000 in the prior year. We had a $0.06 loss during the quarter compared to a $0.05 loss in the prior year quarter. The prior year quarter did include a noncash $0.14 gain associated with the New Market Tax Credit loan forgiveness.

Operating working capital declined nearly $17 million during the quarter, down from $22 million at the end of Q2 to approximately $5 million. The most significant contributor to this reduction was the collection of deposits related to contracts signed in the past 4 to 5 months. Typically, we receive these deposits 4 to 6 months in advance of production; however, customers are securing production slots earlier than normal due to the surge of 2020 installations, the tight supply chain and the urgency to capture the full PTC benefit. This will elevate our deposit balances for at least the next 1 to 2 quarters.

The working capital decline also reflected a reduction in inventories of nearly $5 million during the quarter. This was predominantly driven by a reduction of the pre-buy steel that we have held on our balance sheet for the past 4 quarters. Pre-buy steel has now declined from $7.5 million to $4.5 million, and we're expecting to consume a majority of this steel in Q4. As a result, inventory efficiency improved to a healthier 5.4 turns.

I'm not expecting another leg down in inventory levels in Q4 as supply chain challenges typically lead to less efficient plants, which will most likely lead to modestly higher inventory balances. We also expect delivery of materials to support 2020 production to outpace the drawdown of prebuy steel.

Although we are managing DSO and DPO aggressively, these metrics have stabilized this year as a result of more consistent production levels. We have several customers that are now offering cash flow financing programs, which improves our DSO and allows us to borrow at their lower cost of capital. I'm expecting DSO to decline in Q4 as a meaningful cash flow financing program is introduced, and now expect this program to more than offset the impact of typical balance sheet management practices that we see near year-end.

Due to the improvements in operating working capital, our cash conversion cycle dropped to 13 days from 53 days last quarter. As a reminder, this has been an organizational focus for us over the past year and incentive compensation is partly tied to this metric. We think this is driving the right behavior and awareness across the organization. And as a result, this will continue to be a priority for us.

As noted on the graph on the right side of the slide, Q3 operating working capital as a percent of sales was the lowest we have seen since 2016. We are in a healthy range today and we expect that to continue into Q4 with operating working capital as a percent of sales to remain below 10%.

Moving to our balance sheet. Our 9/30 balance sheet had debt and finance leases of $11.5 million, a decrease of over $18 million sequentially. This expected improvement in working capital reduced our line of credit balance from $26.6 million last quarter to $8.7 million at 9/30.

We had over $19 million of liquidity under our line of credit at quarter end, which was an $11 million sequential improvement. Availability under our $35 million line of credit dropped to approximately $28 million at quarter end due to higher deposits collected, which reduced accounts receivable advance rates.

Our interest expense was $600,000 in Q3. Our average line of credit usage throughout the quarter was notably higher and the surge of payments received near quarter end reduced our debt significantly. As we receive the benefit of a full quarter of reduced borrowings, we're expecting Q4 interest expense to drop to $300,000 to $400,000.

Again, cash was near 0 at quarter end as receipts were applied to the line, and this is a customary practice and is really an effective mechanism to minimize our interest expense. We are projecting our 2019 capital spend to be at the lower end of our guidance range closer to 2% of sales. This reduction is mostly timing related as the delivery of the large new machining center to further support our fabrication growth objectives will slip into early 2020.

For 2020, we expect capital expenditures to fall in a modest 2% to 3% of sales range. We have made good progress growing our fabrication product line in the past 2 to 3 years, and we're going to continue to deploy capital to expand our competencies and fuel this key diversification initiative.

Outside of investing in our Heavy Fabrication product line, we expect to make targeted investments to further improve operation performance in Gearing and investments to support the impact of evolving sizes and weights of new tower designs.

Our financial performance was as guided in Q3 despite ongoing supply chain challenges and labor constraints. After 2 quarters of positive momentum in orders, we are well positioned for 2020 production and the margins in our backlog are firming. We are progressing our diversification strategy and our non-wind business is now $65 million of annual revenues. And we will continue in invest in processes, capital and people to expand this further.

Our summary Q4 guidance is revenue above $50 million and EBITDA to be approximately $1.5 million to $2 million. Although volume is improving, we'll still be working through the production of a lower-margin tower contract and we will be continuing to manage through supply chain complexity and labor constraints, which will most likely result in less efficient plants in Q4. We are working to mitigate this risk and we'll provide more updates on our progress in a few months. That concludes our prepared remarks.

And I'll turn the call over to the operator for the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question today comes from Justin Clare with ROTH Capital Partners.

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

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So I guess, first, in the last couple of quarters, you've gained traction in adding new customers in the Towers business as well as in Heavy Fabrications. I was wondering if you could just provide an update on the discussions you're having with customers and whether we could see additional customer adds in the coming quarters here, especially as demand is expected to ramp up for Towers generally next year.

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

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Well, Justin, as you know, there are kind of 4 major OEMs in United States, and we are talking with all of them for orders and (inaudible) capacity. We certainly expect to produce for at least 2, likely 3 of those customers in 2020 and it doesn't include the [fourth, which is] for the repowering. So I do expect us to produce for more -- for additional customers in 2020.

Regarding Heavy Fabrications, that's a constant effort for us. We do have kind of 2 people out there on tip of the spear things that are targeting the markets that we're focusing on. As an example, there is marine, solar, as I mentioned earlier. And so I do expect us to bring on more customers in that area. But they do start slow, Justin, so as we penetrate these larger accounts, you'll hear us announce small orders. And once we are successful with those, they tend to give us more and more share of their production.

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

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Okay. Great. And then just on the Heavy Fabrication business, this business is growing nicely and becoming more important to the overall financial picture here. I was wondering if you could talk about the margin profile for Heavy Fabrications and what that looks like as you continue to grow the business. Do you get benefits from greater scale here? Can you help us understand that?

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

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Sure. One of the biggest benefits of Heavy Fab in addition to the diversification is the use of our flexible workforce and our factories. So you've heard me mentioned in previous calls that we've been reclaiming areas of our plants that were previously dedicated to storage of inventories. We're doing a better job with managing inventories. So we're reclaiming parts of the plants to actually generate revenue instead of just having stored parts.

Regarding to the margins, I would say, the margins are consistent with Towers. They also kind of vary due to the complexity of what they are asking us to do. For instance, if it's simply a customer that just wants us to do some welding for them, that tends to have a lower margin. But you've heard me mention I want to increase the content, and as we're able to provide welding and machining and painting and assembly, it tends to not only improve our overall sales, but improve our overall margins within those customers.

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Stephanie K. Kushner, Broadwind Energy, Inc. - President, CEO & Director [6]

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Let me just add to that, Justin. I think what you'll see, if you look at industry comps for [metal] fabrication, you'll see the kind of low-double digit margins or the EBITDA margins are the norm. In this particular quarter -- and when we say they're comparable to Towers, I would say that's Towers over a cycle. Right now, Tower margins are quite low. Our Heavy Fab margins are actually higher.

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Justin Lars Clare, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [7]

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Okay. Great. So then shifting to the Towers business, again here, can you provide a bit more detail on the specific components and materials that are driving the supply chain challenges there? I think you mentioned internal components were a problem, but any more detail would be helpful there.

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Eric B. Blashford, Broadwind Energy, Inc. - COO [8]

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Yes. Steel plate is not the issue right now. It's really the internals, and the internal kits could have upwards of 200 to 400 parts included in those kits in that build, and that may come from several global distributors so that we're managing through the delivery of those kits in a timely and efficient manner. Typically, those parts are installed at the very end of the manufacturing process. So what we're really focused on right now is to utilize the really finite resources that we have, our paint booths, our rollers, so that we don't lose production slots. So really it just leads to inefficiencies later in our production. We're able to move sections around in our facilities to kind of accommodate if we're missing parts, but it could lead to -- and it has led to -- some delays over time when we don't have a few parts to complete a build.

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

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Okay. So then considering that, what is the risk that the supply chain issues here as well as labor shortages limit your ability to supply customers? Is there a potential that you may have to turn down orders because of the supply constraints? Or what's the risk there?

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Stephanie K. Kushner, Broadwind Energy, Inc. - President, CEO & Director [10]

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No. I think what Jason was trying to say is our most scarce resource on the production side are our paint slots, if you will, in the early stage. And what we're doing is managing carefully to make sure that we don't lose any of those slots and maybe we're accepting a little pain on the inventory side if we're holding more not-fully-assembled sections. And then we are meeting all of our customer requirements.

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

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Okay. Okay. Great. And then you indicated that margins for Towers in the backlog are improving. Can you quantify how much improvement you're seeing and then when that improvement will flow through the financials? Will that be as early as Q1 or is that more Q2, Q3 next year?

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Stephanie K. Kushner, Broadwind Energy, Inc. - President, CEO & Director [12]

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So we think it's gradual, and we're not really giving guidance for full 2020, but we do see our Tower EBITDA should be up another $1 million to $1.5 million as soon as Q1 next year.

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

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Okay. And then maybe one last question from me. With the ongoing trade case, have you seen any change in the level of tower imports at this point, whether things are being pulled forward? Or if there is a reduction due to a concern about tariffs being implemented?

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Eric B. Blashford, Broadwind Energy, Inc. - COO [14]

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We do. Justin, this is Eric. We do monitor that. The imports tend to be spiky and the reporting on them is delayed. So in another month or 2, we should be able to see any impact. But at this point, we haven't seen on the data that's available to us, which again is somewhat delayed, haven't seen an impact.

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Operator [15]

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(Operator Instructions) There appears to be no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Stephanie Kushner for any closing remarks.

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

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Thank you, and thanks for your interest. We feel good about the quarter, and we feel like we're building good momentum for Q4 and 2020 and beyond. So we look forward to updating you in another quarter. Thank you very much.

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Operator [17]

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This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.