Q4 2019 Earnings Call
Greetings and welcome to the Broadwind fourth quarter and full year 2019 conference call.
At this time, all participants are in listen only mode.
A question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note that this conference is being recorded.
Well now turn the conference over to our host Jason Boxing Chief Financial Officer. Thank you you may begin.
Good morning, and welcome to Broadwind fourth quarter and full year 2019 results conference call.
Leading the call today, our CEO Stephanie Kushner.
C O Eric Blacksburg.
Jason bonds, but the Companys Seattle.
We issued a press release before the market open today.
Telling our fourth quarter and full year results.
I would like to remind you that managements commentary and responses to questions on todays conference call May include forward looking statements.
Which by their nature.
Certain and outside of the company's control.
Although these forward looking statements are based on managements current expectations.
And beliefs actual results may differ materially.
For a discussion on some of the factors that could cause actual results to differ.
Please refer to the risk factor section of our latest annual.
Quarterly filings with the FCC.
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.
I think at the conclusion of our prepared remarks.
In the wind for questions.
With that I'll turn the call overt Stephanie.
Thank you, Jason and welcome to everyone on the call.
Our fourth quarter results came in line with expectation.
Our strongest annual performance since 2016.
Orders were robust in 2019 more than doubled the prior year with a book to bill ratio of 1.24.
We finished the year with backlog of $142 million up 80% year over year.
The majority of the increases in our heavy fabrication business, where both the tower product line and the industrial fabrication business.
Expanded significantly.
Alongside the evident broken when we continued to expand our business across a diverse range of industries and customers throughout the year, including those in shipbuilding mining solar farm, but even wave energy.
Fourth quarter revenue of $49 million was up 81% from the prior year with big growth the tower volume.
Demand for gearing to support propping remain subdued although we are seeing some research and in early 2020.
Our heavy fabrication segment was up 76% year on year for the full year, we've ramped up our production to meet strong multiyear demand for towers, well dedicated specific satellite plant and production days to support our growing industrial fabrications product line.
Fourth quarter gearing revenue was down 30% due to the pullback in frac hearing, but notably remains profitable at the lower production volume because margins were higher 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 up $3.2 million <unk>.
<unk>, 0.2% 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 700000 dollar order to support solar farm installation represented a notable entry points into a new industry.
Well I was a total adjusted EBITDA of $1.8 billion was in line with Q4 guidance.
Sharply Ababa week 28.
I'm proud of the way our tower business overcame supply chain chaos, starting the second half a year and continued to deliver its projects 100% on time.
The working capital management programs and as such we put in place a year ago helped strengthen our balance sheet.
We had available liquidity of $19 million at your AD.
Including two and half million dollars in cash.
In December 2019, the federal government announced a one year extension of the production tax credit that will provide a one and a half cent per kilowatt hour subsidy for new wind project commenced in 2020 at 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.
We expect will help the industry bridge to the emerging offshore wind industry.
We're also encouraged to see that the U.S. powertrain coalition received a stuck at favorable preliminary ruling out trade litigation.
The challenge towers imported from Vietnam Korea, Indonesia in Canada.
These preliminary tariffs, which ranged from a lower 6% too high of 68% to the pace of Vietnam.
Well discourage airport.
A favorable final determination due later this year will ensure a level playing field and allow U.S. tower manufacturers to increase production sale.
In closing it. This is my final conference call, let's see all I'd like to say that I'm 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 brought with it the incoming chairman of the board.
I'm delighted to turn the rates over the air Blatchford was appointment to CEO was effective March 1st the company is in good hands.
As we transition into a stronger more profitable future. Thank you.
Thank you Stephanie and good morning to those joining us on the call.
On slide six.
Order activity reached a multi year high in 2019 tool orders up more than $138 million year over year.
Two $222 million as we continue to capitalize on improved demand conditions.
Within the U.S. onshore wind market.
Well total wind energy installations increased by approximately 9% in 2019 to nine Gigawatts.
Wood Mackenzie projects, all insulations to grow up to 15 Gigawatts in 2020.
Driven mainly by increased activity ahead of the PTC phase out.
Further Stephanie mentioned earlier, a trade case was filed against tower in quarters from several countries.
Alleging that towers or be important at less than fair value.
As a result, with a stronger demand environment and this trade case, we recorded $152 million a tower orders in 2019.
Most of which were placemark customers to secure 2020 production slots.
Absent any anomalies like we had in 2016.
Where a three year framework agreement with a major tower customer triggered record orders, we expect that our future orders will be about a representative of annual revenue.
Our yearend backlog is up to 48%.
And our plants are not operating at capacity in crude utilization levels as a result.
Moving on to slide seven.
Fourth quarter consolidated sales were $49.3 million up from $27.2 million due primarily to improve plant utilization in our heavy fabrication segment.
Both for towers and industrial fabrications.
This was our fourth consecutive quarter exceeding the $40 million per quarter guidance, we committed to early this year.
Full year sales increased $178.2 million, 42% year over year change again, driven by increased plant utilization.
The expansion of our customer base Institute into new markets.
Increased content within our existing customers.
Fourth quarter gross margin expanded to 8.1%.
From negative 1.9% in the prior year quarter.
Again due to improved operating leverage.
A more profitable product mix each of our non tower 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, yeah timely unfairly priced tower imports were searching into the market.
As we move into 2020, we expect margins to improve because the majority of is lower margin contracts with fulfilled in Q4.
In further efficient efficiencies should be realized due to increases in production volume.
Full year gross margins, 8.6% or $15.4 billion compared to 2.4% in the prior year.
Operating expenses as a percent of sales.
Moving 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 EBITDA in Q4, a $3.5 million increase year over year.
And for the full year, we generated $7.2 million EBITDA compared to one on 1 million dollar 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 nine cents per share in the fourth quarter versus a net loss per share of 79 cents in the prior year period.
Due mainly to a noncash 49 cents per share and Paramount in the prior year.
The current your quarter included a five cents charge.
Related to the accelerated amortization of the Red Bull trade name.
In conjunction with brought ones rebranding initiative.
Turning to slide eight and nine.
We renamed our heavy fabrication segment in Q4, two coincided with our rebranding initiative.
Within this segment we include tower in industrial fabrication product lines.
These product lines are produced in both our Manitowoc in ethylene plants.
We booked $21 million of industrial fabrication orders between 19.
37% increase year over year.
<unk> up from an annualized run rate of approximately $5 million several years ago.
We have been adding machine capability to support OEM and aftermarket custard 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 large staging pad adjacent to our plan to man taught 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 Laurent see way.
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 between 19 with good commercial progress and improved operational performance.
Industrial fabrication sales rose to over $5 million and revenue in Q4, and 18% increase year over year.
And demand for towers strengthen throughout 2019.
Leading to over 900 sections produced 73% 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.
More consistent product well through our plans.
However supply chain challenges persist.
Typically I'm tower internal components, which are sourced globally.
You supply chain challenges manifest themselves in our 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 are placed bar tower customer support 2020 production.
And included in the 2019 orders is the addition of two material contracts from new customers, including an orphan order from a turbine OEM.
That we have not Bruce for several years.
And in order to support the Repowering of a wind farm.
Our backlog ended at $120.3 million.
Due to higher activity levels, and our teller product line.
In 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 improved product mix led to a $3 million EBITDA improvement year over year.
On three and a half million dollars lots of sales.
Q4 sales declined from $10.9 million in 2000 $18 million to $7.6 million 2019.
Driven primarily by a reduction 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 horse power demand.
This market has been historically volatile.
It is quickly moved into a more challenged environment.
These challenges now include.
Low Frac fleet utilization.
Cannibalization of equipment.
And an overall low capex environment.
Well certainly of the timing of the recovery remains.
But overtime, we expect demand to improve.
As cannibalization and only occur for so long.
Despite these headwinds we have taken share in this market during the past year.
Which has helped compensate for 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 when the aftermarket multiyear order in the prior year.
From a revenue perspective.
Aftermarket wind gearing mining steel and other industrial markets, each improved and 29 team.
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 20% 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.
Getting an 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.
Up to $14.7 million for the year at 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 near.
The improved EBITDA by $1.6 million year over year.
Ending the year at $400000.
As a result of the company's rebranding initiative.
We accelerated the amortization on the value of the rebel trade name.
Hi, recording a noncash 900000 Dar charge in Q4.
Our orders were up 25% year over year, driven by the solar order in Q4.
Growth in natural gas turbine content.
This this growth was driven by the falling items.
Our primary gas turbine customer recovered share in 2019 back to 2017 levels.
We're also encouraged by the positive momentum in the <unk> global gastric and market.
Industry orders of large turbans increased by nearly 50% year over year.
Additionally, we have had success improving or share within our primary customer whereby overseas natural gas turbine content.
And lastly, we expanded our customer base supporting the next two 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 worth 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. Please join the connection between daily decisions and actions to improve cash flow.
Cash conversion declined to average 29 days in 2019.
Appeared to 45 days in 2018.
This focus will continue in 2020 and will remain a key elements of the broader organizations incentive compensation program.
Our dsos 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 for 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 they'll be prepared as our customers request in 2018.
Inventory turns are approaching a much healthier six turns.
Customer deposit.
Also been a driver past working capital fluctuations.
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 in availability under our credit line remained flat sequentially at $19 million.
It continues to be well above 2018 levels.
We had 11 and a half million dollars drawn under our $35 million credit facility.
I had $2.4 million a cash on our balance sheet.
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 or heavy fabrication 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 20 Twond.
Versus $41.7 million in 2019.
Well this is a wider range that we typically provide.
Ongoing challenges when our within our supply chain in several when top wind tower designs changeovers contribute to a more conservative outlook.
Our heavy fabrication 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.
During is expected to decline to seven to seven or half million dollars from $10 million in the prior year due mainly to deep decreased oil and gas demand.
And industrial solutions will partially offset the gearing decline.
Moving from $3.3 million last year to four to four and half million dollars 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.
Your EBITDA will step down due to the revenue decline.
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 doubled 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.
Added skilled labor and they're making small capital investments to support the evolving teller ways in dimensions.
Our commercial progress is also encouraging.
100% of our tower capacity sold out through mid year.
And we have 65% of our tower Bassi sold off for the full year.
Given conversations with our customers.
We believe we will close the remainder of the orders were 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 mixing efficiency improvements to.
To be a large benefit to EBITDA on 20 Twond.
Tar pricing has firmed and our backlog.
We are encouraged by the preliminary permanent ruling in the investigation unfair trade practices.
Importers.
We expect tower mix and efficiency improvements to be a large benefit to EBITDA in 2020.
Power pricing has firmed in our backlog.
We are encouraged by the preliminary affirmative ruling 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 to air blast wouldn't provide an update our strategy.
And our end markets.
Thanks, Jason [noise].
Welcome to everyone on the call.
On March 1st.
I have a privilege of assuming leadership abroad win.
The company's incoming CEO.
In the years, leading up to this plant leadership transition.
I've been fortunate to work closely with stuff in it and our board of directors.
Together.
We have developed the long term strategic plan for our company.
One that positions us for profitable growth in the years to comp.
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 and the uniquely qualified to serve.
We've made early progress on this plan and as we continued to execute.
We believe you will create value for our shareholders.
Today right when it is a leading precision manufacturing structures equipment they components.
Serving the clean tech and other specialized industrial application.
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 marketing customers is vital to our long range plan.
We're dedicating a lot of attention to these efforts.
Additionally, we experienced good operational leverage.
What 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 companywide 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 onto our priority.
First let's discuss the heavy fabrication segment.
Which includes two primary product line towers in industrial fabrications.
And 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.
For unique among all domestic tire manufacturers in the we have a very capable plant and Manitowoc, Wisconsin, where there's some investment we can produce and ship by barge large tower sections required for offshore turbine installation.
All the way to the East coast.
We are expanding our engineering its supply chain organization to address both are increasing industrial fabrications product line and are improving towers voice.
We recently added a second large machining center at or into our plans to expand or capabilities to meet increasing demand.
Additionally, refocusing our quality team funny zero defect initiative to improve throughput of our production line.
You know gearing segment, we're accelerating or end market diversification beyond oil and gas.
We continue to expand our custom gearbox business by adding sales resources engineering resources third gearbox service and repair location.
To serve the south eastern market.
So now we'll have centers to serve customers in the Midwest and northeast and the southeast region.
Additionally to deal with the increasing increasing complexity or customer and product mix.
We are leveraging our recently completed systems and investments to improve our scheduling maintenance.
And quality performance.
He initiatives for our industrial solutions segment include expanding our core business within the new gas turbine space.
And it's 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 three major Oems in that market.
We've received and shipped up for a 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 are continuing cross selling efforts between all broadband business unit to provider customers with a more complete solution.
In recent quarters, we've 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, you want to insulate ourselves and 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.
The 2019, our top five customers represented only 79% of our revenue.
Well it 2016, the top five represented 91%.
Regarding market diversification, our efforts to grow our business outside traditional when installation are also yielding good results.
For instance, in 2019 $67 million were 38% or revenue was generated outside do anything with new wind installation.
In 2016, only about 25 million or 14% was outside of traditional win.
We're pleased with this progress and expect to continue.
Turning back to win.
We are encouraged that the that the market for new wind power installations continues to improve.
You anticipate a drop off in installations oppose the PTC extension 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 increasingly promising in both the medium and long term.
As I mentioned earlier with exploring several options to serve this growing offer tower market, including producing goes to larger towers that are minutes walk plant.
We're also participating the repowering of older wind turbines through the sale of tower adapters, which for example allow for a new tower to be placed on an existing foundation.
Yes.
Our gearing division provides products for the aftermarket repowering of older wind turbines.
Turning to the wind market to some of the other markets. We serve I wouldn't have enjoyed solid growth within the U.S. mining oil and gas in field equipment sector and that overall sector was expected it's expected to expand nicely in 2020.
With continued growth through at least 2024.
In addition to mining equipment. This sector also includes the oil and gas fracking segment.
Which has been facing headwinds and some short term uncertainty.
Our two largest businesses heavy fabrications and gearing.
Sell into this large sector, which includes for us several large customers such as caterpillar Joy global come out to we're going to Denver among others.
Within the U.S. industrial machinery sector, we're focusing primarily on the material handling of Oems, they're making good progress.
That's sector as expected us to shrink slightly in 2020.
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 your position with existing customers as we are new wells.
The construction sector is expected to retract about 9% 2020.
Some of the business, we've enjoyed last year will be insourced by our customers.
However growth in other markets combined with customer expansion should more than offset this expected production and Pete shape work.
The turbines and power transmission sector includes natural gas turbines in a served by our industrial solutions business.
Well the total sector is expected to decline in the short term before recovery.
Yes, we are expanding our position with their primary customer, which in turn is also growing its market share.
Additionally, we are now providing content for turbans made by the other two primary Oems in that segment.
Once again this is evidenced that our customer product and market diversification efforts are working.
We are diversified manufacturer serving clean tech in other industrial application.
Our roots are in wind energy, whose customers to me in high precision and very tight quality requirements for large and complex products.
There are 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 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 findings opened the door for continued growth of the heavy fabrication business.
These tailwind combined with the disciplined management of working capital and the overall balance sheet.
That was well positioned for growth in 2020 and beyond.
With that I will turn back to the operator, we'll open the call for your question.
Thank you.
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One moment, please while we pull for questions.
Our for our question first question comes from Justin Clare with Roth Capital Partners. Please state your question.
Hi, everyone. Thanks for taking my questions.
Hey, just can you just.
So I guess first off orders for heavy fabrication.
Tend to slow in Q4 relative to you know very strong order flow in Q2 in Q3 I. Just wondering if you could help us understand the slow down do you expect us to be a brief pause and then you know how long do you think it take before things kind of pick back up here.
Oh, so so Justin nods Jason.
Good morning, So I'd say, we're in discussions with our with our customers to secure the rest of our 2020 production.
And in the prepared remarks, we did we did comment that we'd expect that to be kind of have that resolve the for the next two to three months. So we'd expect to be announcing more orders shortly.
Okay, and then for your 2020 guidance can you help us understand you know what utilization level you have assumed right now I'm estimating it could be around 75%. So if you were able to book you know your full capacity could you be beyond your.
Our revenue guidance level here.
Oh the way we're thinking about this year is there there's a few things going on we haven't a number of changeovers that that's sometimes.
Let's see the lose some production slots, but the way we're planning as what you saw in Q4 was about 300 tower sections produced and sold that's how we're lining up.
Q2 in Q3, and that's running at the 70% to 75% range. That's the that's the lower under our guidance.
So as we have more visibility, whereas we sell out more production slots, we could we could get to the higher under the range.
Okay. Thanks.
And then was wondering if you could you speak about the competitive landscape here you know how is that evolving considering the recent results from the wind tower trade case.
And then if you could comment on you know how is pricing changing and the margins that you're currently booking are they still at a relatively high levels here.
Oh, so the I'll start that and then maybe could somehow I think in terms of the preliminary trade case by case result.
That actually addresses about 90% of the imports that have been coming in.
And those imports had grown to be to start to approach a third of the market.
I would think of it think it but as you know kind of a third up there.
The supply more either you know made much less competitive.
In terms of pricing, we think things pricing has firmed, we've come through the low part of the pricing in the low part of the production.
I wish that were priced pretty aggressively so things are things are improving.
Just want to add to that at all no right.
I think you can see.
Justin if you compare sequentially Q4, two Q1 I'm 2020.
Producing about the same same production levels with the same revenue levels, you can see kind of the increase in EBITDA in a in heavy fabrication segment, that's a pretty good guide post.
Okay great.
And then.
Shifting gears to your supply chain you know you mentioned the supply of internal components for towers continues to be an issue is there any risk the tower orders could be delayed as a result of that's and then there's you know wider supply chain.
Certain you know given what's happening in China.
Do you see any risk as a result of that.
Yeah. Thanks, Justin I'll take this one in the first <unk> remind everyone that the our sales are primarily to U.S. customers. So any impact on the sales front should be should it be minimal if at all.
With regard to inventory.
And the whole Corona virus.
Overall global supply chain first because of the the trade War this thing going on for for a couple of years now.
Does the supply chain has shifted largely from China to other.
To other countries that are less impacted by by Corona.
We still off a little bit <unk>, they were getting from China over with regard to that were sold through Q1 were sold through most of most of Q2 as far as incoming materials for for our production and beyond that we're working with with our customers and suppliers to two to work on on backup plants make sure. We don't have a disruption in production.
Okay got it and then related to this or did you have more.
Yeah, Yeah, one other thing which is kind of interesting is is we are seeing a resurgence of insourcing into the U.S. As a result of you know trick trade Wars and also this event. So we think that could also be beneficial to to us and the overall U.S.
Manufacturing base.
Okay, Okay, great and and then.
In terms of the internal growth for the towers I think you mentioned there was a margin headwind there can you quantify how big a headwind that might be.
Oh, the it's basically what happened is that we start producing kind of out of sequence. So instead of having your towers slow right through that.
Right through the plant you know your stopping you're pulling them offline and you're installing you're in turn off later when they come in.
Okay and not in 20.
19 that.
Yeah, we had very little of 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 a difference is a million dollars in the quarter, but you know we look we're enjoying right now you know it much slower production problem.
Okay. Thanks, very much for taking my question.
Thank you thanks.
Thank you that there are no further questions at this time I'll turn it back to Stephanie Kushner for closing remarks.
All right well. Thank you very much for your attention a as I'm you know 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 probably positioned ourselves with our branding change we position ourselves in the market. We're getting some good momentum with our diversification at the same time with strengthens 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 or a multiyear revenue and earnings growth.
Thank you very much at pre attention.
Thank you. This concludes today's conference all parties may disconnect have a great day. Thank you.