Q4 2021 Broadwind Inc Earnings Call
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Greetings and welcome to broad wins fourth quarter and full year 2021 results conference call at.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Tom Giacomini, Vice President and Chief Accounting Officer. Thank you you may begin.
Morning, and welcome to the <unk> fourth quarter 2021 results conference call.
Leading the call today is our CEO , Eric Blatchford, I'm, Tom Giacomini, our company's Vice President and principal accounting officer.
We issued a press release before market opened today detailing our fourth quarter and full year 2021 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.
Please note that you can find reconciliations of the historical non-GAAP financial measures discussed during our call in the press release issued today.
At the conclusion of our prepared remarks, we will open the line for questions with that I'll turn the call over to Eric.
Thanks, Tom.
And welcome to those joining us today.
During the fourth quarter, we delivered $26 million in revenue.
A year over year decline in wind tower sections sold.
As we were in a temporary pause in some wind projects due to higher raw material costs and continuing uncertainty about the scope and scale.
A potential federal tax incentives. The net result of these conditions was it certain tower orders, we expected to ship in the fourth quarter have been pushed into 2022.
We're working with multiple turbine Oems, who have placed orders to secure about 50% of our optimal 2022 tower capacity so far.
And are in discussions for further orders.
In February alone, we booked $29 million in new tower orders, which we believe is early evidence of stabilization and development activity as we look out over the next 24 months.
Throughout the pandemic, we've continued to manufacture and ship products to our customers precise fabrication requirements.
Pandemic related supply chain constraints continued in the fourth quarter.
But we're closely managed to minimize customer disruption as much as possible.
Cost inflation on key materials remains a headwind for our wind turbine customers and one that has dampened near term capital investment in wind.
This is most apparent with respect to the cost of steel, which has increased significantly in the past year.
It remains at a multiyear high.
While broadband absorbs only minimal direct commodity price risk. We believe some customers are waiting for raw material cost to normalize this when balanced against wind developers efforts to align projects with potential production tax credit or PTC extension.
Has pushed tower orders out several quarters.
Our diverse and market strategy performed as intended during the quarter as record order growth in our non wind markets helped to offset softness in tower orders.
Our gearing segment generated substantial year over year growth in both revenue orders and backlog.
Supported by demand from energy and mining markets.
While our industrial solutions segment enjoyed record orders since becoming part of broadband in both the fourth quarter and the full year 2021.
Our total orders for Q4 were $56 million.
Our year over year increase of more than 50%.
Quoting activity in our non wind markets remains robust and we expect that the good order flow to continue into 2022, especially from gearing and industrial fabrication.
The full impact of the pandemic, driven labor and supply chain challenges.
<unk> uncertain at this time.
We continue to take actions to keep our people safe.
And our production flowing.
We anticipate that our current cash and availability under our line of credit will provide us with adequate liquidity to support our business through this period of uncertainty.
Within our heavy fabrication segment revenue declined $15 million, partially driven by supply chain disruptions, which pushed some deliveries into 2022.
We continue to quote and produce for multiple wind turbine Oems.
And our customer diversification in the wind energy segment will serve us well as the market recovers.
Furthermore, the industrial fabrication product line continues to see strong order growth with a year over year increase of $12 million or 72%.
Within gearing revenue increased 70% year over year, while orders more than doubled to nearly $17 million as anticipated improvement in customer activity continues.
Revenue for our industrial solutions segment dropped by $2 $7 million from 47%.
As several customer orders were delayed into Q1 due to incoming supply chain constraints.
Orders for this segment were strong up 200% year over year as we continue to expand that business globally.
In summary, I'm pleased that a diversification strategy.
Is bearing fruit, which is evidenced by the growth in all of our product lines outside of wind.
This provides the company with with partially offsetting revenue as they work through the temporary pause in wind tower demand until the headwinds of commodity pricing and policy uncertainty resolved.
Our team has responded quickly to the well documented global supply chain challenges as we continue to meet our customers needs and keep our people safe.
We expect wind development activity to ramp up gradually over the medium term.
Particularly should we see a substantial extension of the P. T C, which we believe has bipartisan support.
With that I'll turn the call back over to Tom.
For a discussion of our fourth quarter financial performance.
Thank you Eric turning to slide five for an overview of our fourth quarter performance.
Fourth quarter consolidated sales were $26 million compared to $40 3 million in the prior year quarter.
First is the prior year Q4 sales decline primarily due to a decrease in wind tower sections sold as the.
Wind market continues to experience a pause, resulting from higher steel prices and policy uncertainty. In addition, we like others in the industry were hampered by material delays throughout the quarter given supply chain constraints.
In Q4, we recognized an adjusted EBITDA loss of $1 2 million a day.
Decrease of $1 4 million versus the prior year period.
The decrease in adjusted EBITDA is reflective of the overall lower volume level and the resulting plant underutilization in the current year quarter.
Yes.
Turning to slide six and seven for a discussion of our heavy fabrication segment.
Fourth quarter sales were $14 7 million down, 51% when compared to the $29 8 million in the prior year quarter due.
Due to the aforementioned pause in wind tower activity.
Fourth quarter orders were $31 1 million, a 13% increase from the prior year period.
Fight the pause in overall tower activity tower orders were flat versus the prior year.
Power demand out of out of our Manitowoc facility continues to be soft, but there was there continues to be strong interest in our abilene production capacity due to ongoing or planned projects in that region.
As a result of our continued focus on diversification and expansion of our industrial fabrications product line.
Related order intake remained strong increasing over 150% to $9 1 million in Q4 versus the prior year.
This product line experienced record quarter and annual order levels in Q4 in 2020 one respectively.
This volume has helped us to maintain our plant utilization given the near term softness in wind tower demand.
As of this call and including the tower orders, we announced earlier. This week, we have booked nearly 50% of our 2022 optimal wind tower capacity.
During the fourth quarter, we sold 79 tower sections of 62% decrease versus the prior year period.
This decrease combined with supply chain challenges and plant Underutilization.
<unk> and a $2.8 million decrease in segment adjusted EBITDA during the fourth quarter versus the prior year period.
It is important to note some raw materials used in turbine production have shown some signs of stabilizing which should incentivize increased project development overtime.
Turning to slide eight I will cover our gearing segment.
Gearing continues to operate in a robust commercial environment.
That improved starting in mid 2021.
Led primarily by and in energy and mining markets orders totaled $16 8 million in Q4, an increase of over $5 million sequentially and $11 million versus the prior year period.
Full year 2021 orders have rebounded to over 46 million versus 25 million in the prior year.
The Q4 and full year 2021 order levels are modern records for the gearing segment.
Year to date book to Bill is approximately 1.6 X and our backlog has recovered to over $32 million, an increase of $8 five sequentially and more than 120% or $18 million versus the prior year.
Fourth quarter segment sales increased to $8 3 million versus $4 nine in the prior year.
A result of the strong recent order intake.
We generated <unk> 1 million of segment EBITDA in Q4, an increase of $1 6 million versus the prior year period as we benefited from increased production levels.
Turning to slide nine for a discussion of our industrial solutions segment.
Industrial solutions recorded $7 9 million of new orders in Q4 up over $5 million from the prior year quarter.
Full year orders were $19 7 million versus $17 nine in 2020.
Orders booked for both Q4 and 2021 represent the highest intake levels since <unk> acquisition of Red Wolf in early 2017.
This strength was driven by the timing of the orders with our biggest customer and.
And a large follow on order from a new international customer.
We also experienced a sequential rebound in aftermarket orders an indication of increased natural gas turbine upgrades.
Fourth quarter segment sales dropped to 3 million versus $5 8 million in the prior year period, primarily as a result of decreased orders earlier in 2020 one.
In supply chain delays on inbound materials.
EBITDA decreased to breakeven due to decreased sales volume when compared to the prior year quarter.
Turning to slide 10.
Total cash and availability under our credit facility remains at an adequate level with nearly $15 billion of liquidity at quarter end.
Operating working capital decreased almost $1 million sequentially and despite a drop in fourth quarter activity levels remained elevated at year end as we produced ahead of schedule and supply chain issues delayed deliveries, which would have otherwise occurred in fourth quarter.
During the full year 2021, operating working capital increased by more than 13 million as customer deposits decreased reflective of a shift in customer order mix and inventories increased by nearly $7 million.
On a full year over year basis, net debt decreased slightly from $10 8 million to $10 5 million as the significant working capital build was largely offset by the equity raise that we executed in the first half of 2021 and the PPP loan forgiveness, which was recorded in Q2.
Our net leverage stood at 0.8 times trailing 12 months EBITDA as of year end.
As noted in our press release issued this morning, we expect the first first quarter EBITDA loss to be approximately <unk> 5 million.
That concludes my remarks, I will turn the call back over to Eric for an overview of end markets. In addition to some concluding remarks.
Thanks, Tom turning to slide 11 for further discussion of our outlook for the domestic wind market.
There are some encouraging signs for the medium to long term.
Because we expect more than 100 gigawatts of onshore wind energy capacity to be added through 2030.
In the near to medium term, we view the potential PTC or production tax credit extension.
Rising commercial and industrial demand and repowering activity as catalyst for increased installations.
Last week, the D O or department of Energy released a document titled Americas strategy to secure the supply chain for a robust clean energy transition.
Which lays out the challenges and opportunities faced by the U S.
In the energy supply chain.
As well as the federal government's plans to address them.
It's accompanied by several deep dive assessments produced in response to executive order 14th 017.
Dressing Americas supply chains.
Which directs the secretary of energy to report on supply chains for the energy sector.
This executive order is spurring the federal government to build more secure and diverse U S supply chains, including energy supply chain.
And this document we're happy to see that the D O reaffirms the need to extend and revised tax credits such as the PTC and the investment tax credit or ITC to support that continuing domestic construction of renewable energy projects using domestic manufacturing.
One certainly welcome to this.
And this revised forecast on slide 11, Wood Mackenzie I recognized independent energy research firm maintains its installation forecast for 2022.
While showing a slight softening in 2020 three before steady growth through the end of the decade echoing.
Echoing our confidence in wind.
The long term outlook remains positive as the energy market transitions from fossil fuels to renewable energy, which includes wind power.
As we look outside of wind our progress continues across a number of diverse end markets always mindful of our long term strategy to support the world's transition to a cleaner future.
Our customer and market diversification initiative remains central to our overall plan, which allows us to optimize our production facilities and leverage our talented workforce as wind projects vary from quarter to quarter.
Renewables and other forms of clean power remain quarter broad wind, even as we expand our revenue streams outside of wind.
Today, our fastest growing non wind segments include power generation mining steel production in the industrial segment.
Including our increasing penetration into the infrastructure material handling and marine markets.
In our heavy fabrication segment, we're working to sell our remaining 2022 capacity in both wind towers and other industrial fabrications, while adding capabilities to improve our plant utilization and reduce cost.
We continue to invest in new product development.
Broadway Prs or product pressure reduction system, we introduced in 2021 to service the growing natural gas virtual pipeline market continues to gain momentum.
We are ramping up production to address demand.
A primary focus of our M. P D activity in 2022, we'll be expanding our offerings to this market.
And our gearing segment, we are working to shift our sales mix toward markets, which tend to be less cyclical and offer a more balanced revenue stream. We've upgraded personnel on a commercial project management and quality teams to quick in our pace of growth in these new segments.
We're adding some new cutting edge machining capabilities to expand capacity reduce cost and most importantly open new markets.
We continue to grow our custom gearbox business with special emphasis on our repair and upgrade categories to help our customers improve their process reliability and plant utilization.
In our industrial solutions segment were expanding our market share both domestically and internationally.
We're addressing we're adding resources in both operations and engineering to speed up our growth in natural gas and wind turbine markets as.
As both segments seek to increase U S content due to global supply chain challenges.
In summary.
<unk> remains an enthusiastic participant.
And the development of technologies integral to the ongoing clean energy transition.
We see long term growth for domestic wind market.
Given the given that the cost of wind energy has dropped dramatically in the last decade.
Making it one of the most competitive energy technologies available.
And we have increasing adoption in the commercial and industrial sector, along with support on the federal and state levels.
We have an increasingly diverse customer set.
Whose order volume helps offset the normal order fluctuations in the markets we serve.
We're investing in productivity and capability improvements in all divisions to improve throughput and reduce costs and address new market opportunities.
Lastly, we're well capitalized to pursue both organic and inorganic opportunities that further support our growth strategy.
With that said I'll turn the call over to the moderator for the Q&A session.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the Q4 participants using speaker equipment. It may be.
Necessary to pick up your handset before pressing the star key our first question comes from the line of Justin Clare with Roth Capital Partners. Please proceed with your question.
Hey, good morning.
Hey, Justin.
Hey, So I guess first.
Typically for guidance, you would provide revenue and adjusted EBITDA for the for the upcoming quarter. This quarter. You just provided adjusted EBITDA. So just wondering is it possible to provide the outlook for Q1 'twenty to revenue.
Or is there more uncertainty than usual that would make that difficult and then also if possible could you give us a sense for how you see revenue by segment trending in Q1 here.
Yeah for the for the first quarter, it's difficult because of the supply chain, we've got things that that weren't there in production now is predictably towers and adapters.
Justin that we're still waiting for some from components to come in.
So we're going to get the capacity utilization on those but if the components don't come in we could finalize them. We just can't recognize the revenue. So that's why it's challenging for Q1.
Regarding regarding gearing and industrial fabrications, we do expect that revenue to be sequentially up reflecting the strong orders we've had in both those segments the gearing and industrial solutions.
Okay, Great. That's that's helpful and.
And then you know you mentioned that you have orders for nearly 50% of your 2022 optimal tower production here.
Given where we are in the year, how much more of 2022 capacity for towers do you think you could book and are you primarily booking for Q4 at this point or do you have the potential to.
I, you know increased bookings for Q3, or even Q2 delivery.
At this point given this given the supply chain length, and it's actually lengthen a bit longer than normal because of all the things that are all well publicized really it's Q4, Justin maybe towards the end of Q3, depending on if we could get the materials, especially the internals, but it's it's effectively to Q4.
Got it got it Okay, and then just shifting to the the gearing segment.
Backlog is up a meaningful meaningfully here to $32 million. What is the time frame that you expect to deliver that revenue is that you know Q1, and Q2 or or potentially later in the year and then for that segment are you seeing any supply constraints labor constraints or anything that would cause you know delivery.
As to slip or or is there anything that could impact the cost structure of that particular segment as well.
Well first of all let me address that caught the cost structure. When we most of most of what we do in fact, nearly all of what we do is project is project based and as we get as we get the orders as we do the quote is we get the orders we place material.
Orders right then.
We are factoring in in our quoting model some anticipated increases in some incidentals welding wire gasses things like that Justin So I think we've got a pretty good handle on that with regard to when those when that backlog ships.
Gearing tends to have a bit of a longer backlog then some industrial fabrication. Some kinship ship within within say a quarter of when the orders are received some two and three quarters out we're actually pretty well the backlog last all through 2022 at this time.
Okay, great. Thanks, that'll do it for me.
Thanks, Jonathan I appreciate the questions.
Our next question comes from the line of Eric Stine with Craig Hallum. Please proceed with your question.
Hi, Eric Hi, Tom.
Hi, Eric.
So maybe I'll just stick with gearing a little bit here I mean, obviously backlog order trends have been very good and expectation that that continues I mean is it fair to say that 2023, then given the length of time that this flows through to 2020 . Three is when I mean, you you likely are at 2018 law.
Which I think would be your previous record or.
Or above that in and then you know assuming it what you just discussed on the cost side I mean should we still think about the same margin profile when you get to those 2018 levels and higher.
Yeah, I think I think as far as the margin profile. The answer is yes. This is a heavily leveraged you know it's it's capital intense so once we have a lot of machines over there.
So once we get to a certain level, we really start throwing that kind of EBITDA percentages, you've you've seen before in 2018.
Regarding the strength throughout 2022 and 2023. The answer is yes, you know where are our power generation, our energy, which is oil and gas, which you know we participate in we.
We think that's going to remain strong throughout 2022 and into 2023 it.
It may soften a bit in 2023, but we expect other segments such as such as steel infrastructure mining.
Material handling too to offset that because where we're growing those segments in anticipation of a bit of a softness in oil and gas coming here in 18 months or so 'cause that's cyclical oil and gas is is a it is a market that tends to run an 18 month to two to two two year cycles.
Yup absolutely. Okay. That's helpful. Maybe maybe just turning to win that you mentioned and obviously, we all know the we know the challenges in wind right now, but you have you know you've gotten what $29 million in orders here as of late but talking about orders postponed to the second half I mean do you have.
Any any thoughts or any details on maybe the quantity of those orders pushed to the second half and you know we just love your thoughts I mean is it that it's the it's the P. P C uncertainty as the as the number one factor in all of this or I mean, or do you think that you know that.
But it's equal versus some of the supply chain concerns.
My My my take is again. This is just my take in researching and participating in the industry I think it's mostly the P. T C I.
I think the cost of materials is a bit of a doubling down of.
Some of the of some of the financials of the projects, but I think the PTC that uncertainty is really what has people remaining on the sidelines as as they as they wait for their projects to to mature again, I'm I'm looking for some sort of clarity.
I did hear your President Biden last night on is on the state of the Union did mention. This this this support for for climate and U S. Production. So I'm encouraged that the Congress may do something.
So, it's something smaller or something specific to climate change PTC ITC as I mentioned in my prepared remarks, I think that's the primary driver, causing the causing the Pos.
And I mean any way to quantify what you know.
The that's the magnitude of the orders that you think have been pushed or is that more about just why I mean, you're clearly you're clearly cautiously optimistic that as you get into the back half of the year things do start to improve in terms of the outlook.
Yeah.
I think is happening is is is our customers are really looking at 2023 as a stronger year. So as they again, they're cautious as well.
So what they're what they're talking about is capacity at both plants ramp up plans. So there. They are optimistic about 2023 I think are waiting for the news is the rest of us are.
So when you're talking about the quantity of orders that's tough for me tough for me to answer I, just believe that there's going to be a lift.
Towards the end of 2022 as they prepare for 2023 installations.
Installations.
Gotcha, Okay, maybe last one for me and this is a and I thought it was a pretty interesting product announcement are offering announcement, a few quarters ago, but your pressure reducer systems at the time you'd gotten some initial orders and we're seeing some interest just with like an update on that.
Yeah that that product is again for those of you don't know that that's participating in the virtual pipeline, which we see as natural gas is a transitional fuel.
So what that product does is when when when some some gas has flared or wasted ads at the site, where it's where generated that's gasses captured compressed shift towards used and then decompress at the point of use whether there'd be a hospital a different pipeline a factory or whatnot. So we see that as a very very much supportive of our all of our.
Our participation in clean energy in and a cleaner future. So what that does is again it it reduces the pressure at the point of views.
So we're putting it through its paces in the field, it's performing very well, Eric and demand is up and in fact, and where we're ramping up our capacity to meet that demand. So I expect that product line to be solid for us.
And I also expect our N P D O focus to be broadening that product line and other and other products that are used in that virtual pipeline market.
Okay, that's great. Thanks.
Thank you.
Okay.
Our next question comes from the line of Matt Deyoe with H C. Wainwright. Please proceed with your question. Thank.
Thank you good morning, everyone and appreciate you taking my questions. Good morning, good morning.
Hey, my other questions you've already gone through them with respect to sort of the oil and gas segment.
If that slows down for you a softens you know for you over the next few quarters.
What other sectors can fill any gaps from that slowing down.
Yeah, and that's also where we did have some investing in capabilities in that particular in that particular business. So.
We're working on on mining gas turbines, which is cat.
Cats, Caterpillar SLR small gas turbines.
Transportation rail, we can do things for for railroads and whatnot.
Even medical this capability allows us to get into the medical field.
And the dealing with the the infrastructure segment.
Steel mills use our products as do cement processing mill so.
We are we are aggressively working to grow our business outside of.
Of energy or outside of oil and gas for just that eventuality and we're also trying to make certain that that we that.
We limit frankly, how much capacity that we offered to the oil and gas market to make sure that we've got available capacity for those other customers in other segments that are coming to us.
Okay. Thank you for that.
Youre welcome you know the increase sort of the improvements in backlog and you know the new orders on the wind tower side.
These are normal margins or are you having to give up some margins from inflationary pressures just trying to see how you're managing your own pricing relative to you know current trends in the market from all these different macro factors.
Yeah, those those would be those would be a historically consistent margins.
Okay. Okay. Thank you historically margins yeah, that's all I have I'll take my other questions offline. Thank you.
Thank you.
Our next question comes from the line of Martin Malloy with Johnson Rice. Please proceed with your question.
Oh good morning, Thank you for taking my question Hey, Marty.
Good morning, I wanted to talk to you about liquidity at the company.
You know when I look at last year's results of $1 2 million EBITDA and <unk>.
That benefited from 7 million in employee retention tax credits of $9 2 million P. P loan forgiveness that occurred during the first half of 'twenty one.
And still operating cash flows were negative I believe $12 8 million for the year.
What happens with the availability under your revolver.
That facility as the zone.
Government.
The ETR the E. R. T C in the P. P R anniversary.
In the second quarter.
Yes, our liquidity.
We feel it's going to be adequate going forward based on our projections. We just recently signed a new <unk>.
Hum.
Agreement with CIBC, our bankers, which is disclosed with our we filed this morning with within that agreement, we were able to automatically increase our liquidity by another two and a half million dollars based on reducing some of the or backing off some of the reserves that were put in in Q3. So.
We feel that given our rising asset base.
During the during the year, we're gonna have adequate liquidity under underneath the revolver that we have.
So you don't think you'll need to issue equity.
At this point at this point at this point no Marty.
Okay.
Thank you those are my questions.
Thank you.
There are no further questions in the queue I'd like to hand, the call back over to Mr. Blackford for closing remarks.
Yeah. Thank you for your attention and your interest in Brian when we look forward to reporting our results to you after the first quarter.
Have a great day.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.