Q3 2023 Broadwind Inc Earnings Call
Speaker 1: Greetings and welcome to Broadwind's third quarter 2023 results conference call. At this time, all participants are on 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.
Greetings and welcome to <unk> third quarter 2023 results conference call. 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 I would now like to turn the conference over to your host Mr. Tom Giacomini. Thank you you may begin.
Speaker 2: Good morning and welcome to the Broadwin third quarter 2023 results conference call.
Good morning, and welcome to the broad one third quarter 2023 results conference call.
Speaker 2: Leading the call today is our CEO , Eric Blashford, and I'm Tom Ciccone, the company's vice president and chief financial officer.
Leading the call today is our CEO, Eric Blackbird, and I'm, Tom Ciccone, the company's Vice President and Chief Financial Officer.
Speaker 2: We issued a press release before the market opened today detailing our third quarter results.
We issued a press release before the market opened today detailing our third quarter results.
Speaker 2: 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.
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.
Speaker 2: Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially.
Although these forward looking statements are based on management's current expectations and beliefs actual results may differ materially.
Speaker 2: 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.
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.
Speaker 2: Additionally, please note that you can find reconciliations of the historical non-GAAP financial measures discussed during our call in the press release issued today.
Additionally, please note that you can find reconciliations of the historical non-GAAP financial measures discussed during our call in the press release issued today.
Speaker 2: 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.
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.
We delivered a strong third quarter performance.
Speaker 2: yielding significant year-over-year increases in revenue, net income, margin realization, and adjusted EBITDA.
Yielding significant year over year increases in revenue net income margin realization in adjusted EBITDA.
Speaker 3: We generated double-digit revenue growth year-over-year in all segments. With our largest segment, heavy fabrications, we generated $1.5 billion in revenue growth in all segments.
We generated double digit revenue growth year over year in all segments.
With our largest segment heavy fabrications.
Realizing 25% revenue growth.
Speaker 3: due to improved demand for wind tower sections, augmented by shipments of our new high-flow natural gas pressure reduction systems.
Due to improved demand for wind tower sections augmented by shipments of our new high flow natural gas pressure reduction systems.
Or prs.
Speaker 3: Our results benefitted from a combination of improved operating leverage, price discipline, a higher value.
Our results benefited from a combination of improved operating leverage price discipline.
A higher value sales mix.
Speaker 3: and improve process efficiencies, including early benefits from our recent investments in coatings automation and weld prep technology.
An improved process efficiencies, including early benefits from our recent investments in coatings automation and wealth prep technology.
Speaker 3: These actions, plus the benefit provided by the IRA's Advanced Manufacturing Tax Credit, resulted in adjusted EBITDA of more than 13%.
These actions plus the benefit provided by the I R as advanced manufacturing tax credit.
<unk> and adjusted EBITDA of more than 13%.
Speaker 3: in improvement of over 900 basis points versus Q3 2022.
An improvement of over 900 basis points versus Q3 2022.
Speaker 3: Continued stability across our wind and diverse non-wind markets has contributed to improved visibility across our business as we look to the remainder of this year.
Continuous stability across our wind and diverse non wind markets.
Has contributed to improved visibility across our business as we look to the remainder of this year.
Speaker 3: leading us to reaffirm our adjusted EBITDA guidance for the full year 2023.
Leading us to reaffirm our adjusted EBIT guidance for the full year 2023.
Speaker 3: We booked $16 million of orders in the third quarter, down from $84 million in the prior year due primarily to the timing of tower orders, as a major customer placed a large, longer-term order in late 2022 that pulled forward what had historically been a series of smaller, routable orders.
We booked $16 million of orders in the third quarter down.
Down from 84 million in the prior year due.
Due primarily to the timing of tower orders as a major customer placed a large longer term order in late 2022.
It pulled forward what had historically been a series of smaller ratable orders.
Partially offsetting this decline in tower orders.
Speaker 3: was a 47% increase in industrial fabrication orders, primarily from the mining sector.
It was a 47% increase in industrial fabrication orders, primarily from the mining sector.
Speaker 3: Yearing orders were down approximately 80% from the prior year due to reduced demand from oil and gas and industrial customers, while orders within our industrial solutions segment declined 20% due to the timing of demand for new gas turbine content.
During orders were down approximately 80% from the prior year due to reduced demand from oil and gas and industrial customers, while orders within our industrial solutions segment declined 20% due to the timing of demand for new gas turbine content.
Speaker 3: Entering the fourth quarter, we continue to operate on plan.
Entering the fourth quarter, we continue to operate on plan.
Speaker 3: We're focused on expanding our product mix within higher margin adjacent markets.
We're focused on expanding our product mix, but within higher margin adjacent markets.
Speaker 3: with the development of our low-flow PRS unit, including an RNG version on track for release in 2024.
With the development of our low flow P. R. S unit, including an Orangey version on track for release in 2024.
Speaker 3: We are also continuing with our new technical advisory sessions.
We are also continuing with our new technical advisory sessions.
Speaker 3: during which we provide our gearing customers with on-site diagnostic, maintenance, and service training to help optimize the performance, reliability, and longevity of their equipment.
During which we provide our gearing customers, what's onsite diagnostic maintenance and service training.
Optimize the performance reliability and longevity of their equipment.
Speaker 3: These sessions have led to increased repair and replacement service orders from both new and existing hearing customers.
These sessions have led to increased repair and replacement service orders from both new and existing <unk> customers.
Speaker 3: Operationally, the lean operating principles, process controls, and continuous improvement projects we've implemented at all locations are showing good results in asset utilization and productivity.
Operationally.
Lean operating principles process controls.
Continuous improvement projects, we've implemented at all locations are showing good results and asset utilization and productivity.
Speaker 3: Our relentless focus on team member safety, quality systems, and skills training.
Our relentless focus on team member safety quality systems and skills training.
Speaker 3: has allowed us to continually meet the quality and delivery performance much valued by our customers.
Allowed us to continually meet our quality and delivery performance much valued by our customers.
Speaker 3: We generated total revenue of $57 million in the third quarter as we experienced increases in all divisions.
We generated total revenue of $57 million in the third quarter as we experienced increases in all divisions.
Speaker 3: We generated $7.6 million of adjusted EBITDA in the quarter, an increase of approximately $5.7 million versus the prior year period, continuing the strong performance we've seen this year so far.
We generated $7.6 million of adjusted EBITDA in the quarter, an increase of approximately $5 7 million versus.
Versus the prior year period, continuing the strong performance we've seen this year so far.
Our consolidated backlog at.
Speaker 3: at the end of Q3 was approximately $220 million, up $89 million from the prior year period. Coating activity in our non-wind markets remains stable, and we expect good water flow to continue through the balance of this year, notwithstanding the softness in the oil and gas.
At the end of Q3 was approximately $220 million up $89 million from the prior year period quoting activity in our non wind markets remained stable and we expect good order flow to continue through the balance of this year notwithstanding the softness.
And the oil and gas ear market.
Speaker 3: Within our heavy fabrication segment, Q3 revenue was $38 million, a 25% increase year over year led by increases in wind tower sales.
Within our heavy fabrications segment, Q3 revenue was $38 million or 25% increase year over year led by increases in both wind tower sales.
Speaker 3: and our proprietary natural gas pressure reducing systems, offset by reductions in our mining, construction, and industrial markets.
And our proprietary natural gas pressure, reducing systems offset by reductions in our mining construction and industrial markets.
Speaker 3: Gearing revenue was $11 million, a 12% increase year-over-year, as customer activity continues to be strong within both the industrial and steel sectors.
Gearing revenue was $11 million, a 12% increase year over year as customer activity continues to be strong.
Within both the industrial and steel sectors.
Speaker 3: Industrial solutions revenue was $7 million, up 85% year over year, led by increases in new gas turbine content to both domestic and international customers.
Industrial solutions revenue was $7 million up 85% year over year.
Led by increases in new gas turbine content, so both domestic and international customers.
Speaker 3: In summary, I am pleased with the operating performance of all divisions through the third quarter and look forward to continuing this momentum through the remainder of the year as we continue to execute our strategy.
In summary, I'm pleased with the operating performance of all divisions through the third quarter and look forward to continuing this momentum through the remainder of the year as we continued to execute our strategy.
Speaker 3: With that, I'll turn the call over to Tom for a discussion of our third quarter financial performance.
With that I'll turn the call over to Tom.
A discussion of our third quarter financial performance.
Thank you Eric.
Speaker 2: Turning to slide 5 for an overview of our third quarter performance.
Turning to slide five for an overview of our third quarter performance we.
We had a strong third quarter, we experienced both sequential and year over year growth in revenue gross margin and EBITDA.
Speaker 2: We experience both sequential and year-over-year growth in revenue, gross margin, and EBITDA.
Speaker 2: In Q3, we recognized 7.6 million of EBITDA compared to 1.9 million in the prior year third quarter.
In Q3, we recognized $7 6 million of EBITDA compared to $1 9 million in the prior year third quarter.
Speaker 2: The $5.7 million EBITDA increase and improved margin realization is due primarily to the benefits attributable to the advanced manufacturing production tax credits, or AMP credits, we've been earning this year associated with our wind tower production, together with solid overall
The $5 7 million dollar EBITDA increase and improved margin realization is due primarily to the benefits attributable to the advanced manufacturing production tax credits or Amp credits, we've been earning this year associated with our wind power wind tower production.
Together with solid overall operational execution.
Speaker 2: we generated net income of $4.4 million, or $0.20 per diluted share, in the third quarter.
We generated net income of $4 4 million or 20 cents per diluted share in the third quarter.
Turning to slide six for a discussion of our heavy fabrication segment.
Speaker 2: Turning to slide six for discussion of our happy fabrication segment.
Speaker 2: Third quarter revenues were $38.3 million, up both sequentially and versus the prior year quarter.
Third quarter revenues were $38 3 million up both sequentially.
Quench Lee and versus the prior year quarter.
Speaker 2: We recognize 190 tower sections in the current year quarter versus 138 in Q2 and 145 in the prior year.
We recognized 190 tower sections in the current year quarter versus 138 in Q2 and 145 in the prior year third quarter.
Speaker 2: These increases were largely driven by the 42 tower sections sold from our Manitowoc facility, which had lower sections sold in the comparable period.
These increases were largely driven.
But the 42 tower section so for our Manitowoc facility, which had lower section sold in the comparable periods.
Speaker 2: During the third quarter, we recognized segment EBITDA of 6.9 million, an improvement of 5.4 million versus the prior year period, primarily driven by the increased tower section sold and the AMP credits recognized in the current year period.
During the third quarter, we recognized segment EBITDA of $6 9 million, an improvement of $5 4 million versus the prior year period, primarily driven by the increased tower sections sold and the Amp credits recognized in the current year period.
Turning to slide seven.
Speaker 2: Gearing orders slowed significantly in Q3, totaling $3 million, a 12.5 million, or 81% decrease, versus the prior year.
Gearing orders slowed significantly in Q3, totaling 3 million, a $12 5 million or 81% decrease versus the prior year quarter.
Speaker 2: The majority of the decrease was attributable to the reduction in oil and gas demand that we've been experiencing.
The majority of the decrease was attributable to the reduction in oil and gas demand that we've been experiencing.
Segment revenue was $11 4 million up $1 2 million compared with the prior year third quarter, but EBIT decreased 300000 to $9 million due to a less profitable mix of products sold and higher overhead costs when compared to the prior year quarter.
Speaker 2: Segment revenue was $11.4 million, up $1.2 million compared to the prior year third quarter. But EBITDA decreased $300,000 to $0.9 million due to a less profitable mix of products sold and higher overhead costs when compared to the prior year quarter.
Speaker 2: Turn to slide 8 for discussion of our industrial solutions segment.
Turning to slide eight for a discussion of our industrial solutions segment.
Speaker 2: Industrial Solutions had a strong third quarter with the highest revenue total since Broadwin's acquisition of Red Wolf in early 2017.
Industrial solutions had a strong third quarter with the highest revenue total since <unk> acquisition of Red Wolf in early 2017.
Speaker 2: While orders of $4.9 million are down both sequentially and versus the prior year third quarter, our backlog of $15.4 million still remains at an elevated level and represents the third highest quarterly total since acquisition.
While orders of $4 9 million or down both sequentially and versus the prior year third quarter, our backlog of $15 4 million still remains at an elevated level and represents the third highest quarterly total since acquisition.
Speaker 2: We continue to see strong demand for our core natural gas turbine offer.
We continue to see strong demand for our core natural gas turbine offerings.
Speaker 2: Third quarter segment revenues increased to $7.4 million from $4 million in the prior year period, reflective of the record high backlog we entered the third quarter with.
Third quarter segment revenues increased to $7 4 million from $4 million in the prior year period reflective of the record high backlog, we entered the third quarter with.
EBITDA increased to $1 million from breakeven in the prior year period.
System with the increased revenue as well as a more profitable mix of products sold when compared to the prior year quarter.
Turning to slide nine.
Speaker 2: Our quarter end liquidity remains adequate with cash and availability under our credit facility of nearly $14 million.
Our quarter end liquidity remains adequate with cash and availability under our credit facility of nearly $14 million.
Speaker 2: During Q3, we did see a significant increase in our net operating working capital of just over $7 million, due primarily to an increase in AR as we changed billing and collection terms with a major customer and because of the significant sales in September , the largest month of year to date.
During Q3, we did see a significant increase in our net operating working capital of just over 7 million due primarily to an increase in a R. As we changed billing and collection terms with a major customer.
And because of the significant sales in September the largest month of year to date.
Speaker 2: During the fourth quarter, we expect operating working capital balances to decrease, and as a result, we will be carrying lower debt.
During the fourth quarter, we expect operating working capital balance balances do decrease and as a result, we will be carrying lower debt.
Speaker 2: As a reminder, as I pointed out in the past few quarters, it should be noted that the AMP credits are not part of our traditional operating working capital calculation, and we do expect this receivable balance to continue to increase until monetized.
As a reminder, as I pointed out in the past few quarters. It should be noted that the AMT credits are not part of our traditional operating working capital calculation.
And we do expect this receivable balance to continue to increase until monetized.
At the end of the third quarter, our amp credit receivable totaled more than $11 million representing credits earned under the I R. A.
Speaker 2: We are currently evaluating the sale of these earned credits to unaffiliated institutional third parties, an approach which if pursued, would accelerate monetization of these credits during 2024.
We are currently evaluating the sale of these earn credits to unaffiliated institutional third parties and approach, which are pursued but accelerating monetization of these credits during 'twenty 'twenty four.
Finally, as Eric mentioned, we are reaffirming our full year revenue and adjusted EBITDA guidance at this time.
Positioning us for a strong finish to the year.
Speaker 2: That concludes my remarks. I will turn the call back over to Eric to continue our discussion.
That concludes my remarks, I will turn the call back over to Eric to continue our discussion.
Thanks, Tom.
Speaker 3: Now, allow me to provide some thoughts entering 2024. First, beginning with our heavy fabrication segment.
Now allow me to provide some thoughts entering 2024.
First beginning with our heavy fabrication segment.
Speaker 3: In January 2023, you'll recall that we announced we'd entered into a supply agreement for wind tower purchases valued at approximately $175 million with a leading global wind turbine manufacturer.
In January 2023, you'll recall that we announced we entered into a supply agreement for wind power purchases valued at approximately $175 million with a leading global wind turbine manufacturer.
Speaker 3: Under the terms of the supply agreement, order fulfillment is to occur beginning in 2023 through year-end 2024.
Under the terms of the supply agreement order fulfillment has to occur beginning in 2023 through year end 2024.
Speaker 3: In early November 2023, the parties discussed their joint intent to shift approximately half the contracted tower section orders initially planned for 2024 into 2025, while maintaining the total number of tower sections stipulated under the supply agreement.
In early November 2023, the parties discussed their joint intent to shift approximately half the contracted tower section orders initially planned for 2024 into 2025, while maintaining the total number of tower sections stipulated under the supply agreement.
Speaker 3: Importantly, this shift will still allow us to support a ratable base level of power production into 2025.
Importantly, this shift will still allow us to support a ratable base level of power production into 2025.
Speaker 3: In our gearing segment, efforts to broaden our sales mix into less cyclical markets to achieve a more balanced revenue stream going forward remain important for us.
And our gearing segment efforts to broaden our sales mix into less cyclical markets to achieve a more balanced revenue stream going forward remain important for us.
Speaker 3: and we've reorganized our commercial team to accelerate this transition.
We've reorganized our commercial team to accelerate this transition.
Speaker 3: Additionally, in the latter part of Q3, we took actions to reduce overhead costs in response to the reduction in demand from the oil and gas market while further leveraging our investments in automation made over the last several years.
Additionally, in the latter part of Q3, we took actions to reduce overhead costs in response to the reduction in demand from the oil and gas market, while further leveraging our investments in automation made over the last several years.
Speaker 3: In industrial solutions, we continue to add process capabilities that equip us to grow our share of wallet with existing accounts while adding new ones. We've upgraded our in-house engineering capabilities and plan to add plasma cutting and CNC machining over the next several months to continue our growth in power generation, renewables, and other markets.
In industrial solutions, we continue to add process capabilities that equip us to grow our share of wallet with existing accounts, while adding new ones.
Upgraded our in house engineering capabilities and plan to add plasma cutting and CNC machining over the next several months to continue our growth in power generation renewables and other markets.
Speaker 3: I'm pleased to be booked more than $1 million of wind and solar orders in this business through Q3.
I'm pleased that we booked more than $1 million of wind and solar orders in this business through Q3.
Speaker 3: and of continued interest from the wind repowering market, which we anticipate will yield additional orders for this division.
And have continued interest from the wind Repowering market, which we anticipate will yield additional orders for this division.
Speaker 3: In summary, I'm pleased with the strong operational performance from our team so far this year, including the good result we achieved in Q3.
In summary, I'm pleased with our strong operational performance from our team so far this year, including the good result, we achieved in Q3.
Speaker 3: We continue to focus efforts to build a solid foundation for steady, profitable growth.
We continue to focus efforts to build a solid foundation for steady profitable growth.
Speaker 3: serving the energy transition and other key markets, and look forward to capitalizing on improved market demand in the years ahead.
Serving the energy transition in other key markets and look forward to capitalizing on improved market demand in the years ahead.
Speaker 3: We will prudently maintain our facilities, equipment, and control overhead costs while we invest in the vital core talent needed to grow our business as we leverage our presence in renewables, clean fuels, and power generation.
We will prudently maintain our facilities equipment and control overhead costs, while we invest in the vital core talent needed to grow our business as we leverage our presence in renewables clean fuels in power generation.
Speaker 3: while establishing new footholds within other complementary markets, such as energy transition.
Stablish, a new foothold within other complementary markets.
Such as energy transition.
With that said I.
Speaker 3: I will turn the call over to the moderator for the Q&A session.
I will turn the call over to the moderator for the Q&A session.
Speaker 1: Thank you. At this time, we'll be conducting a question and answer session.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Speaker 1: If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 1 to ask a question.
A confirmation tone will indicate your line is in the question queue. You May press star two if he like to remove your question from the queue.
Speaker 1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the door keys.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Speaker 1: Our first question comes from Eric Stein with Craig Hallam. Please proceed with your question.
Our first question comes from Eric Stine with Craig Hallum. Please proceed with your question.
Hi, Eric Hi, Tom.
Hi, Eric.
Speaker 3: Hey, maybe if we could just start with the guidance. So, you know, just trying to figure out.
Hey.
Maybe if we could just start with the guidance. So you know just trying to figure out.
Speaker 3: Or talk about what is implied from the fourth or in the fourth quarter. I mean, it's a pretty wide range. It would also seem to imply that you, you know, don't have a whole lot of wind activity given the EBIT number that's implied. So maybe, I mean, it is a wide range. Could you just talk about what the factors would be to get you to the low end of the high end of that range and some things we should consider as we think about Q4.
Or talk about a what is implied from the floor or in the fourth quarter. I mean, it's a pretty wide range. It would also seem to imply that you don't have a whole lot of wind activity given the EBITDA number that's implied so maybe I mean, it is a wide range could you just talk about what the factors would be to get you to the low.
And to the high end of that range and some things we should consider as we think about Q4.
Speaker 3: Yeah, well, I think, first of all, we tend to be conservative as management and we always be conservative as management. There's some trepidation with the oil and gas market as we have customers requesting for pushouts and we're negotiating with those customers to include most of that in 2023 as we can. So that's a reason for, a primary reason for our caution and reaffirming our guidance for 2023.
Yeah, well I think first of all we don't we tend to be conservative as management, and we will always be conservative as management.
There is some trepidation with the oil and gas market as we have customers requesting from push outs that we're negotiating with those customers to to include most of that in 2023 as we can so that's the reason for our primary reason for our our caution and reaffirming our guidance for 2023.
Speaker 2: And then is that fair to say, though, I mean, given the EBITDA, and I get it about being conservative, but given, you know...
And then is that fair to say, though I mean, given the EBITDA and I get it about being conservative, but given you now.
Speaker 3: I guess implying break even to positive 2 million, I mean that would seem to say that you have a lower or much lower level of wind activity, tower activity in Q4. Is that the correct way to think about it?
But I guess, implying breakeven to positive $2 million I mean that would seem to say that you have.
A lower <unk>.
Or much lower level of wind activity tower activity in Q4 is that the correct way to think about it.
Speaker 3: Well, it would be lower than Q3 because we finished, we had multiple tower orders that we finished in Q3. There would be lower activity in Q4 than in Q3, but not the minimus.
Well it would be lower than Q3, because we finished we had multiple tower orders will be finished in Q3, there would be.
Lower activity in Q4 than in Q3.
But not not the minimus.
Speaker 3: So please take that as a conservative estimate. OK.
So please take that as a conservative estimate.
Okay.
Speaker 4: Nope. I guess. Okay. Yeah, that makes sense.
Nope.
I guess, okay, yeah that makes sense.
Speaker 4: maybe then just turn into the decision with your large customer to you know just kind of adjust the timing of the tower order you know curious i mean i know that was going to be recognized radibly
Maybe then just turning to the decision with your large customer to you know just kind of.
Adjusted the timing of the tower order you know.
Curious I mean, I know that was going to be recognized ratably.
Speaker 4: third quarter, fourth quarter, and throughout 24? I mean, is it as simple as taking that, you know, what the quarterly run rate number would be and cutting it in half? And then also, you know, now you would seem to have some open capacity in Abilene, and given the, you know, that that's a very good location, is there a possibility that you are able to fill some of that?
Third quarter fourth quarter and throughout 'twenty four I mean is it as simple as taking that you know what the quarterly run rate number would be in cutting it in half.
And then also you know now you would seem to have some open capacity in Abilene and given the.
You know that that's a.
A very good location is there a possibility that you are able to fill some of that.
Speaker 3: I mean, while 50% capacity utilization is preferred to 25% divided by two years, as an operator, 25% at least gives us that ratable volume, as we talked about before, Eric, across the whole year and for 2025 as well. And you're correct.
Sure I mean, well, while we were at 50% capacity.
That utilization is preferred to 25% divided by two years as an operator, a 25% of lease gives us that ratable volume as we talked about before Eric across the whole year and for 2025 as well and you are correct.
Speaker 3: Now that we have open capacity or more open capacity in that plant, we'll certainly market it to the other OEMs. Remember, there are four OEMs.
Now that we have open capacity or more open capacity in that plant will certainly marketed.
So the other Oems remember there are four Oems.
Speaker 3: This was one of the four, and the other three are still viable to get orders from for that same time period. So, yes, our mission is, as it always has been, to fill that capacity.
This was one of the four and the other three are still viable to get orders from for that same time period. So yes. Our mission is as it always has been to fill that capacity.
Speaker 4: Got it. And, um, you know, last thing, just the commentary, I guess, industrial solutions, uh, more positive than gearing. I mean, you know, without, without kind of, um, asking for a number, I mean, directionally did as you sit here today and some of the cost cuts, uh, that you've taken in gearing, I mean, is that a potentially down year in 24 and, and industrial solutions would, would potentially be flat to up.
Got it and last thing just the commentary I guess.
Industrial solutions are more positive than gearing I mean, you know without.
Without kind of asking for a number I mean directionally did as you sit here today and some of the cost cuts that you've taken in gearing I mean is that a potentially down year in 'twenty, four and an industrial solutions would would potentially be flat to up.
Speaker 3: Yeah, I would say I would say that's that's that's a good estimate. Oil and I mean, our gearing business is the most diverse, but it's full of industrial markets.
Yes, I would say I would say that's that that's that's a good estimate oil I mean, our gearing business is the most diverse but it's full of industrial markets and frankly as interest rates continue to rise as the fed continues to try to control inflation. It does and can have an impact on those industrial markets on the other hand industrial solutions if you.
Speaker 3: And frankly, as interest rates continue to rise, as the Fed continues to try to control inflation, it does and can have an impact on those industrial markets. On the other hand, Industrial Solutions, if you remember, is an international company. We ship both domestically and internationally, so some of the domestic drivers, such as interest rates and inflation, don't necessarily impact international. So I would say that would be a good estimate, Eric. Thank you.
Remember is a international company we ship.
Both domestically and internationally so some of the domestic.
Drivers such as interest rates as inflation don't necessarily impact international So I would say that would be a good a good estimate here.
Okay. Thank you.
Thank you Sir.
Speaker 1: Our next question comes from Amit Dale with H.C. Wainwright. Please proceed with your question.
Our next question comes from Amit Dayal with H C. Wainwright. Please proceed with your question.
Speaker 5: Thank you. Good morning, everyone. I appreciate taking your questions. Eric, with respect to the pipeline in the different segments, could you give us some sense of what you are working with right now?
Thank you and good morning, everyone and I appreciate taking my questions.
With respect to the pipeline in the different segments could you give us some sense of you know what you are working with right now.
Speaker 3: Pipeline. If I start with industrial solutions, you're talking about pipeline of potential orders.
Our pipeline, if I start with industrial solutions Youre talking about pipeline of potential orders.
Speaker 5: Yes, yes. You know, sales pipeline, what you have, is there any large potential, you know, I'm just trying to get, if you had this big order last year, is there something like that in this pipeline?
Yes, yes sales pipeline yeah.
Large potential you know I'm just trying to get at.
This boardwalk or lost or is there something like that in this pipeline going forward.
Speaker 5: Okay, if you're talking about wind, I wasn't sure if you so in in terms of wind Okay
Okay, if you're talking about when I wasn't sure. If you so in terms of wind or industrial or.
Our industrial okay.
As I said, when I said that.
Speaker 3: Okay, let me start with wind. Wind, it's, as I've mentioned before, notwithstanding large orders, which we had received and our competition had received, the general other OEMs continue with their routable PO to PO type of bids and orders, and those continue. So, I'd say the pipeline would be normal. There is a general.
Okay, Let me start with wind wind its as Ive mentioned before notwithstanding large orders, which we which we have received in our competition had received.
The general other Oems continue with their ratable P O to P. O type of type of bids and orders and those and those continue so I'd say the pipeline would be would be normal there is a general I'd say slowness in the market as expected. We said the 'twenty 'twenty four would be a transition year in 2025, and six and the <unk>.
Speaker 3: I'd say slowness in the market, as expected. We said that 2024 would be a transition year, and 2025 and 6 and beyond would be much stronger. So the WMAC and some of our exhibits indicate that. So that is as expected. We still believe the IRA is going to generate the long-term exuberance in the wind market as anticipated.
M would be much stronger than that so so the woodmac and some of our exhibits indicate that so that is as expected. We still believe the eye array is going to generate the long term exuberance in the wind market as anticipated.
Speaker 3: So there's your answer for that market, for your wind market. For industrial solutions, which is the natural gas turbine market, that actually looks bullish. Natural gas turbine sales across the world this year, I think, are the second highest since we did the acquisition. So we do expect good order flow from that business for the next year to 18 months.
So there's your answer for that for that market for your wind market.
Our industrial solutions, which is the natural gas turbine market that actually looks bullish natural gas turbine sales across the world. This year I think are the second highest since we did the acquisition. So we do expect a good order flow from that business for the next year to 18 months.
Speaker 3: And within gearing, as I mentioned, gearing is our most diverse business. They service industrial markets such as oil and gas, as I mentioned before, marine, steel, material handling. Those markets are subject to, I think, some interest rates, dampening of demand, but yet we do have strong
And within gearing as I mentioned, our gearing is our most diverse business.
Business, They service industrial markets, such as oil and gas as I mentioned before marine steel material handling those markets are subject to I think some interest rates dampening of demand.
But yet we do have strong order input in I'm, sorry quote input in our portfolio. So we think we're going to win so I'd I'd expect.
Speaker 3: order input in, I'm sorry, quote input in our quote funnel, so we think we're going to win. So I'd expect a softer year in 2024 than 2023, but certainly not materially down at this point.
A softer year in 2024, then 2023 but certainly not materially down at this point.
Speaker 5: Okay, all right, thank you. And then from a raw material cost perspective.
Okay, Alright, Thank you and then from a raw material cost perspective.
Hmm.
Speaker 5: What are you seeing in terms of, you know, potential increases on that front?
What are you seeing in terms of any potential increases on that front and.
Speaker 5: impact from any of those types of increases on margins going forward?
Impact from any of those types of increases on margins going forward.
Speaker 3: Well, remember, we're starting to see a bit of softening in steel, but it's still, especially for plate steel, which is used in wind turbine towers, it's still at a multi-year high, but there's a bit of a softening, call it between 5% and 10% softening, so we think that could possibly help profitability and the cost structure of wind turbine towers and wind turbines going forward. Thank you.
Oh, well remember, we're starting to see a bit of softening in steel, but it's still especially for plate steel, which is used in wind turbine towers, it's still at a multiyear high but theres a bit of a softening call. It between five and 10% softening. So we think that could possibly help.
Profitability in the cost structure of wind turbine towers in wind turbines going going forward.
Speaker 3: I think that's, as far as overall inflation, we're seeing stable pricing.
I think that's as far as overall inflation, we're seeing steps the stable pricing.
Speaker 2: As a reminder, also, in the wind market, we are pass-through with regard to our input costs, our primary input costs, so it wouldn't really impact our margins. It would impact our gross margins if steel goes up, as we've talked before, Amit. Amit, the only thing I'll add to that is, you know, where we've been, go back a couple years in 2020, you know, the price of steel plate was...
As a reminder, also wind in the wind market.
We are a pass through with regard to with regard to our input costs from our primary input cost. So it wouldn't really impact our margins it would impact our gross margins. If steel goes up as we've talked before I met him at the only thing I'll add to that is you know where we've been if you go back a couple of years in 2020, you know the price of steel.
Play it was a third maybe a half of where it is today. So it's you know we just for some perspective. We are we are still at these elevated levels of steel pricing.
Speaker 2: a third to maybe a half of where it is today. So just from some perspective, we are still at these elevated levels of steel prices.
Speaker 3: So the headwinds that I think are causing this, what I'm calling a temporary move to the right with regard to wind turbines is interest rates are definitely affecting.
So the headwinds that are there I think are causing this what I'm, calling a temporary move to the right.
With regards to wind turbines is interest rates are definitely infecting definitely affecting.
Speaker 3: financials for projects and cost inputs. Inflation, like Tom said, steal two or three times the price it was several years ago are definitely causing some of the EPCs and the developers to seek higher PPAs.
Financials for projects and and cost inputs inflation like Tom said steel two or three times. The price. It was several years ago are definitely.
Causing some.
The Pcs and the developers to seek higher ppas.
Speaker 3: purchase price agreements or power purchase agreements from utilities to be able to enable the project. So I think that is a short-term dynamic that we're all facing in the market, which is causing things to move to the right a bit.
Price agreements or power purchase agreements.
From utilities to be able to enable the project. So I think that is a short term dynamic that we're all facing in the market, which is causing things to move to the right a bit.
Speaker 5: Okay, understood. Thank you for that. And just the last one on monetizing these, you know...
Okay understood. Thank you for that.
Just the last one on monetizing these.
Manufacturing credits.
Speaker 5: I know you said this is potentially something that will come into play in 2024, but is it going to come through with maybe one, I guess, customer or party, or are you talking to multiple parties about monetizing these credits?
Well sure I mean, I know you said that this is potentially something that could come into play in 'twenty four but.
Is it going to come through maybe one.
No.
I guess customer or Bharti or are you talking to multiple parties about you know we're monetizing these credits.
Speaker 2: Yeah, uh, thanks for the question. Yeah, we've been talking to multiple parties about this and
Yeah. Thanks for the question Yeah, we we've been talking to multiple parties about this and the you know the structured changes depends on who you're talking to there's a potential for one one buyer to purchase all of them for this year and next year, there's potential for multiple buyers. So it kind of.
Speaker 2: Um, the, um, you know, the structured changes depends on who you're talking to.
Speaker 2: There's a potential for one buyer to purchase all of them for this year and next year. There's potential for multiple buyers. So it kind of just depends on the deal that's out there. But we are looking to monetize these as soon as possible, possibly 2023 if we can. We're just working towards that. Okay. Thank you.
It kind of just depends on and the deal that's out there. So but we are looking to monetize these as soon as possible, possibly 2023, if we can we're just working towards that.
Okay.
That's all I have thank you so much thank you.
Thanks, Matt.
Speaker 1: Our next question comes from Martin Malloy with Johnson Rice. Please proceed with your question.
Our next question comes from Martin Malloy with Johnson Rice. Please proceed with your question.
Oh, Yes. My first question, you mentioned, a new product offering low pressure for RMG industry could you maybe talk about.
Speaker 6: Yes, my first question, you mentioned a new product offer.
Speaker 6: R&G industry. Could you maybe talk about that product?
That product in the scope there.
Speaker 3: Yeah, we've developed proprietary products that service the natural gas virtual pipeline market.
Yeah, we we've developed a proprietary products that service the natural gas virtual pipeline market.
Speaker 3: And maybe remember from previous calls, that market, that market services.
And maybe you remember from previous calls that market that market services.
Speaker 3: It replaces hard pipelines, so it takes stranded.
Got it.
Places hard pipeline so it takes stranded.
Speaker 3: natural gas, compresses it, takes it to the point of use, whether it be a hospital, a different natural gas line if it needs to be maintained, frac site.
Natural gas compressors that takes it to the point of use whether it be a hospital a different natural gas line if it needs to be maintained a frac site.
Speaker 3: and decompresses it at the site so it can be used at a normal pressure. So we developed technology.
Decompress as at the site. So it can be used in a normal at a normal pressure. So we develop technology.
Speaker 3: to do that. So we first developed what we call the medium flow, which can handle, call it maybe two trailers at a time decompressing. A high flow, which we released earlier this year, which is up to four trailers at a time.
To do that so we first developed we call the medium flow, which can handle call. It maybe two trailers at a time decompressing of high flow, which we released earlier this year, which is up to four trailers at a time and this the slow flow, which is which is obviously a lower flow lower need lower demand and it's also the least expensive. So we think it can fit the price point.
Speaker 3: And this low flow, which is obviously a lower flow, lower need, lower demand, that's also the least expensive. So we think it can fit the price point.
Speaker 3: that some of our customers are looking for. So it completes the suite of products for this product family. We think we could serve the market very well with those three.
That our some of our customers are looking for so it completes the the the suite of products for this product family and we think we can serve the market very well with.
With those three delineation is also our N G, which is renewable natural gas that tends to be smaller in volume and so you don't need that the higher pressure management as you would on in our medium flow of our HIFU unit. That's why the renewable natural gas version is part of our low flow unit.
Speaker 3: Also, RNG, which is Renewable Natural Gas, that tends to be smaller in volume, and so you don't need the higher pressure management as you would in our medium flow or high flow unit. That's why the Renewable Natural Gas version is part of the low flow unit.
Okay.
Speaker 6: Okay, great. And just for a follow-up question, just wanted to ask about.
Great and just for a follow up question just wanted to ask about acquisition opportunities and you've talked about in the past on calls and maybe could you give us a sense of kind of the pipeline that youre seeing right now and potential acquisition opportunities to look at.
Speaker 3: Well, we're cautious. We want to make sure we do the right, we do the right acquisition, the right size acquisition, but we're looking at at companies that are in the precision manufacturing space.
Well.
We're cautious we want to make sure we do the right. We do the right acquisition the right sized acquisition, but we're looking at at companies that are in the precision manufacturing space.
Speaker 3: that either are or can certainly serve the energy transition. We're looking for additional and adjacent materials, such as composites, lighter metals, aluminum. Everything we do basically right now is carbon steel. We want to make sure we can get into more materials that service the clean energy transition, such as lighter metals.
That either are or can certainly serve the energy transition we're looking for additional an adjacent.
Materials, such as composites lighter metals aluminum everything we do but basically right now is carbon steel we want to make sure. We can we can get into.
More materials that service the clean energy transition such as lighter metals.
But I don't have any specific ones are or that I'm prepared to talk about right now.
Speaker 3: But I don't have any specific ones or that I'm prepared to talk about right now.
Understood. Thank you.
Thanks Marty.
Speaker 1: Our next question is from Justin Claire with Roth MKM. Please proceed with your question. Yeah, hi, thanks for taking our.
Our next question is from Justin Clare with Roth of MK them. Please proceed with your question.
Yeah, Hi, thanks for taking my questions.
Justin.
Hey, good morning, I wanted to ask about the.
Speaker 7: I wanted to ask about the capacity that's available at the Abilene facility here, given the change to the long-term agreements. So, it looks like you have capacity that's, at least part of your capacity is open for Q1 and Q2 of 2024. I just wanted to see, you know, do you still have time to fill that capacity at this point?
The capacity that's available at the Abilene facility here.
Given the change to the long term agreements. So it looks like you have capacity that's at least part of your capacity is open for Q1 and Q2 of 2024.
Just wanted to see you know do you still have time to fill that capacity at this point or.
Speaker 7: Or, you know, is it really Q3 and Q4 that you're going to be booking into? So trying to get a sense for what the utilization could be at that facility. And then maybe if you could just comment on the demand in that region, because it seems like it's been fairly strong recently. So maybe you can just speak to what you're seeing.
Is it is it really Q3 and Q4 that you're gonna be booking into so trying to get a sense for what the utilization could be at that facility and then maybe if you could just comment on the demand in that region because it seems like it's been a fairly.
Fairly strong recently, so maybe you can just speak to what you're saying.
Speaker 3: Yeah, I think you're right in that if we would take this.
Yeah, I think you're right if we would take this.
Speaker 3: this 20% capacity utilization and spread that relatively over the year, that would be good, I think, to model. We're still working out some specifics with our customer, but that would be good to model. As far as how quickly we could replace that capacity.
This 20% capacity utilization and spread out ratably over the year that would be that would be good I think to model, we're still working out some.
Some some specifics with our customer but that would be good to model as far as how quickly we could we could replace that capacity.
Speaker 3: I think, as we talked before, 20 weeks in the short, maybe 26 weeks in the long term as far as lead time. So I think we'd be booking into the latter part of Q2, three and four.
I think as we talked before 20.
20 weeks.
In the in the short maybe 26 weeks in the long term as far as lead times. So I think we'd be booking into the late latter part of Q2.
Three and four.
Speaker 3: But I do think we're going to see some demand in that market, especially towards the latter part of 2024, for production in 2025. And just a reminder, what I said earlier, what we've seen recently, and it's...
But I do think we're going to see some demand in that market, especially towards the latter part of 'twenty 'twenty four for.
Production in 'twenty, five and just a reminder, what I said earlier, what we're what we've seen recently and it's.
Speaker 3: It's quite public. There's been a lot of announcements from certain EPCs and certain developers.
It's quite it's quite public there's been a lot of a lot of announcements from certain epc's.
And in certain developers that because of interest rates that are much higher now and some inflationary costs that are higher and higher right now and some supply chain delays, which frankly, we haven't seen any up but they have.
Speaker 3: Because of interest rates that are much higher now and some inflationary costs that are higher right now and some supply chain delays, which frankly we haven't seen many of, but they have, it's causing them to ask for higher power purchase agreements from utilities because their projects are being squeezed from a financial return standpoint. We've also seen more interconnection delays than we thought we were going to see.
It's causing them to ask for higher power purchase agreements from utilities because their projects are being are being squeezed from financial return standpoint, we've also seen a more more interconnection delays than we than we had thought we were going to see.
Speaker 3: But you're right, that southern market, that Texas-Oklahoma market, still remains a strong market notwithstanding some of these interconnection delays and the interest and inflation aspects that I mentioned. We still believe that the long-term impact of the IRA is going to be felt.
You are right the that southern market that Texas, Oklahoma market.
Is it still remains a strong market notwithstanding some of these interconnection.
And in the interest and inflation aspects.
Aspects that I mentioned, we still believe that the long term impact of the iron ore is going to be felt.
Speaker 3: in kind of post-2024, and that's a hot market, literally, for wind, and I think it will remain that way.
And kind of post 2024, and that's a hot market literally for wind and I think it will remain that way.
In the future.
Speaker 7: Just got it. Okay, that's that's really helpful. And then it's just shifting to the mandatory facility. Can you can you comment on if you've seen any meaningful shift in demand at that facility, you know, you've been looking into 2025.
Just got it okay. That's that's really helpful. And then just shifting to the mandatory facility can you can you comment on if.
If you've seen any meaningful shift in demand at that facility you know you've been looking into 2025.
Speaker 3: You know, how are our customers? Yeah, what I what I what I've seen what I yeah, what I've seen is, as I mentioned, I thought things were going to tend to to move from this from the south to the north.
How are customers, yeah, what I, what I've seen what what I, yeah, what I've seen as I mentioned I thought things were kind of tend to to move from this from the south to the north and that tends to be typical theres, a pendulum swing that seems to go north south depending on.
Speaker 3: That tends to be typical. There's a pendulum swing that seems to go north-south depending on...
Speaker 3: uh... states appetite for supporting renewables or what not i think it is going to move north
States appetite for supporting renewables or whatnot I think it is starting to move north.
Speaker 3: We have seen several what I would call meaningful inquiries for that capacity, the northern capacity, the northern plant, Justin.
We have seen several what I would call meaningful inquiries for that capacity the northern capacity that northern plant Justin.
Speaker 3: for, I would call, late third, fourth quarter, 24. So it's coming back. Activity, quoting activity interest is increasing, but I certainly don't have any orders to report at this time.
For I would call late third fourth quarter 24, so it's coming it's coming back activity quoting activity interest is increasing.
I certainly don't have any orders to report at this time.
Speaker 7: Got it, okay. And then maybe just one more here. You mentioned in the prepared remarks, you know, AR had ticked up here in Q3. It sounds like there was a change in the terms with a particular customer. Can you talk about what the change might have been there? And then should we be anticipating AR moving lower in Q4 as you collect some of the receivables generated in Q3?
Got it okay.
And then maybe just one more here you mentioned in the prepared remarks.
Our had ticked up here in Q3 and it sounds like there was a change in the terms with a particular customer can you talk about what that was.
What the change might have been there and then.
Should we be anticipating a are moving lower in Q4 as you collect on some of the receivables generated in Q3.
Speaker 2: Yeah, you know, as I said in the prepared remarks, I think we have we have an expectation in Q4 that our operating working capital will will decrease. So I think that's that we could just leave it at that. I think that's, you know, we don't we don't think there's anything else meaningful there. Got it. Got it. Okay. All right.
Yeah, I, you know as I said.
In the prepared remarks, I think we have we have an expectation in Q4 that our operating working capital will decrease.
I think that we can just leave it at that I think that's you know.
So we don't think there's anything else meaningful there.
Got it got it okay. Thank you I'll pass it on.
Thanks, Justin Thanks, Justin.
Speaker 1: We have reached the end of the question and answer session. I would now like to turn the call back to Eric Blaschard for closing.
We have reached the end of the question and answer session I would now like to turn the call back to Eric Blackbird for closing comments.
Speaker 3: Well, thanks, everyone, for joining. We appreciate your interest and look forward to coming back to you after Q4 to talk about our Q4 results. Have a great day, everyone.
Well thanks, everyone for joining us we appreciate your interest and look forward to coming back to you. After Q4 to talk about our Q4 results have a great day everyone.
Speaker 1: This concludes today's conference. You may disconnect your lines at this time. We thank you for your...
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.