Q4 2023 Broadwind Inc Earnings Call

Operator: Greetings and welcome to Broadwind's fourth quarter and full year 2023 results conference. At this time, all participants are on a listen. Any questions?

Greetings and welcome to broad one's fourth quarter and full year 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.

Operator: And that's the session. We'll follow the formal. If anyone should require operator assistance during the... Please press star zero on your television.

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.

Operator: As a reminder, this conference is being recorded. Thank you. I would now like to turn the conference over to your host, Tom Ciccone, Chief Financial Officer. Thank you. Good morning, and welcome to the Broadwind Fourth Quarter 2023 Results Conference. Leading the call today is our CEO, Eric Blashford, and I'm Tom Ciccone. Thanks for watching. We'll see you next time.

I would now like to turn the conference over to your host Tom Giacomini, Chief Financial Officer. Thank you you may begin.

Good morning, and welcome to the broad one fourth quarter 2023 results conference call.

Leading the call today is our CEO, Eric Blatchford, I'm, Tom Giacomini, the company's Vice President and Chief Financial Officer.

Thomas A. Ciccone: Bye. We should have pressed a release before the market opened today, detailing our 4th quarter results. I would like to remind you that management's commentary in response to questions on today's conference call is being recorded and may include forward-looking statements, which, by their nature, are uncertain and outside of, 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, please refer to the risk factor, of our latest annual and quarterly filings with

We issued a press release before the market opened today detailing our fourth quarter 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.

Thomas A. Ciccone: Additionally, please note that you can find Reconciliation.org, historical non-GAAP financial data, discussed during our call. And at the conclusion of our prepared remarks, we will open the line for questions. With that, I'll turn the call over to you.

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.

At the conclusion of our prepared remarks, we will open the line for questions with that I'll turn the call over to Eric.

Eric B. Blashford: Thanks, Tom, and welcome to those joining us. Broadwind delivered strong four-year results, highlighted by Record Margin Realization, Net Income, and Adjusted EBIT. 2023 was a transitional period for domestic onshore wind development.

Thanks, Tom.

Welcome to those joining us today.

I'm Gonna delivered strong full year results.

Highlighted by record margin realization net income and adjusted EBITDA.

While 2023 was a transitional period for domestic onshore wind developments.

Eric B. Blashford: We continue to drive organic sales growth within our core industrials, mining, and energy markets through a combination of new contract wins, together with increased customer demand for our proprietary pressure-reducing system, or PRS technology, as we build momentum through our commercial strategy. Our team has also continued to drive improved productivity and cost efficiency throughout the organization, consistent with an ongoing focus on sustained operational excellence. We delivered a strong fourth quarter performance, as well, because our revenue, operating income, and profitability all increased meaningfully above prior year levels, driven by a combination of increased wind tower sales, together with Solid Demand across our diverse, Our plans executed well during the quarter, allowing us to deliver a strong result. We booked $20.2 million in orders in the fourth quarter as activity levels declined from near record levels in the prior year period.

We continued to drive organic sales growth within our core industrials mining and energy markets.

Through a combination of new contract wins together with increased customer demand.

Proprietary pressure, reducing system or Prs technology.

As we built momentum through our commercial strategy.

Our team has also continued to drive improved productivity and cost efficiency throughout the organization.

Consistent with an ongoing focus on sustained operational excellence.

We delivered a strong fourth quarter performance as well.

As our revenue operating income and profitability all increased meaningfully above prior year levels.

Driven by a combination of increased wind tower sales.

Together with solid demand across our diverse markets.

Our plants are executed well during the quarter, allowing us to deliver the strong results.

We booked $22 million of orders in the fourth quarter as activity levels decline from the near record levels in the prior year period.

Eric B. Blashford: However, order rates increased on a sequential basis across all three reporting periods, a trend which is continuing into this year, entering 2024. We continue to operate on point. At a commercial level, we're focused on expanding our product mix within higher-margin, adjacent markets, with the release of the Broadwind Clean Fuels L70 low-flow PRS. The third model in this product family is on track for this year.

However, order rates increased on a sequential basis across all three reporting periods, a trend which is continuing into this year.

Entering 2024.

We continue to operate on plan.

At a commercial level for <unk>.

Focus on expanding our product mix within higher margin adjacent markets.

Release of the Broadway in clean fuels L 70, low flow Prs units.

The third model and this product family is on track for this year.

Eric B. Blashford: It will include a version designed to accommodate RNG, Renewable Natural Gas, for expanding our portfolio of industrial fabrications to include new products. We have finalized our ITAR registration and are pursuing an AS9100 quality certification to open more gearing opportunities in aerospace and defense. Operationally, the lead operating principles process control and continuous improvement projects we've implemented at all locations are showing good results in asset utilization and productivity, with self-help savings totaling approximately $1.5 Our focus on team member safety, quality system, and Flexible Skills Training has allowed us to continually meet Quality and Delivery Performance at Varying Volume. From a safety perspective, recordable injuries and lost time incidents are trending favorably as we implement our safety skills program across the country.

It will include a version designed to accommodate RMG renewable natural gas.

We're expanding our portfolio of industrial fabrications to include new products.

Now finalized our ital registration and are pursuing and I S 9100 quality certification to open more gearing opportunities in aerospace and defense.

Operationally the lean operating principles process controls.

And continuous improvement projects, we've implemented at all locations are showing good results and asset utilization and productivity.

With self help savings totaling approximately $1 $5 million in 2023.

Our focus on team member safety quality systems.

Flexible skills training has allowed us to continually meet.

Holly and delivery performance at varying volumes.

From a safety perspective, our recordable injuries and lost time incidents.

Trending favorably as we implemented our safety skills program across the company.

Eric B. Blashford: In fact, we're proud to have recently celebrated 16 years at our North Carolina facility, without a lot of time in between. For the full year 2023, we generated total revenue of $203 million, with a record-setting adjusted EBITDA of $21.5 million as all divisions posted a strong performance. For the fourth quarter, we generated total revenue of $47 million, as increases in the heavy fabrications and industrial solutions segments offset a slight reduction in years We generated $4.4 million of adjusted EBITDA in the quarter, an increase of more than $4 million versus a prior year period, continuing the strong performance we've seen this year so far. Our total consolidated backlog at the end of Q4 was approximately $183 million, down from $297 million in the prior year period.

In fact, we're proud to have recently celebrated 16 years in our North Carolina facility.

Without a lost time incidents for.

For the full year 2023, we generated total revenue of $203 million with a record setting adjusted EBITDA of $21 $5 million as all divisions posted strong performances.

For the fourth quarter, we generated total revenue of $47 million as increases in the heavy fabrications and industrial solutions segments I'll split a slight reduction in gearing.

We generated $4 $4 million of adjusted EBITDA in the quarter.

An increase of more than $4 million versus the prior year period.

Continuing the strong performance we've seen.

This year so far.

Our total consolidated backlog at the end of Q4 was approximately $183 million.

From $297 million in the prior year period.

Eric B. Blashford: Quoting activity in our non-wind markets was stable in Q4, but it's been robust so far in 2024, and we expect good water flow this year, notwithstanding softness in the oil and gas gear market within our heavy fabrication segment. For revenue, $29.5 million. 24% increase year-over-year, led by increases in wind power sales, mining equipment, and our PRS system, offset by reductions in our construction and industrial market. Year-end revenue was $11 million, a 5% reduction year-over-year, due to reduced customer activity in oil and gas and mining, partially offset by strength in steel processing.

Coding activity in our non wind markets with stable in Q4, but it's been robust so far in 2024.

And we expect good order flow this year, notwithstanding softness in oil and gas market.

Within our heavy fabrication segment, Q4 revenue was $29 $5 million or 24% increase year over year.

Led by increases in wind tower sales mining equipment, now or Prs systems offset by reductions in our construction and industrial markets.

Gearing revenue was $11 million, a 5% reduction year over year.

Due to reduced customer activity in oil and gas and mining part.

Partially offset by strength in steel processing sector.

Eric B. Blashford: Industrial Solutions revenue was $6 billion, a top 29% year, led by increases in new gas turbine content, continuing the positive trend for this business, which began in 2022. In summary, I am pleased with the operating performance of all divisions through the fourth quarter, as we took quick cost actions in response to demand fluctuations in both our heavy fabrications and gearing units to deliver favorable results for the quarter and for the full year 2023. 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. We had a strong team.

Industrial solutions revenue was $6 million up 29% year over year.

Led by increases in new gas turbine content, continuing a positive trend for this business, which began in 2022.

In summary, I'm pleased with the operating performance of all divisions through the fourth quarter.

As we took quick cost actions in response to demand fluctuations in both the heavy fabrications and gearing units and liberal favorable results for the quarter and for the full year 2023.

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.

We had a strong fourth quarter, we experienced.

Thomas A. Ciccone: You will experience significant year-over-year growth in revenue, gross margin, and EBIT. In Q4, we generated $4.4 million of EBITDA compared to $0.2 million in the prior year. The Greater Than $4 Million EBITDA Increase and Improved Margin Realty, primarily due to the benefits attributable to the Advanced Manufacturing Production Tax Credits (or AMPR), earned associated with our wind tower, together with Improved Throughput and Improved Operations, generated net income of $1.1 million, or $0.05 per diluted share compared to a loss of $2.9 million, www.broadwind.com. Turning to slide six for a discussion of Fourth quarter orders of $10 million are down sharply versus the prior year; we entered into a significant supply agreement for wind towers, valued at $175 million; prior usually receive orders at more regular intervals. Fourth Quarter revenues were $29.5 billion, up 5.8 million; prior sold 132 towers for the prior year, sequentially, Tower Sections told Tower Sections that we had less activity in our manitowoc.

Significant year over year growth in revenue gross margin and EBITDA.

In Q4, we generated $4 4 million of EBITDA compared to <unk> 2 million in the prior year fourth quarter.

The greater than $4 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 have earned associated with our wind tower production together with improved throughput and improved operational execution.

We generated net income of $1 1 million or five cents per diluted share in the fourth quarter comp.

Compared to a loss of $2 9 million or <unk> 14 per diluted share in the prior year.

Turning to slide six for a discussion of our heavy fabrication segment.

Fourth quarter orders of $10 million are down sharply versus the prior year period as we entered into a significant supply agreement for wind tower purchases valued at 175 million in the prior year fourth quarter.

This is not typical for us as we usually receive orders at more regular intervals.

Fourth quarter revenues were $29 5 million up $5 8 million versus the prior year.

We sold 132 tower sections in the fourth quarter versus 96 in the prior year quarter.

Okay.

Sequentially tower sections sold decreased as we had less activity in our Manitowoc facility due to project timing and we slowed Abilene production late in Q4 response to customer demand.

Thomas A. Ciccone: Project Timing, and we slowed Abilene production late in Q4 in response to, During the fourth quarter, we recognized segment EBITDA of $3.7 million, an improvement of $3.4 million versus the prior year period, primarily driven by the increased tower and the AMP credits recognized. To be noted that while segment EBITDA was down sequentially, it included 1.1 million of charges related to discounts and administrative recorded in December associated with the sale to monetize our 2023. Thanks for tuning in. Hearing orders slowed in Q4 versus the prior year. 24 orders totaled $3.6 million and $11.5 million. The majority of the decrease was attributable to the reduction in oil and gas. Given a decline in domestic development, producers are deploying relatively less capital. Segment revenue was $11.1 million, down compared to the prior year.

During the fourth quarter, we recognized segment EBITDA of $3 7 million, an improvement of $3 4 million versus the prior year period, primarily driven by the increased tower sections sold and the AMT credits recognized in the current year period.

It should be noted that while segment EBITDA was down sequentially Q4 included $1 1 million of charges related to discounts and administrative fees recorded in December associated with the sale to monetize our 2023 AMT credits.

Turning to slide seven.

Gearing orders slowed in Q4 versus the prior year.

Q4 orders totaled $3 6 million, an $11.5 million decrease.

The majority of the decrease was attributable to the reduction in oil and gas demand.

Given a decline in domestic development activity as producers are deploying relatively less capital for drilling.

Segment revenue was $11 1 million down point 6 million compared to the prior year fourth quarter.

Thomas A. Ciccone: Would EBITDA increase $0.5 million to $1.3 million? Because of a more profitable mix of products, www. Broadwind.com compared to the prior year. Turning to slide 8 for discussion of our industrial solutions, and Industrial Solutions had another strong quarter. This represents the third consecutive quarter with a revenue total greater than..., a quarterly revenue level only achieved once before. Orders of $6.6 million were up both sequentially and versus the prior year, and our backlog of 16.1 continues to remain at an elevated level and represents the third highest quarterly total since... We continue to see strong demand for our core natural gas turbine offering. Fourth quarter segment revenues benefited from the relatively strong backlog we've been carrying throughout. EBITDA increased to $1 million prior to your with the increased revenue when compared to the prior year. Burning the slide now.

But EBITDA increased <unk> 5 million to $1 3 million due to a more profitable mix of products sold and improved operational execution when compared to the prior year period.

Turning to slide eight for a discussion of our industrial solutions segment.

Industrial solutions had another strong quarter with revenue in excess of $6 million.

This represents the third consecutive quarter with a revenue total greater than 6 million a quarterly revenue level only achieved once before 2023.

Orders of $6 6 million were up both sequentially and versus the prior year fourth quarter and our backlog of 16.1 continues to remain at an elevated level and represents the third highest quarterly total since acquisition.

We continue to see strong demand for our core natural gas turbine offerings.

Fourth quarter segment revenues benefited from the relatively strong backlog, we've been carrying throughout 2023.

EBITDA increased to $1 million from 0.7 in the prior year period, consistent with the increased revenue when compared to the prior year.

Turning to slide nine.

Thomas A. Ciccone: At the end of 2023, we had cash and availability under our credit of nearly $23 million. As expected, we were able to deliver improved working capital efficiency during the fourth quarter, working capital declining. In December 2023, we stole approximately $15 million of Amit Dayal's money.

At the end of 2023, we had cash and availability under our credit facility of nearly $23 million as expected we were able to deliver improved working capital efficiency during the fourth quarter with working capital declining $6 6 million sequentially.

In December 2023 we sold approximately $15 million of AMT credits less discounts transaction fees and related expenses in conjunction with a tax credit transfer agreement made pursuant to section forty-five backs of the internal revenue code.

Thomas A. Ciccone: Less discounts, transaction fees, and related expenses, in conjunction with a tax credit transfer, pursuant to Section 45A. We recognize $6.5 million in cash proceeds from this initial sale on December 2020, and the remaining $7 million balance was collected as part of the tax credit transfer. We have sold all of the 2023 Amtrak tickets, and we'll sell our 2024 AMP credits as they're expected to sell earned AMP credits and collect them more readily throughout, and we will see a corresponding decline in our AMP credit receivable in 2024 when compared to 2016.

We recognized $6 5 million in cash proceeds from this initial sale in December 2023, and the remaining $7 million balance was collected in February.

As part of the tax credit transfer agreement, we have sold all of the 2023 AMT credits and we'll sell our 'twenty 'twenty four amp credits as they are generated.

We expect to sell earned AMT credits and collect them more ratably throughout 2024, and as such expect to see a corresponding decline in our app credit receivable in 2024, when compared to 2023.

Finally, with respect to our financial guidance today, we are introducing financial guidance for the first quarter 2024.

Thomas A. Ciccone: Today we are introducing financial guidance for the first quarter, given current expectations and beliefs. We anticipate first quarter revenue to be in a range of $34 to $38 million, and Justin Iveda to be in a range of 1 to 2 million. That concludes my remarks. I will turn the call back over to Eric to continue our discussion. Thanks, Tom.

Given current expectations and beliefs, we anticipate first quarter revenue to be in a range of $34 million to $38 million and adjusted EBITDA to be in a range of $1 million to $2 million.

That concludes my remarks, I will turn the call back over to Eric to continue our discussion.

Thanks, Tom.

Eric B. Blashford: Now allow me to provide some thoughts entering 2020, beginning with their heavy fabrication. Domestic Onshore Wind Development Activities are expected to gradually accelerate beginning in the second half of 2021. Even so, a higher interest rate environment and raw materials in place have impacted project economics for some developers, leading them to temporarily delay or defer the timing of their investments.

Now allow me to provide some thoughts entering 2024.

Beginning with our heavy fabrication segment domestic onshore wind development activity is.

As expected to gradually accelerate beginning in the second half of 2024.

Even still a higher interest rate environment and raw materials inflation.

Have impacted project economics for some developers.

Beating them to temporarily delay or defer the timing of their investments in the interim.

Eric B. Blashford: In the interim, we've aligned our cost structure to reflect a period of lower production volumes at our power facility while repurposing available capacity toward non-wind demand across our diverse and market. We remain highly constructive on the long-term economics of wind, particularly with the decade-long tax credit visibility afforded by the IRA, of which we remain a key beneficiary. As mentioned in my earlier comments, we are expanding our position with several of our industrial fabrication customers to support multiple product lines. We requested and received our federal ITAR registration, which stands for International Traffic and Arms Regulations from the Department of State, which opens new opportunities in the defense industry.

Aligned our cost structure to reflect a period of lower production volumes at our tower facilities.

While repurposing available capacity towards non wind demand across our diverse end markets.

We remain highly constructive on the long term economics of wind.

Particularly with the decade long tax credit visibility reported by the I R E.

Of which we remain a key beneficiary.

As mentioned in my earlier comments, we are expanding our position with several of our industrial fabrications customers to support multiple product lines for them.

We requested and received a federal eye toward registration, which stands for international traffic in arms regulations from the department of state.

Which opens new opportunities in the defense industry for us.

Eric B. Blashford: In industry, we are well suited to support with the deep water port access we have at our Wisconsin facility, allowing us to deliver very large projects by barge. In our gearing segment, efforts to broaden our sales mix into less cyclical markets remain ongoing, positioning us to realize a more balanced, stable revenue profile moving forward. In Q4, we took cost action to align overhead expenses with demand and upgraded our commercial team to include stronger representation in our Central and Western regions. As a result, we've been able to respond to new market opportunities more quickly. To that end, our customer response times improved by more than 50% in the fourth quarter, and we expect an additional 25% improvement in this metric by mid-year 2024. Industrial Solutions. We are pleased to be expanding our share of the market in the gas turbine sector, notably in the aftermarket, where quick response is especially vital to our customers, as they deal with outages in the field, both planned and unplanned. We've upgraded our in-house engineering capabilities, added CNC machining capabilities, plasma cutting, and packaging automation to improve throughput and reduce cost.

As an industry, we are well suited to support with a deep water port access we have.

At our Wisconsin facility.

Allowing us to deliver very large projects by barge.

And our gearing segment efforts to broaden our sales mix into less cyclical markets remain ongoing.

<unk> adds to realize a more balanced stable revenue profile moving forward.

In Q4, we took cost actions to align overhead expenses with demand and.

<unk> upgraded our commercial team to include stronger representation.

In our central and western regions.

Following recent process improvement and Ti actions implemented in 2023.

<unk> been able to respond to new market opportunities more quickly to.

To that end, our customer response times improved by more than 50% in the fourth quarter.

And we expect an additional 25% improvement in this metric by mid year 2024.

In industrial solutions, we were pleased to be expanding our share of market in the gas turbine sector, notably.

Notably in the aftermarket where quick responses, especially vital to our customers.

As they deal with the outages in the field, both planned and unplanned.

We've upgraded our in house engineering capabilities added CNC machining capabilities plasma cutting and packaging automation to improve throughput and reduce costs.

Eric B. Blashford: We've also optimized our facility to accommodate our expected growth in wind, grid powering, and solar. In summary, I am pleased with the strong operational performance from our team this year, including the strong results we achieved in Q. We were able to effectively pivot our cost structure during a transitional period for domestic onshore wind, while continuing to retain our highly skilled workers.

Also optimize our facility to accommodate our expected growth in the wind repowering and solar markets in.

In summary.

I am pleased with the strong operational performance from our team this year.

Including the strong results we achieved in Q4.

We were able to effectively pivot our cost structure during a transitional period for domestic onshore wind demand.

While continuing to retain our highly skilled workforce.

Operator: We continue to build a firm foundation for steady, profitable growth serving the energy transition of the key markets and look forward to capitalizing on improved demand in the years ahead. 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 1 on your telephone. A confirmation tone will indicate your line is in the question... You may press star 2 if you'd like to remove your question from the... For participants, use the speaker. It may be necessary to pick up your handset before pressing the start button.

We continue to build a firm foundation for steady profitable growth.

Serving the energy transition to other key markets and look forward to capitalizing on improved demand in the years ahead.

With that said I'll turn the call back over to the moderator.

The Q&A session.

Yeah.

Thank you at this time, we'll be conducting a question and answer session.

I'd like to ask a question. Please 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'd like to remove your question from the queue for.

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.

Eric Andrew Stine: One moment, please, while we poll for questions. Our first question comes from Eric Stine with Cray, please proceed. Hi, Eric. Hi, Tom.

Alright first question comes from Eric Stine with Craig Hallum. Please proceed with your question.

Hi, Eric Hi, Tom.

Eric Hi, So maybe just could we start with the Q1 outlook and maybe just talk about some of the puts and takes you did talk about your expected utilization in.

Eric B. Blashford: Hi. So maybe we could start with the Q1 outlook and maybe just talk about some of the puts and takes. You did talk about your expected utilization in wind, so I would presume that you expect some weakness in gearing.

In wind I.

I would presume that you expect some weakness in gearing it seems as if industrial solutions is actually is trending positively. So I'm just trying to kind of match up that commentary with you know whether it's comparing it to last year's Q1 or Q4, however, you'd like to do it that'd be helpful.

Eric B. Blashford: It seems as if industrial solutions is actually trending positively. So I'm just trying to kind of match up that commentary with, you know, whether it's comparing it to last year's Q1 or Q4, however you'd like to do it, that would be helpful. Yeah, you're spot on, Eric. We ended 2022 with a pretty strong backlog in those divisions, both in industrial fabrication, product lines, and in gearing. Our bookings late in the year 2023 were soft.

Yes, you're spot on Eric we ended 2022 with a pretty strong backlog in those divisions.

Both in both in industrial fabrication product line and in gearing.

Our bookings late in the year 2023.

Were soft.

Eric B. Blashford: And so we're entering this year with a softer backlog in gearing in industrial fabrications. Now that's changing, because as I mentioned in my remarks, things are looking up sequentially and actually in this year, but that's what you're seeing in Q1, versus last year in Q1. Okay.

And so we're entering this year with us with a softer backlog in.

In gearing in industrial fabrications now that's changing because as I mentioned in my remarks things are looking up sequentially and actually in this year, but that's what you're seeing.

In Q1.

Versus last year Q1.

Eric B. Blashford: All right, that's helpful. And then, you know, so it's helpful that you gave the 25% utilization for wind in Q1. Any thoughts?

Okay.

Alright, that's helpful. And then you know you saw it was helpful that you gave them the 25% utilization for wind in Q1 any.

Any thoughts.

Eric B. Blashford: I mean, I know a lot of factors go into this, but thoughts as to what that looks like, you know, kind of trending throughout the year. And I know that a big portion of that will be, what is the timing of the kind of step back up in the big order that you and your customer jointly delayed? You know, maybe, I don't know, if that's something that you're able to do. But it's maybe what that looks like throughout the year.

I know a lot of factors go into this but thoughts as to what that looks like kind of trending throughout the year and I know that a big portion of that will be what is the timing of the kind of step back up in the in the big order that you mean.

Customer jointly delayed maybe I don't know if that's something that you're able to do but just maybe what that looks like throughout the year.

Eric B. Blashford: Yeah, well, as indicated, that's a nice routable order. That specific order is routable through 24 and 25. We certainly have capacity that we can fill, and we're actively looking to fill that with other customers. But, as a reminder, we also have capacity using those same plants to do other industrial fabrications, which is why this higher quoting activity is going to manifest itself into higher utilization for those plants. The 25% that I mentioned is just the tower capacity utilization, which is typically what you analysts are interested in. But the actual capacity utilization of those plants is a bit higher than that. Got it. And then maybe the last one for me.

Yeah, well as indicated that's a nice ratable order the remainder there.

<unk> order as ratable through 'twenty, four and 'twenty five we certainly have capacity that we can fill.

And we're actively looking to fill that with with other with other customers, but as a reminder, we also have capacity using those same plans to do other industrial fabrications, which is why this higher quoting activity is going to benefit manifest itself into higher utilization for those plants.

The 25% that I mentioned is just the tower capacity utilization, which is typical what you analysts are interested in.

The actual capacity utilization of those plants is a bit higher than that.

Got it and then maybe last one for me and just a follow up it's still so the wind I mean, 25% I would assume that that is made up of of this large contract and it's ratable.

Eric B. Blashford: And just to follow up, it's the wind, I mean, 25%. I would assume that that is made up of this large contract and its radical, radical execution. And so, you would think then that Q2, there's not a whole lot of time to add, so maybe Q2 looks similar, and then Q3 and Q4, it really comes down to the conversations you're having to fill that capacity. Do those come to fruition? Do those turn into orders? Is that a fair way to think about it?

Correct Yep radical execution and so.

You would think then that Q2 theres not a whole lot of time to to add so maybe Q2 look similar and then Q3 and Q4. It really comes down to do the conversations youre, having to fill that capacity do those come to fruition.

Turn into orders is that a fair way to think about it you are correct and that's why we said that we believe our earnings profile is going to increase.

Eric B. Blashford: You're correct, and that's why we said that we believe our earnings profile is going to increase throughout the year, so the second half will be stronger than the first half. Not because of what I mentioned about wind or what you discussed about wind, but because of the other businesses that we have that have such strong quoting. Now, what I will say is what's not included in that, because we don't guide on it, would be adapter projects, and those would be wind, but typically, what I'm talking about... Within tower capacity, that's what we're talking about with the 25%. Okay, thank you. Thanks, Eric.

Throughout the year, so second half will be will be stronger than the first half not because of what I mentioned about wind or what you discussed about win but because of the other the other businesses that we have that have such strong quoting.

Now what I will say is what's not included in that because we don't guide on it.

Would be adapt for projects and those those would be wind, but typically when I'm talking about.

Wind power capacity, that's what we're talking about with the 25%.

Got it.

Okay. Thank you.

Thanks, Eric Eric.

Sameer S. Joshi: Our next question is from Sameer Joshi with HC Wainwright. Please proceed with your question. Thanks.

Our next question is from Sameer Joshi with H C. Wainwright. Please proceed with your question.

Thanks.

Sameer S. Joshi: Thanks, Adi. Just a little bit of clarification on the second half activity that you are expecting on the wind front. Are you expecting some kind of quoting activity and receiving orders at that time, or do you see initial discussions about new towers and new wind plants? Thank you.

Thanks for taking my questions.

Just a little bit of clarification on the second half activity that you are expecting on the wind front.

Is this are you expecting some kind of quoting activity and receiving orders at that time or do you do you see our initial discussions about new dollars new win.

Our plans coming up and then subsequently you getting orders for it when you can fly and beyond.

Eric B. Blashford: Yeah, I would think the industry, in general, considers 2024 a transitional year as it heads and ramps up into 2025, 2026, and 2027. That's indicated by the graph we have in our presentation and also supported by just general industry beliefs. So your question, I would love to have orders received in 2024 that we could still produce in 2024, but I think the more likely scenario is that we're receiving orders in 2024, which we would begin to build in 2025 and beyond. With the exception, as I mentioned earlier, of adapters, which we can respond a lot faster to adapter orders because the lead time length is shorter. Thank you, or contribution to your revenues from. Yeah, well, what I can tell you is we anticipate PRS is becoming a bigger part of our overall volume mix. You know, we were just over about $10 million in 23.

Yeah, I would think.

The industry in general consider as 2020 for a transitional year as it heads and ramped up into 'twenty five six and seven and that's indicated by the graph we have on our in our in our presentation and also supported by just general industry beliefs. So your question I would love to have orders received in 2024 that we could still producing.

24.

But I think the more likely scenario is we are receiving orders in 'twenty 'twenty, four which we would begin to build in 2025 and beyond.

With the exception as I mentioned earlier.

<unk>, which we can respond a lot faster to adapt the orders because of the length of the lead time wanting to shorter.

Understood.

Switching gears.

The other is system Oh that you have can you can you give us some sort of a qualitative like.

How is it being received and what is the demand over the next couple of years for this that our contribution to your revenue from this.

Yes.

Can tell you is we we anticipate.

Prs is becoming a bigger part of our overall volume mix. We were just over about $10 million in 'twenty, three and we anticipate that being closer to 20 million for.

Thomas A. Ciccone: We anticipate that being closer to 20 million for 24. So that's what our goal for 24 is. It does provide nice, strong margins for us. And you know, it is a growing part of our business. And then the last one from me on the AMP credits that were sold: have you disclosed what kind of a discount was given and now that you are going to do it on an ongoing basis as you receive those credits? Do you expect any discounting there? Sure. Yeah, we've disclosed it, and you'll see that in the 10K that comes out later today. The direct discount that we sold it for was 6.5%.

For 24 so.

That's our goal for 'twenty four it does provide a nice strong margins for us.

It is a growing part of our business.

Understood.

And then the last one from me on the M. B credits that were sold.

Have you disclosed what kind of a discount.

Oh it was.

Was given and now that youre going to do it on an ongoing basis as you receive those credits do you expect any discounting or how.

Sure.

Accounting for that.

Sure Yeah, we've disclosed it and you'll see that in the in the 10-K that comes out later today.

The direct discount that we sold it for was six 5% when you factor in all the other administrative fees that we incurred it's a little bit it's almost 8% is what we've the overall discount factor so.

Thomas A. Ciccone: When you factor in all the other administrative fees that we incurred, it's a little bit—it's almost 8% of what we've—the overall discount factor. So we took a December Q4 charge of $1.1 million, which represents the discount on all of the 23 credits that we've earned. As part of our agreement, we've also sold all of the 24 credits, and we'll be monetizing those on a ratable basis in 24. So that discount will remain the same throughout the, you know, balance of 2024. So after 24, we do not have an agreement to sell those assets yet. So that'll be something we look into, you know, mid-year. So, the 7 million and the 6.5 million are sort of part of the same agreement. It's just that. 7 million.

We took the we took the December Q4 charge of $1 1 million, which represents a discount on all of the and all of the 23 credits that we've earned as part of our agreement. We've also sold all of the 24 credits and we will be monetizing those on a ratable basis and 24, so that that discount will re.

The same throughout.

Throughout the balance of 2024, so after 'twenty four we do not have an agreement to sell those assets yet so.

That that'll be something we look into mid year.

Understood so the $7 million and the six Columbia, all sort of part of the same agreement.

You can see $6 five last year.

7 million in February.

Thomas A. Ciccone: Yeah, that's just how the timing worked out in terms of the cash settlement. Hey Sameer, if I could go back, if I could add some color to your question about the PRS. You did, Tom talked about revenue and profitability, but you asked about acceptance. It's been very, very well accepted in the marketplace. That's why we're coming up with these multiple models to fill out the family, which supports different flow rates and different applications.

Yeah, that's just how the timing worked out in terms of the cash settlement, Yeah, Scott Hey, Samir if I if I could go back to if I could ask add some color to your question about the Prs you did Tom talked about revenue and profitability, but you asked about the acceptance has been very well very well accepted in the marketplace. That's why we're coming up with these multiple models.

As to fill up the family, which supports different flow rates in different different applications. So we're very excited about that and I think that market. We estimate that between just the prs is to be between 100 $150 million part of a larger $700 million market.

Eric B. Blashford: So we're very excited about that, and I think that market, we estimate to be between $100 and $150 million, part of a larger $700 million market in the overall compressed natural gas virtual pipeline. So we do see room to grow there, and it's been very well received so far, which is why we're expanding the line. Yeah, no, it is great to see that the industrial solution that you're offering is able to replace the existing one so, so quick.

And in the overall <unk>.

Natural gas virtual pipeline, so we do see room to grow there.

And it's been very well received so far which is why we're expanding a line.

Yeah no. It was it was great to see that our industrial solution that you're offering is able to replace existing solutions. So so quickly.

I think that just speaks to the theaters.

Sameer S. Joshi: Yes, thank you. Thanks, Sameer. Thanks, Sameer.

Technology quality of that technology.

Yes. Thank you.

That's all right.

Thanks for that experience.

Justin Lars Clare: Our next question is from Justin Clare with Roth MKM. Please proceed with your question. Yes. Hi guys.

Our next question is from Justin Clare with Roth M. Cam. Please proceed with your question.

Yeah, Hi, guys. Thanks.

Justin Lars Clare: Thanks for taking our questions here. I just wanted to start on the visibility you have into 2025, just based on the conversations you're having with wind tower customers. You know, are they planning for a significant increase in demand in 2025 relative to 2024? And are you seeing preparations for that?

Thanks for taking my questions here.

I guess first off.

So first I just wanted to start on the visibility you have into 2025, just based on the conversations you are having with wind tower customers.

Are they planning for a significant increase in demand in 2025 relative to 2024.

And are you seeing in preparations for that and whats the potential that they could look to secure capacity some potentially in the near term here.

Eric B. Blashford: And, you know, what's the potential that they could look to secure capacity, you know, some potentially in the near term here so that they're prepared for 2025? I'd say that the customers that we're speaking to are bullish. They're cautious, but they're bullish on 25 versus 24 and 6 beyond that. So I think there are active discussions. They are planning. Some of the capacity has been secured in long-term agreements like we have with our customers, but those long-term agreements can certainly be expanded and added, too. And those are the discussions that are active. Okay, I got it.

So that they're prepared for 2025.

Well I'd say I'd say that the customers that we're speaking to are are bullish they're cautious, but they're bullish on 'twenty four 'twenty five versus $24 six beyond that so I think there there are active discussions they are planning some of the capacity has been secured in long term agreements like.

Like we have.

With our customers, but others, but those those long term agreements can certainly be expanded and added to and those are the discussions that are active.

Okay got it and then you mentioned you know the some of the factors that are impacting the.

Eric B. Blashford: And you mentioned, you know, some of the factors that are impacting the demand for wind here, high rates, inflation. I'm wondering if you're seeing cancellations, or is this just delays? And then wondering what it takes for, you know, many of these projects to kind of get back on track? Are PPAs needing to be amended and renegotiated higher for the economics to make sense? And also, you know, are we waiting for treasury guidance here? Is that a key factor that is potentially holding projects back? Maybe you could share a little bit about it? Sure.

Demand for wind here high rates inflation.

Wondering if youre seeing cancellations or is it just delays and then wondering what it takes for you know many of these projects to kind of get back on track or are ppas needing to be amended and renegotiated higher for the economics to make sense and then also you know are we waiting for treasury guidance here.

A key factor that it's potentially holding projects back.

Maybe you could share a little bit about that.

Sure, we havent had when speaking with our customers. We havent, we havent heard that that final 10% that bonus you think you are talking about Justin the CRA has had any impact on the timing or at least we havent heard that if it has it's certainly hasn't risen to the the conversations we've had.

Eric B. Blashford: In speaking with our customers, we haven't heard that that final 10 percent, that bonus that you think you're talking about, Justin, with the IRA, has had any impact on the timing, or at least we haven't heard that. If it has, it certainly hasn't risen above the conversations we've had. But the customers are pretty open when it talks about inflation pressures, interest pressures, and infrastructure interconnection queues, which tend to delay projects. We haven't had any cancellations yet.

The customers are pretty open when it talks about.

Inflation pressures interest pressures in infrastructure interconnection queues.

Those tend to delay projects that we haven't had any cancellations.

Eric B. Blashford: But I know that there have been some projects, or customer projects, that have been pushed to the right because I think the customers are waiting or they're potentially evaluating one project site over a different project site because of the interconnection queue or the timing thereof. So I answered your question. I still feel that customers are bullish. We're all excited about the IRA and its impact. But again, in an inflationary environment with interest rates still high or higher than they'd be desired, I think that's causing the pause or temporary pause in some projects. Okay, okay.

But I know that there are some been some projects our customer projects have been pushed to the right because I think the customers are waiting or they're potentially evaluating one project site over a different project site because of interconnection queue or the timing thereof.

So I answer your question I still feel like customers are bullish we're all excited about the IRA the impact.

But again in an inflationary environment with interest rates still.

Hi, or higher than they'd be desired I think thats, causing a pause or a temporary pause in some projects.

Got it okay. Okay.

Eric B. Blashford: And then you did mention that the earnings profile for 2024 is expected to be more back half-weighted, and it sounds like that's actually not the wind business that's expected to pick up, but your other businesses here, so gearing, industrial fabrications. So I was wondering if you could just speak to that a little bit more, what end markets are driving the anticipated uptick in orders, and is that really across heavy fabrications, gearing, industrial solutions, and then maybe you could just speak to oil and gas. Is that part of it? Do you see the oil and gas order flow picking up? Yeah, a good question. Thank you.

And then you did mention so the earnings profile for 2024 expected to be more back half weighted and it sounds like that's actually not the wind business, that's expected to pick up but your your other businesses.

Businesses here, so gearing industrial.

Industrial fabrications. So I was wondering if you can just speak to that a little bit more what end markets are driving the anticipated uptick in orders and is that really across heavy fabrications gearing industrial solutions.

And then maybe you could just speak to oil and gas is that part of it do you see the oil and gas.

Order flow picking up here.

Yes. Good question. Thank you regarding let's start with the gearing.

Eric B. Blashford: Let's start with gearing. Steel is strong. Coal pulverizers are strong. Cement is strong.

Steel is strong.

Coal pulverized or has a strong cement is strong.

Eric B. Blashford: The industrials, the core industrials, material handling, are strong. Oil and gas is predicted to remain soft. At least through 2024, we think we're seeing some green shoots, some customer orders are coming through, and some quotes are coming through, but we're cautious on that.

The industrials that core industrials and material handling are strong oil and gas is predicted to remain soft.

At least through 2024, we think we're seeing some green shoots some customer orders are coming through and some quotes are coming through but we're cautious on that so we think the demand.

Eric B. Blashford: So we think the demand for gearing is going to come from these other markets, and we're also getting into other markets that are not gearing, that are more machining. I mentioned that this 9100... New Quality Certification we're going after, which will allow us to get into aerospace and defense. That's a market we think is untapped, certainly for us, and we think it's attractive for us because we have the capabilities. That's exciting

Gearing is going to come from these other markets and we're also getting into other markets that are not hearing that are more machining I mentioned this this 9100.

New quality certification, we're going after which will allow us to get into aerospace and defense. That's a market. We think is untapped certainly for us and we think it's attractive for us because we have the capabilities that's exciting regarding.

Eric B. Blashford: Regarding industrial fabrications, we're seeing more demand. In material handling, more customers are coming to us for increased material handling and some infrastructure bids. With regard to industrial solutions, that's power generation, that's global. We've seen, or the market has seen, more utility-scale combined-cycle plants being put up around the world, which is very good for us. So our content in that is increasing, and the market is increasing for industrial solutions. Plus... We're starting to tap into the solar market in terms of inverter skids, which we provide out of that space, and even wind repowering. We provide internals for the adapter projects that we do in that division. So a lot of our diverse markets are up, and wind is stable, which is why I said the growth that we have, Justin, is going to be in those non-wind markets. If the wind picks up sooner than we think, that would be a benefit. Okay, I got it. Thanks for the call. Thank you.

Our industrial fabrications.

We're seeing more demand.

In material handling more customers are coming to us for increased material handling.

Some infrastructure bids.

With regard to industrial solutions, that's power generation that's global.

We've seen or the market has seen more utility scale combined cycle plants be put up around the world.

Which is very good for us so our content and that is increasing and the market is increasing.

Industrial solutions plus we're.

We're starting to tap into the solar market in terms of the inverter skids, which we provide out of that out of that space and even wind repowering. We provide in terminals for the adapter projects, we do from that division. So a lot of our diverse.

The markets are up and when the wind is stable, which is why I said the growth that we have Justin is going to be in those non wind markets. If wind picks up sooner than we think that would be a benefit.

Okay got it thanks for the color.

Thank you.

Yeah.

Donovan Shaffer: Our next question comes from Donovan Shaffer with Norlin Capital Markets. Please proceed with your question. Hi guys, I have a question, kind of a follow-up to Justin's question about the oil and gas segment. I know you said you expected it to be pretty flat in 2024, and I'm curious because, kind of like, how much of that is being driven by. I know there's been a bit of a downtick in CapEx spending by upstream oil and gas drillers. At the same time, I think if I'm going off the EIA information... Read his article. So. You know, is it... Is there some sort of secular element here?

Our next question comes from Donovan Schafer with Northland Capital markets. Please proceed with your question.

Hi, guys I have a question kind of a follow up to Justin's question about the oil and gas segment. I know you said that you expected it to be.

Pretty flat in 2024.

I'm curious because kind of like how much of that is being driven by.

You know I know theres been a bit of a downtick in capex spending by the upstream oil and gas drilling.

The drillers.

At the same time, I think if I'm going off the EIA information the rig count peaked just a little over a year ago, and then kind of is trying to down.

Donovan Shaffer: I'm going to kind of separate the two things out where, is there a change in either the completion rate, and I actually don't know the answer, I haven't followed this too closely, like are they pumping less when they're doing completions in a way, or I know they've gone to longer laterals, but that, you know, that doesn't affect your gearing, and pressure pumping equipment. So has there been a change just from a design or an approach standpoint that puts less wear and tear on the gearing? So there's a couple of dynamics. You mentioned completions.

Correct, but the what the volume of production.

Kind of felt like a record high level.

Lot of correct and a lot of cases, yeah. So they talk about a lot of that is being driven by efficiency gains and so you know is there.

Right.

Is there some sort of secular element here kind of separate the two things out where.

Is there a change in either like the completion work and I actually don't know the answer I haven't followed this closely like have they are they are pumping less when they're doing completions in a way or I know they've gone to longer laterals, but that you know that.

Doesn't affect your your your gearing is in the pressure pumping equipment. So has there been a change just from a designer an approach standpoint that puts less wear and tear and lowers the demand on that Gary. So so there's a couple of dynamics. These.

Eric B. Blashford: There's this concept called ducts or drilled but uncompleted wells. Those are almost like a bank account that they're already drilled, and as they want to start pumping, the oil companies can tap into that without having to drill new wells. And we participate mostly in gearing in the new wells, so that's one dynamic. As they get more efficient and bring these uncompleted wells online, they're going to eventually need to drill more. So that's why I'm saying I think this is a temporary level. Oil and gas tends to be very cyclical. And when it's down, it's down for maybe 18 months, and then it picks back up again. With regard to the efficiency of the well and drilling, the strength that we've seen over the last couple of years is because our customers, through Bradford, have designed more powerful, stronger rigs, gearboxes, and so the horsepower of those is increasing, and the efficiency...

These you mentioned Uncomplete your completions, there's this concept called docs or drilled but uncompleted wells those looks like a bank account that then they're already drilled and as they want to start pumping.

The oil companies can tap that without having to drill drill new.

And we participate mostly in gearing in the new wells. So that's one that's one dynamic as they get more efficient and they and they bring these uncompleted wells online they're going to eventually need to drill more so that's why I'm, saying I think this is a temporary lull, but oil and gas tends to have.

Very cyclical and when it's down it's down maybe 18 months and then it picks back up again.

With regards to the efficiency the well.

Drilling the.

The strength that we've seen over the last couple of years is because our customers.

Through through <unk>.

Brad Foote have designed.

More powerful stronger.

Rigs.

Ah gearboxes and so the horsepower of those is increasing and the efficiency of those is increasing now.

As capex.

Is topped off what's happening is they will eventually start to wear off these rigs and so we'll start to see repairs increase which we are seeing so spare parts increase which we're seeing and eventually you'll have to replace will gear boxes and that's when we'll see the lion's share of the of the other revenue come back in that particular market.

So that seems like it's actually mined mistaken I thought you said gearboxes for the pressure pumping trucks do the fracking, but actually it's more on the rigs themselves is that correct.

Youre correct Youre correct in that its a fracking.

Its a fracking.

This is the fracking okay, okay right.

And then.

Another question. So you mentioned the Inverters skids, which is something that inter solar in January.

Came across companies doing so.

Some similar types of activities.

And.

It seemed like there was an uptick in that activity for domestic manufacturers.

Driven in part by.

You know the the desire to meet domestic content requirements in the U S is that something having an impact.

Shifting towards more activity there versus say before the inflation reduction act before the domestic content stuff or is that something you were doing before and its just steady. So sundar I think I think this I think what you're what you're saying is having is having a desired impact because our customers want to have.

More domestic content, whether or not they're trying to meet a certain a certain percentage I think that one company is continuity of supply chain and a person that's going to.

A supplier willing to work with them to help design and optimize their design and that's what we're offering to our customers because we're local and their local and we can collaborate on designs to make it very efficient and quick to deploy in the field.

Okay. Okay.

And then my last question. This is a this could be.

I mean, I kind of pride myself, perhaps too much and sometimes.

Sometimes asking.

Questions are trying to find things that they could be material and could be overlooked.

But you know the risk of that is sometimes it ends up being a totally irrelevant question. So.

This one is on you.

You know with the wind market.

Balsa wood is used in a lot of the wind blades.

I can't remember, which portion but.

Significant it can matter there are substitutes in alternatives. The balsa wood. So I know there are some I think petrochemical derived sort of.

Phones are compounds or something that can be used instead.

But with balsa wood, specifically, Ecuador becomes like the major chokepoint because it produces more than 90% of balsa wood globally.

So it just caught my attention when there when there is an increasing like gang violence and I think there was some prisoners tapes.

Just kind of it looks like that country has erupted into some chaos and some martial law of things and so forth. So the first question is just in general like at a very general level.

Balsa, if balsa wood prices get really high or anything does that flow through into when things eventually maybe it takes a year or two.

But does that eventually does that become a material headwind or not with one deployment so that it could be worth paying attention to.

Or if it's you know and that's yes. If it can be material. Then are you seeing anything in this specific case currently and so yeah. What it doesn't have any material then that's not material.

Yeah, well, what I would say is in the general supply chain.

Our customers are trying to make sure that they optimize their inventory.

And their cash flow and that they need that means they have to have the towers into cells.

And the blades really come to site as near one another as they can so any kind of this delay or disruption could could have could have an issue that's not something I follow because I'm not a blade guy up on the tower personal I followed steel. So I would say I would say I haven't heard that.

I know TPI sees another public company that their blade. So maybe they could shed some light on that for you, but I have not heard that although.

This is a global supply chain.

And like I said, the the turbine Oems are are trying very hard to make sure they optimize our supply chain and optimize our inventory. So this could have an impact, but it's not something that I've heard of so I can't really help you there done okay, yeah, and I'm familiar with U P. I see I know that they have there's a capability to pivot I just can't remember.

Yeah.

Medical crisis situation, there's an ability to do that I just can't remember what the timing on that if it takes a while and not something will get something that I can I can help with sure I. Appreciate the alright. Thanks, guys I'll take the rest of my questions. Thanks, Tom and thanks, Tom.

We've reached the end of the question and answer session I'd now like to turn the call back over to Eric Blatchford for closing comments.

Well thanks, everyone for listening today, we're pleased with our 2023 results and look forward to a great 2024, together and presenting our results to you in our next conference call. Thank you.

This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.