Broadwind (BWEN) reported a mix of challenges and strategic advancements in its Q2 2024 earnings call. Despite a year-over-year decline in orders totaling $18 million due to reduced demand, the company maintains robust quoting activity and is actively pursuing opportunities in higher-margin adjacent markets. Broadwind is set to release a new clean fuels product, the L70 low-flow PRS unit, in Q3 and has achieved significant cost savings aligning with current demand. The company’s EBITDA stood at $3.6 million, with net income at $0.5 million for the quarter. Looking ahead, Broadwind is optimistic about the wind sector’s prospects and its expansion into aerospace and defense, expecting seven-figure revenues by the end of 2025.
Key Takeaways
- Broadwind’s Q2 orders fell year-over-year to $18 million, but quoting activity remains high.
- The company is expanding into adjacent markets with higher margins, including the release of a new clean fuels PRS unit.
- Broadwind has achieved over $4 million in annualized cost savings and completed AS9100 quality certification for its Gearing division.
- The Heavy Fabrication segment saw mixed results, with decreased tower production but increased mining equipment sales.
- The Gearing segment experienced an uptick in wind gearing sales despite overall softness.
- Broadwind remains constructive on the long-term economics of wind and is expanding its product mix to include aerospace and defense markets.
Company Outlook
- Broadwind expects domestic onshore wind activity to pick up in the 2025-2026 period.
- The company is launching a new model of PRS and targeting less cyclical markets to diversify its sales mix.
- Good visibility on wind orders through most of 2025, with discussions on follow-on orders ongoing.
- Potential for increased order flow for wind towers at the Manitowoc facility towards the end of 2025.
Bearish Highlights
- Year-over-year decline in orders across all segments due to reduced demand.
- Decrease in tower production and PRS shipments in the Heavy Fabrication segment.
- Broad-based softness in the Gearing segment across major markets.
Bullish Highlights
- Elevated quoting activity across all segments and markets, including oil and gas.
- Increase in sales of mining equipment and wind gearing sales.
- Increase in aftermarket gas turbine content in the Industrial Solutions segment.
- Expanding product breadth within the gas turbine market.
Misses
- Despite cost-saving measures, the company still faces reduced revenue and a challenging demand environment.
Q&A Highlights
- CEO Eric Blashford discussed visibility through Q3 of 2025 and potential production ramp-up towards the end of 2025.
- Strong demand expected for the Abilene facility if projects are located nearby.
- Aerospace and defense market considered a significant opportunity, with lengthy FAA qualification processes.
- Increasing demand for virtual pipeline equipment in the natural gas systems business, with market growth projected from $500-600 million to $900 million in the next 7-8 years.
InvestingPro Insights
Broadwind (BWEN) has navigated a challenging quarter with strategic focus and an eye toward future growth opportunities. As the company looks to expand its presence in the clean energy and aerospace sectors, it’s important to consider the financial metrics and market sentiment that could influence its trajectory.
InvestingPro Tips highlight that analysts have revised their earnings upwards for the upcoming period, suggesting confidence in the company’s ability to rebound and capitalize on its strategic initiatives. Moreover, the stock’s current oversold status according to the RSI could indicate a potential for price recovery, which aligns with Broadwind’s optimistic outlook for the wind sector and its diversification efforts.
InvestingPro Data further contextualizes the company’s position with a market cap of approximately $50.94M and a relatively low P/E ratio of 5.95, which may appeal to investors seeking value opportunities. The company’s revenue has grown by 4.59% over the last twelve months as of Q1 2024, demonstrating resilience despite the broader challenges faced. However, the quarterly revenue growth has seen a decrease of 23.03% in Q1 2024, reflecting the immediate headwinds mentioned in the earnings call.
For readers interested in a deeper analysis, InvestingPro provides additional tips on Broadwind, including insights into sales projections, valuation, and profitability. With 12 more InvestingPro Tips available, investors can gain a comprehensive understanding of the company’s financial health and market position (InvestingPro BWEN).
In conclusion, while Broadwind faces short-term obstacles, the company’s strategic moves and financial metrics suggest a potential for recovery and growth in the upcoming periods. Investors may find value in the company’s low earnings multiple and strong free cash flow yield, as noted in the InvestingPro Tips, and should consider the full range of data and insights available on InvestingPro to inform their decisions.
Full transcript – Broadwind Energy Inc (NASDAQ:) Q2 2024:
Operator: Greetings, and welcome to Broadwind Second Quarter 2024 Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Mr. Tom Ciccone. Thank you. You may begin.
Thomas Ciccone: Good morning, and welcome to the Broadwind second quarter 2024 results conference call. Leading the call today is our CEO, Eric Blashford, and I’m Tom Ciccone, the Company’s Vice President and Chief Financial Officer. We issued a press release before the market opened today, detailing our second 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. 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 Blashford: Thanks, Tom, and welcome to those joining us today. Broadwind delivered a solid Q2, highlighted by double-digit EBITDA margin, consistent with prior year results despite reduced revenue. Offsetting a transitional pause in new wind tower demand, second quarter results benefited from a higher value sales mix, improved execution, and targeted cost reduction actions.
In the second quarter, we secured $18 million in orders, experiencing a decline compared to the previous year due to reduced demand across all segments. While heavy fabrication saw a decrease in orders for pressure reduction systems, there was an offset with increased orders from the wind repowering market. Gearing orders were also down year-over-year, mainly due to decreased demand from the industrial and steel sectors. Additionally, orders from the Industrial Solutions segment softened compared to the strong aftermarket orders seen in the previous year. We are expanding our product mix within higher-margin adjacent markets and are set to release the Broadwind clean fuels L70 low-flow PRS unit in Q3. Quoting activity is high across all segments, with potential opportunities in the oil and gas sector. The Gearing division has achieved AS9100 quality certification, and we continue to invest in technology to improve processes and reduce costs. Our focus on safety has led to a significant reduction in incidents, contributing to cost savings. Despite lower tower demand impacting total revenue, our non-wind activity levels remain stable with consistent order flow expected for the rest of the year. In the second quarter, we achieved EBITDA of $3.6 million and net income of $0.5 million, marking our sixth consecutive quarter of profitability. While heavy fabrication revenue was down, there was an increase in sales of mining equipment. Gearing revenue decreased due to softness in major markets, but wind gearing sales saw an uptick. Industrial Solutions revenue increased, driven by aftermarket gas turbine content. Overall, we are pleased with the operating performance of all divisions and the cost actions taken in response to demand fluctuations. In the second quarter, the segment revenue increased to $10.5 million, a sequential increase of over $2 million but a decrease of $0.5 million compared to the prior year quarter. EBITDA also increased by 14% to $1.2 million, reflecting a higher margin sales mix and targeted cost reductions compared to the prior year period. Industrial Solutions recorded orders of $4.5 million in the second quarter, down from $7.2 million in the prior year period due to a decrease in demand for core natural gas turbine offerings. Despite a 3% increase in segment revenue to $6.5 million, EBITDA decreased from $1 million to $0.8 million in the current quarter due to a less profitable mix of products sold and slightly higher operating costs compared to the prior year period. Operating working capital increased by approximately $10 million in the quarter, primarily due to a change in terms with a major customer. The company increased borrowings on its credit facility to fund the working capital increase but ended the quarter with over $18 million in cash and liquidity. The company expects operating working capital to remain stable for the rest of 2024. Looking ahead to the third quarter, the company anticipates revenue to be in the range of $36 million to $38 million and adjusted EBITDA to be in the range of $1.7 million to $2.5 million. We have seen positive results in the first half of the year due to a higher margin sales mix, particularly in aftermarket sales. However, we anticipate that margins will decrease in the second half of the year. We have good visibility on our long-term wind order through most of 2025, with discussions for follow-on orders after that. Our backlog in that segment is about $110 million, with $90 million related to that order.
We expect to see a ramp-up in order flow for wind towers towards the end of 2025, with potential interest from customers at our Manitowoc facility. Orders for capacity for 2025 are expected to start towards the end of 2024 and into the first quarter of 2025. Our wind capacity is currently 25% booked through most of 2025, leaving us with plenty of capacity to sell.
In terms of industrial solutions, we have been focusing on operational efficiencies and have seen positive results in our financials. We have a three-year plan that includes investments in technology and capabilities to grow our non-wind business. We are taking steps to capture new opportunities, but it may take some time to fully realize the benefits due to potential balance sheet constraints. Eric Blashford mentioned that part of the three-year plan includes investments in the Manitowoc facility to accommodate growth in material handling, steel, marine, and some defense potential. They have also invested in gearing with five multi-access, multitask machines to penetrate new markets beyond traditional gearing and gearboxes.
When asked about the potential revenues from the gearing segment, Eric Blashford stated that with the current infrastructure, they could reach north of $70 million within their present four walls, nearly double the current revenue.
Regarding cost savings, Thomas Ciccone mentioned that the vast majority of the $4 million in annualized cost savings have been implemented, with full benefits expected in the second half of the year.
In terms of future orders and capacity utilization, Eric Blashford discussed the possibility of a ramp-up in production towards the end of 2025 and into 2026, depending on project geographies and customer demand.
When discussing the aerospace and defense market opportunities, Eric Blashford highlighted the significant potential in the billions, with indications of interest from multiple customers. He also mentioned that while the process of earning customers in defense and aerospace markets can be lengthy, the expectations for growth in that market are high.
Lastly, when asked about the natural gas systems business within the industrial segment, Eric Blashford noted an increase in demand for virtual pipeline equipment and mentioned that they see opportunities for growth in that area. The market is estimated to be valued between $500 million and $600 million, with projections to reach around $900 million in the next seven to eight years. This market is capital-intensive, particularly geared towards natural gas providers in need of gas supply through virtual pipelines. Companies like Sunbridge and Liberty cater to customers without access to traditional pipelines, providing temporary or permanent gas supply. The market demand can be sporadic due to initial equipment buildup by operators to meet demand. As the market expands and operators secure new projects, equipment purchases fluctuate, impacting product demand. Despite softer demand in Q2, there is a promising pipeline of interest for PRS products. We anticipate a rebound in Q3 results and look forward to updating you. Thank you for your attention.