Good morning, and welcome to the Broadwind Energy Q1 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Jason Bonfigt, Vice President and CFO. Please go ahead.

Thank you. Good morning, and welcome to Broadwind Energy's first quarter 2019 earnings conference call. With me today are Broadwind President and CEO, Stephanie Kushner; Broadwind COO and President of Broadwind Towers, Eric Blashford. This morning's earnings news release is available on our website at bwen.com. Before we begin today, I would like to caution you that this call will include some forward-looking statements regarding our plans and market outlook and also will reference some non-GAAP financial measures. Actual results may differ materially from these forward-looking statements. Please refer to our SEC filings and consider the incorporated risks and uncertainties disclosed there, including our Form 10-Q and our Form 8-K in the attachments we filed with the SEC this morning. We assume no obligation to update any forward-looking statements or information. Having said that, I'll turn the call over to Stephanie Kushner.

Good morning. We made solid progress during Q1. We recorded revenue of $41.7 million, up 39% from the prior year and 54% sequentially. All segments where higher than the prior year quarter. I'm particularly proud of our Gearing team. They delivered an outstanding quarter with $10 million of revenue from a diverse range of customers and industries, $1.4 million of operating income and a nearly 20% EBITDA margin. The team has really gelled during the past year and despite a complex product mix is delivering consistent production, strong productivity, low waste and strong financial result. Broadwind's adjusted EBITDA was $1.7 million, a sharp improvement from the prior year, when our tower plants were restarting and Gearing was struggling with supply chain challenges. On the tower front, our plants produced at just under 50% of capacity rising as the quarter progressed. Our order book has strengthened, despite the steel tariff headwinds, although high steel prices continue to depress our margin. On a positive note earlier this month, the International Trade Commission extended until the year 2023 the antidumping duties that apply to towers from China and Vietnam, which is helpful for our industry. We are reaffirming our full year outlook for revenue at or above $160 million and EBITDA of $8 million. We booked 24 million of orders in the quarter. For Towers and Heavy Fabrications orders of $12.5 million were up from a year ago but still below shipments. These orders are lumpy as you know and Q2 will be materially higher including the $19.5 million order we announced earlier this week. For Gearing, the first quarter of last year was unusual as oil and gas fracking customers were rushing to secure capacity. So $11 million was booked for that industrial alone contrast that with this year when only $3…

Thank you, Stephanie. Moving onto our Towers and Heavy Fabrications segments. Tower orders are strengthening as OEMs are filling projects to meet the rise and scheduled turbine installations. Quoting activity is also increasing with strong interest at both plants. Our heavy fabrication line, which operates in mining, construction and other industrial markets continues to see increased demand. We are making capital investments to support this growth and diversification, while providing a more complete solution for our customers. We sold 188 tower sections during the quarter, 31% more than the 143 we sold in Q1 2018 and nearly three times our volume in Q4 2018. This volatility of production is evident on the graph at the lower-left hand of the slide. We are pleased with our ability to quickly scale our operations to meet this increase in demand all while maintaining our safety, quality, productivity and delivery at or above expected levels. This reinforces our decision late last year to maintain the critical core of highly skilled team members we needed to successfully execute our ramp-up plan. As a result, Q1 sales were $28.3 million versus $18.2 million in Q1 2018 generating $1.1 million of EBITDA versus a $500,000 loss in the first quarter of 2018. As previously reported, the pricing pressure resulting from competitive PPAs and tariff-driven steel cost increases and other components remains, while we have been able to pass much of these cost increases onto our customers, the overall impact on our margins is negative. A threat offshore competition continues and more than 25% of the 2018 U.S. tower installs came from offshore producers where the cost of steel is much lower. We have key resources focused on process improvements in welding, assembly, coatings, quality and delivery. We are using best practices such as video process mapping, Kaizen…

Thank you Eric. Q1 consolidated sales were up $11.7 million year-over-year, as each of our businesses made meaningful progress. Towers and fabrication sales represented a majority of the improvement, up $10 million year-over-year, driven by a $5 million increase related to tower sections sold, $4.5 million related to steel price escalation, and a residual balance tied to increased fabrication sales. Our Gearing business has made significant traction including its operational performance, which led to higher throughput during the quarter. And the products mix sold during the quarter was well diversified across customers and end markets. Our Process Systems order book is improving and we are beginning to see top line growth. Gross profit margins improved to 8.5% in Q1, a significant improvement year-over-year. Approximately half of the improvement was volume related and the remaining increase was driven by notable improvements in operational performance and lower manufacturing variances year-over-year. In Towers and Fabrications, we managed through the challenge of ramping up our plants more effectively. In the prior year, we had learning curve costs associated with several fabrication orders. And as you may recall, we completed a multi-year 50% reduction of our manufacturing footprint last year, following the exit of a leased property in Abilene, Texas. The consolidation of the product lines into our Abilene tower facility has been successful and we are seeing improved performance. In 2018, Gearing was restarting the supply chain, which introduced complexity into the business, and raw material flow was inconsistent. We have resolved the supply chain issues experienced in the prior year, and our organizational structure change to form a custom gearbox division is beginning to drive improved operating performance. And the Gearing team's focus on continuous improvement efforts, reducing scrap, managing machine uptime and productivity has expanded our margins. Operating expenses were $4 million…

Thank you. We will now begin the question and answer session. [Operator Instructions] The first question comes from Justin Clare with Roth Capital Partners. Please go ahead.

Hi, everyone. Thanks for taking my questions.

Hi, Justin.

Hi. So first off, yesterday Siemens Gamesa announced a 241-megawatt project in Texas and then another 246-megawatt project in New Mexico. It looks like with your Abilene facility, you should be very well positioned to potentially win the orders for the towers for those projects. So I was just wondering, if you could speak to the potential for you to win those orders. And just generally, how much visibility is Siemens Gamesa giving you into order flow right now?

Justin, thanks for the question. We work with Siemens Gamesa on a monthly basis to work through what they think their order lines is going to be and the demand from us is going to be. We're happy to do that with them. We are aware of these two projects. We know they're active with them and we're certainly in the running to win those projects from them.

Okay, great. Have you already produced the specific models that they highlighted for those projects in your Abilene facility? Or would you need to do a prototype to -- before winning an order?

The models are constantly being kind of tweaked and adjusted, so we're not always aware. We don't usually -- we often don't have a stable design until three months before the actual production starts up. One of the things that's been a real accomplishment for towers is that, we've gotten very accustomed to switching designs on a very regular basis and producing multiple designs through the plant at any point in time so the prototyping in process has become much more, I guess, I would say, perfunctory.

Okay, okay. Good. And then can you just talk a bit more about, how discussions are progressing with other tower customers? Is there a potential for an additional customer this year? How likely is that?

Yeah. Justin what I will tell you is they are very active. They are robust. We are in discussions with multiple OEMs in addition to the one you mentioned earlier for both our Abilene and Manitoba projects, our plants, projects near those plants. I feel that we've got a real shot at winning those orders depending on if the customer wins them and where the project ends up being, Justin. So, yeah, we are definitely in deep conversations with multiple OEMs. I do feel like we're going to be getting diverse orders this year.

Okay, great. And then turning to your Gearing segment, it sounds like there could be a pickup in equipment ordering for the oil and gas segment in the second half. Given that potential, could we see the Gearing revenue move up beyond like a $10 million run rate at that point in time?

Yes. However, the lead time for Gearing tends to be about eight weeks or so, so there will be a little bit of a lag. But yeah we don't want to stop at kind of a $10 million quarterly run rate. This is a business that we think over time, we should be able to continue to grow to be a $50 million, $60 million business.

Okay. And then -- so in the Gearing segment, your EBITDA margins improved to -- close to 20%. And it looks like in Q2 you're expecting around 14%. How should we think about the EBITDA margin for Gearing moving forward? Like if you achieve $10 million in revenue, can you achieve a 20% EBITDA margin? And could it move higher from there with higher levels of revenue?

So we think a 20% EBITDA margin is probably top quartile performance from a competitive perspective, so we think that's a good margin for this business. The mix shifts a lot quarter-to-quarter, so I think we're being a little more cautious about Q2 just because of the mix of some of the production that we're doing in the quarter. But certainly we would expect that number to bounce around as the year progresses.

Okay. That does it for me. I will pass it on.

Thank you, Justin.

Thanks, Justin.

[Operator Instructions] Our next question comes from Angie Storozynski from Macquarie. Please go ahead.

Thank you. So I have a -- first question, somewhat random. Given the -- some acceleration in contracts for offshore wind in New England, is there any chance that you guys would play any role in that seemingly new sector of the U.S.?

Yes, Angie. We attended an offshore conference recently but certainly participating in discussions and the information gathering. Several OEM customers that are participating or want to participate in that market have been discussing our ability, our capability to produce such large wind towers in our plants especially our Manitowoc plant, which is on the water. We do know that some individual states have local content requirements, which is a challenge for anyone who's considering producing these wind turbine towers. But we also know that there are some manufacturers on the coast of Europe that actually are quite proficient in producing these offshore towers. But the answer is yes. We are in communications; I would say capacity and capability communications with several OEMs that are interested in our Manitowoc facility for producing these.

Okay. Because that could be a game changer for you guys right given that this could be a really big industry. Okay. Now maybe I missed it. But do you guys provide any update about the Red Wolf business, how that one is progressing?

So that's Process Systems. And we've seen some stabilizing I guess, I would say. As you know we're concentrated with one large customer there. We've seen some stabilization in the demand for gas turbine components as well as the aftermarket. Our focus continues to be, however, on diversifying that business. And that's really where we're putting a lot of our energy.

Awesome. And then lastly, so you mentioned that you are looking at global procurement of steel. So how does that work given the steel tariffs? I mean, just give us a bit more of a sense where you would be procuring this deal from.

So Angie this is Eric. Thanks for the question. We are -- whenever we have steel projects, we first actively quote with four or five major mills in the United States to get competitive quotes from them, because obviously their -- the lead times would be the lowest from a U.S. mill. But concurrently we have used some steel from as an example the Far East from countries that wouldn't be maybe not subject to tariffs, but quotas. And so what we're doing is we're engaged in conversations quoting activities with these global mills to see if in fact they can supply with the quality steel we need at a competitive price even with tariffs considered. And also in the event that tariffs might be lifted we want to have the relationships there. Great to leverage that supply chain.

Okay. And lastly so you mentioned that there could be some pickup in orders -- gearing orders from the oil and gas sector in the second half. But why is that? I mean, I'm mostly asking is this just in response to higher oil prices. Is it -- because I always felt that there's some sort of financial that sits in that investors are trying to exert on all of the producers. And as a result, there should be less than -- rather than more drilling.

There's really two factors and probably the biggest one is the Permian which is where the most fracking activity has taken place. There's a bottleneck-ish -- a shortage of pipeline capacity. And a lot -- and so -- and I know you're not normally in the space a lot. Oil and gas equipment manufacturers have seen a pause and we've been the same. But that pipeline capacity is coming on beginning in the middle of this year so that is going to break loose. And then on top of that, of course, the oil price has gone up very significantly over the last couple of months. So that's also boosting that demand.

Okay. And then just going back to the onshore wind development. So to your point that there could be some meaningful slowdown in new wind onshore weather installations beyond 2021. So are you seeing that the discussions that would suggest to you that you'll have some meaningful spike in those tower orders between now and say -- I don't know maybe 2021 as the demand is being brought forward? Or is that being suppressed by again those towers coming from offshore producers?

Well, certainly, the offshore producers that is a risk and that's a continuing risk. But even in spite of that we are experiencing an increase in quoting activity with interest from both plants in 2019 and what I would say through 2020. We haven't had a lot of inquiries after 2020, but there's discussions that -- this pause or this PTC generated pause will occur after the year 2020.

Okay. So when you say, discussions through 2020 meaning that's sort of towers to be delivered before the end of 2020?

Yes. Exact, yes. Because the OEMs what would need to optimize the PTC value -- a lot of those OEMs would need to have their projects completed by the end of 2020.

Yeah. I was just trying to get a sense of how much of a lead time you have and how much time does an OEM actually need between when the tower is delivered and when the project actually hits a COD. Is it like three months?

Yeah. It tends to be several months, Angie, yes.

Okay.

It could be depending on crane availability or transportation. That's why we expect strong orders through much of 2020 to satisfy this demand.

Very good. Thank you.

Thanks.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Stephanie Kushner for any closing remarks.

Thanks. Thanks for listening to the call. We're working hard to continue to improve our operational and our commercial success and we look forward to updating you again next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Thank you.