管理層發言
Greetings, and welcome to Broadwind Second Quarter 26 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press the appropriate key. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Tom Ciccone.
Thank you.
You may begin.
Good morning, and welcome to the Broadwind Second Quarter 26 Results Conference Call. Leading the call today is our CEO, Eric Blashford, and I am 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 response 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 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 historical non-GAAP financial measures discussed during our call in the press release issued today. As noted in the press release issued this morning, in conjunction with the April sale of our Avail Infrastructure Solutions facility, the results of the heavy fabrication segment excluding pressure reducing systems have been reflected as discontinued operations. Unless otherwise noted, the discussions today will relate to our continuing operations. At the conclusion of our prepared remarks, we will open the line for questions. With that, I will turn the call over to Eric.
Thanks, Tom. And welcome, everyone, to our call today. During the second quarter, we continued a successful strategic pivot toward becoming a pure-play precision manufacturing business focused on the domestic power generation and critical infrastructure markets. Customer demand was robust during the second quarter, as momentum accelerated across our key verticals. Following our strategic exit from wind tower manufacturing over the last year, Broadwind is operating from a position of increased financial flexibility and strategic focus. Given the strong foundation of our core Gearing and Industrial Solutions segments, we are building a precision manufacturing platform positioned to benefit from what we expect will become a sustained multiyear investment cycle in electricity generation, transmission, and distribution driven by accelerating load growth from AI data centers, a domestic manufacturing renaissance, a shift toward electrification, alongside the need to replace and modernize an aging grid. We believe our Gearing and Industrial Solutions businesses position us for a stronger, more stable growth trajectory than at any point in our history, characterized by attractive margin profiles, greater revenue visibility, and a potential for meaningfully improved earnings quality. Further, we believe our 100% domestic manufacturing footprint, technical expertise, and long-standing customer relationships position us well to capitalize on sustained momentum across our key vertical markets, providing customers with an integrated onshore solution for the most complex, large-scale manufacturing challenges. At a segment level, Industrial Solutions generated an EBITDA margin of nearly 19% during the quarter, reflecting strong execution and a higher-value sales mix. Within Gearing, profitability also improved due to increased sales volume, reflective of our recent elevated order levels. As customer demand has strengthened, we further optimized our asset base and human capital, a dynamic that has translated to improved operating leverage and visibility as we look forward to the second half of 2026. On a comparable basis, total backlog for our Industrial Solutions and Gearing segments increased a combined 93% as of June 30 when compared to the prior year period. We ended the second quarter with a book-to-bill of 1.5x. Our capital allocation priorities remain centered on creating long-term shareholder value through a combination of sustained organic growth together with opportunistic investments in complementary products and solutions within our targeted markets. With a strengthened balance sheet and a streamlined operating structure, we are actively evaluating opportunities that seek to scale our precision manufacturing expertise through bolt-on acquisitions that meet our strict investment criteria. We remain constructive on the opportunities we are seeing in the market and we will continue to remain patient yet opportunistic acquirers of complementary precision manufacturing assets that meet our parameters around sector focus, profitability, model durability, and valuation. Within the Gearing segment, Q2 orders increased by 138% to $16 million, increasing the backlog to nearly $38 million. Demand growth within the Gearing segment has been supported by strong customer activity in power generation, including demand associated with data center-related powering requirements as well as improving activity within upstream oil and gas. Quoting activity remains robust in this segment. Our Industrial Solutions segment had yet another strong quarter, as orders increased 24% year over year to a record $17.2 million, driving backlog to a new record of $47.4 million. Natural gas turbine demand remains strong, supported in part by data center-related power demand and broader global electrification trends. We believe these represent important growth drivers for this segment and we are positioning the business to serve that demand. Operationally, we continue to optimize our processes to increase throughput velocity and capacity. In our Gearing division, we are executing a floor space optimization initiative aimed at improving material flow and enhancing operational efficiency. As part of this effort, key machining centers are being reconfigured into cellular manufacturing layouts to streamline production processes. These improvements are expected to reduce wasted motion, increase productivity, and increase throughput in support of the continued strong demand in power generation and critical infrastructure markets. In the Industrial Solutions segment, we are already seeing the benefits of expanding our North Carolina facility footprint in Q2. Expansion of the warehouse by approximately 30% has enabled us to handle the higher sales volume in a more efficient manner due to its improved layout. This has also opened much-needed processing and packaging space to accommodate the continued growth we expect. Gearing revenue increased 24% year over year to $9 million, driven by continued growth in power generation demand. Industrial Solutions revenue rose 79% to $13.2 million, primarily reflecting higher shipments of natural gas turbine components for both new-build and aftermarket applications. In summary, the business continues to perform well as we sharpen our focus within adjacent higher-margin precision manufacturing markets. Our strategic pivot away from the wind tower business and toward markets offering more attractive growth, margin, and demand characteristics has repositioned Broadwind to pursue more consistent profitable growth and higher quality earnings. With that, I will turn the call over to Tom for a discussion of our second quarter financial performance.
Thank you, Eric. Turning to Slide 5 for an overview of our second quarter performance. We delivered another strong quarter marked by significant revenue growth, improved profitability, and continued order momentum across both operating segments. Second quarter consolidated revenues were $24.3 million, representing a 67% increase versus the prior year period. This increase is reflective of the strong order activity levels we have been recognizing in both the Gearing and Industrial Solutions segments. As noted last quarter, we expected Q1 to be the low watermark in terms of 2026 revenue within our businesses, and we saw sequential increases within both segments. Adjusted EBITDA improved from an EBITDA loss of $1.1 million in the prior year second quarter to a positive $1.6 million in the current year. Second quarter orders exceeded $35 million, increasing more than $14 million from the prior year period, driven primarily by strength in Gearing and higher PRS activity. As a reminder, PRS activity was previously reported within the heavy fabrication segment. Going forward, PRS activity will be included in the consolidated financial performance, but individually does not meet the reportable segment criteria. Turning to Slide 6 for a discussion of our Gearing segment. Q2 Gearing orders remained strong at $15.2 million, an increase of 138% versus the prior year and 22% sequentially, reflecting broad-based demand across major end markets. We ended Q2 with $37.6 million in backlog, representing a fourth consecutive quarter with an increased level of backlog. Our Q2 orders and backlog totals are approaching the strongest levels in the segment's recent history, reflecting strength within our end markets, most notably within power generation and oil and gas. Segment revenue was $9 million, an increase both sequentially and versus the prior year, reflective of strong power generation deliveries. We recognized adjusted EBITDA of $0.4 million compared to an adjusted EBITDA loss of $0.1 million in the prior year period. As we noted previously, as volumes continue to recover in this segment, we anticipate improved operating leverage and higher margins. Turning to Slide 7, Industrial Solutions booked over $17 million in new orders during the second quarter, an increase of 24% over the prior year and 18% sequentially. Industrial Solutions continued its exceptional momentum, achieving new records in both orders and backlog while extending its backlog growth streak to eight consecutive quarters. In addition, orders of $17.2 million exceeded the prior record by more than $2.5 million. Q2 segment revenue was $13.2 million, up almost 80% versus the prior year period, reflective of our elevated order levels and strong backlog. The $13 million of revenue recognized in Q2 also represents a quarterly record for the segment. Second quarter adjusted EBITDA was $2.5 million versus $0.7 million recorded in the prior year period. This improvement reflects higher capacity utilization, a favorable product mix, and cost efficiencies realized during the quarter. While we expect EBITDA margin to adjust down to more typical levels moving forward, we currently expect revenue to remain above recent historical levels subject to customer schedules, product mix, and prevailing market conditions. This expectation also reflects the recent expansion of our Sanford, North Carolina facility where we increased our manufacturing footprint by approximately 30% at the end of Q2. Turning to Slide 8, we ended the second quarter with total cash and availability on our credit facility of more than $40 million, or $31.3 million after adjusting for the minimum excess availability requirement in place effective Q1. This strong liquidity position, together with our significantly reduced debt levels, gives us substantial financial flexibility as we enter the second half of 2026. In terms of working capital, we have seen a modest increase in working capital within our continuing operations in Q2 as those businesses continue to ramp up. However, that increase is more than offset by a reduction in inventory associated with the Abilene Tower operations, which declined by more than $6 million during the quarter. That concludes my remarks. I will turn the call back over to Eric to continue our discussion.
Thanks, Tom. Now allow me to provide some thoughts as we move into Q3 and beyond. We continue to make a decisive shift toward power generation and critical infrastructure markets that we believe offer attractive long-term growth characteristics. The strategic moves we have made to divest our two tower manufacturing facilities position us to focus on higher growth and higher margin opportunities to leverage our precision manufacturing expertise supported by a strengthened balance sheet. Once we complete our remaining wind tower orders in Q3, satisfying our contractual obligations, Broadwind will have completed our strategic pivot away from wind, positioning us to fully advance our power generation and critical manufacturing vertical market strategy. Our remaining facilities in Chicago, Pittsburgh, and Sanford, North Carolina, near Raleigh, have more than 450,000 square feet of manufacturing space available to serve our customers. Quarter upon quarter strong order growth within the Gearing and Industrial Solutions segments from power generation, specifically with distributed power, as well as growing opportunities in both small-frame and utility-scale natural gas turbines, support our strategy to expand in this market. Quoting activity continues to increase in both Gearing and Industrial Solutions, generated by our ability to solve the complex precision manufacturing and sourcing challenges faced by customers in this growing market. To that end, we have added engineering and manufacturing resources to meet this demand in both divisions. In our Gearing segment, we continue to execute our strategy to move beyond traditional gearing toward new opportunities in other precision machine products for power generation, aerospace, and defense. We believe that the continuing strength in incoming orders from the power generation sector may reflect the early stages of a sustained multiyear investment cycle, and we are positioning the business to participate in that opportunity. Lastly, we also see improving order activity in traditional gearing markets supporting upstream oil and gas, specifically within the fracking aftermarket as certain customers evaluate or begin returning older rigs to service in response to a strengthening commodity price environment. Industrial Solutions' commercial performance continues to set records in both orders and backlog. The robust demand that began in early 25 has continued for six quarters so far and continues to show strength. As the global demand for natural gas power generation equipment remains robust, and our customers bring additional production capacity online, we believe this is an extended period of growth. In summary, I am pleased with the order growth and the strategic actions we have taken over the last year, and I am excited to execute our plan. Within our core divisions, we have created a firm foundation for growth. This, combined with our strengthened balance sheet, positions us to execute our strategy both organically and through acquisitions. We have been working with several advisers to secure a pipeline of opportunities to consider and are being very selective and disciplined in our search and evaluation. Our divisions are well positioned to support the nation's growing need for power generation and infrastructure improvement, which we see as long-term opportunities for us. Our commitment to quality, technical expertise, and the ability to solve complex manufacturing challenges for our customers continue to help us win new opportunities. We have strategically pivoted our business, are investing wisely, and are taking decisive actions toward higher-value and growing end markets. We are pleased that our order intake continues to expand, positioning us for improved utilization of a reduced manufacturing footprint in 2026. As we strengthen our foundation for steady, profitable growth, we will serve the power generation, critical infrastructure, and other key markets with high-quality precision components and proprietary products to capitalize on the improved demand in years ahead. With that, I will turn the call over to the moderator for the Q&A session.
分析師問答
Thank you. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset when pressing the star keys. One moment please while we poll for questions. Our first question comes from Stefan Thomason with ROTH. Your line is now live.
Hi. This is Stefan Thomason on for Justin Clare. You had another quarter of strong orders and started to improve visibility in the balance of 26, but did not reinstate guidance. What else needs to happen here to give you enough confidence to reinstate it? Thank you.
I'll take that. At this time, given the ongoing wind-down of our operations in Abilene, we did not think it was prudent to reinstate guidance. We want that wind-down to be complete, which is happening here in Q3 as scheduled. That would be the first domino to fall before we would put guidance back out there.
Okay. Good to know. And then my next question would be on Gearing. What drove the strong Gearing orders? Was there any outsized notable order, or is this a good indication of future demand?
I would say this is a good indication of future demand. We have a thunderstorm warning and a siren in the background, but we are fine. The demand was across all of our normal verticals, including oil and gas. As I mentioned in my prepared remarks, rig counts are starting to go up a bit; they are up about 9%. We think that is primarily due to customers returning older sidelined rigs to service, so we are seeing some aftermarket demand from that. In general, this is indicative of future demand. Thanks; I'll hop back in the queue.
Thank you. Our next question comes from Eric Stine with Craig Hallum. Your line is now live.
Hi, good morning. You are almost done with the remnants of wind, I know it's another quarter. Just curious, you are being thoughtful in terms of potential additions to the platform. Any thoughts you can share on areas or capabilities that you might be looking at? Any details would be very helpful.
Thanks, Eric. We are focused on opportunities that expand our precision manufacturing capabilities. We are looking into power generation, critical infrastructure, grid hardening, and possibly defense and aerospace. Attractive targets would be complementary in terms of customers, capabilities, or capacity. We are not going to recreate the wheel; we see our Gearing and Industrial Solutions businesses as core, and we want to add to those businesses and serve those customers. That is where we are hunting now.
Okay. Not too far afield from what you have in place now, it sounds like. Regarding Industrial Solutions, good that you have completed the 30% expansion. Could you talk about your potential to expand longer term? I think you typically lag your largest customer by five to six quarters, and that customer in the last quarter or two has seen a massive upstep in orders and their messages to backlog. Could you talk about potential to expand more beyond the 30%?
That customer is GE Vernova; it's common knowledge they are expecting growth of 18% to 20% given their guidance, and we think we can keep up with that. When we move into the expanded part of our facility, it opens up packaging and picking space, and it allows us to expand our manufacturing footprint in the original space. As we look to M&A, especially if we can find targets closer to Sanford-Raleigh, we would add local manufacturing footprint so we can continue to grow locally. The 130,000-square-foot facility can be used both for manufacturing and packing and shipping. I have mentioned before a $75-ish million run rate as a potential level we could reach. Beyond that, M&A in that specific part of our business could add manufacturing space allowing further growth.
Got it. And maybe one last quick question: the growth opportunity is well known and tied to GE Vernova, which is a good thing. Any limiting factors or potential to add additional OEMs to that list?
We are actually working with all five of the top players in natural gas turbines. They have somewhat different supply chain solutions required, so it's not exactly a match to what we primarily do for GE Vernova. But we are looking at other customers in both Gearing and Industrial Solutions in the power generation space to grow, so we are not solely concentrated on one customer.
Thank you. Our next question comes from Sameer Joshi with H.C. Wainwright.
Hey, good morning, Tom and Eric. Thanks for taking my questions. In your backlog that you already have in the bag, is there any component of revenues that are expected from the data center market? And a corollary to that: in your pipeline, are you seeing any slowdown because of the various state and regional bans on data centers coming up?
We service both oil and gas and power generation in both divisions. It is hard to divide power generation into what is just general demand growth and what is specific from AI, but I do know that both our primary customers in that space tout AI as a primary demand driver, especially in the U.S. We think about 30% to 40% of our revenue in Gearing is in power generation, and a higher percentage of Industrial Solutions is in power generation. I do not have a specific breakdown of how much of that is driven specifically by AI, but I know it is significant.
Yeah. Just wanted to see that. And then, will you remind us in both Gearing as well as Industrial Solutions, what is the conversion cycle from adding to backlog to actually realizing those revenues in terms of months or years? Is there any average for those two?
Typically, we have said publicly that the conversion rate for a typical Gearing order is about six months. Given current demand in power generation, some of those customers have asked us to plan production beyond 2026, so it can be beyond that six-month normal cycle. For oil and gas, mining, or material handling customers, six months is normally a good benchmark for conversion of backlog into revenue. With Industrial Solutions, it depends on the need. If it is a new install, it can be up to 18 months or even further out. If it is aftermarket, we can turn backlog in well under three months if required. So a six-month to one-year range is a good benchmark overall.
I would also say that with the improved visibility that some of our customers have, we are seeing backlog well into the out years. We are seeing significant backlog in 2028 already, which helps with visibility on when we are going to convert that backlog into revenue.
Yeah. It's good to see that. The six-month conversion cycle for Gearing is typical, but you already have advanced orders and visibility into 2027 and 2028, so that's positive.
Yes.
Just switching quickly to the cost side: in the prepared remarks you mentioned expecting to increase engineering and manufacturing resources. How should we think about operating costs going up, and how might that impact gross margins in the near term?
I would say those increases will be ratable going forward. I would not expect degradation in gross margins due to those increases. Think in terms of quality engineers, general engineers, and production people just to keep volume moving in the direction we are going.
It is not going to be a lag on gross profit percentage.
That particular example will not be a drag on margin. You may see some degradation due to mix change, especially within our business unit, but any other cost increases would be in response to higher volume.
Yeah. And I guess that also speaks to the leverage you may have as you add these resources and revenues grow. Thanks for taking my questions, and stay safe.
Thank you. We are in Chicago here, so if any of our investors in Chicago are listening, you might need to take shelter as well. Next question, please, if we have one.
We have reached the end of the question-and-answer session.
I would now like to turn the call back over for closing comments. Thanks for listening in, everyone. We are excited about our opportunities, we are pleased with the strategic pivot, and we look forward to coming to you after Q3 to tell you about our results then. Thank you very much, everyone.
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.