Broadwind, Inc. (BWEN) Earnings Call Transcript

Greetings, and welcome to Broadwind's Second Quarter 2026 Results Conference Call. [Operator Instructions] 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 2026 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 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 Abilene facility, the results of the Heavy Fabrications 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'll open the line for questions. With that, I'll 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 stronger, more stable growth trajectory than at any point in our history, characterized by attractive margin profiles, greater revenue visibility and the 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 their most complex, large-scale manufacturing challenges. At a segment level, Industrial Solutions generated 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's 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're seeing in the market, and we'll 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 and 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. 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. The expansion of the warehouse by 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'll 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've been recognizing in both the Gearing and Industrial Solutions segment. 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, the 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 $16.2 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 8 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've 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 operation, which declined by more than $6 million during the quarter. That concludes my remarks. I'll 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've made to divest of our 2 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 gen 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. Quote 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 for new opportunities in other precision machine products for power generation, aerospace and defense. We believe that the continuing strength in incoming orders from 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 strengthening commodity price environment. In Industrial Solutions, our commercial performance continues to set records in both orders and backlog. The robust demand that began in early 2025 has continued for 6 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've taken over the last year, and I'm 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've strategically pivoted our business, are investing wisely and are taking decisive actions toward higher value and growing end markets. We're pleased that our order intake continues to expand, positioning us for improved utilization of a reduced -- of our reduced manufacturing footprint in 2026 as we strengthen our foundation for steady, profitable growth serving 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'll turn the call over to the moderator for the Q&A session.

[Operator Instructions] Our first question comes from Stefan Thomson with ROTH.

This is Stefan Thomson 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 has to happen here to give you guys enough confidence to re-guide?

Yes, I'll take that. Just at this time, given the ongoing wind down of our operations in Abilene, we just didn't think it was prudent for that to happen. So we definitely want that wind down of the operations to be complete, which is happening here in Q3 as scheduled. So that would be the first kind of domino to fall before we would be putting back guidance out there.

Okay. Good to know. And then my next question would be on Gearing. So what drove the strong Gearing orders? Was there any outsized notable orders? Or is this a good indication of future demand?

Yes, I would say this is a good indication of future demand. And guys, sorry, we got a thunderstorm warning behind us. If you hear the siren, that's what it is, but we're fine. So yes, it was -- the demand was across all of our normal verticals. Oil and gas, I mentioned in my prepared remarks, rig counts are starting to go up a bit. They're up about 9%, but we think that's primarily due to customers putting older rigs that have been sidelined back in action. So we're seeing some are demand from that. But I think in general, Stefan, it would be indicative of future demand.

Our next question comes from Eric Stine with Craig-Hallum.

So I mean, you're almost done with the remnants of wind. I know it's another quarter. So just curious, I mean, it sounds like you're certainly being thoughtful in terms of potential additions to the platform. But any thoughts you can share on areas, capabilities that you might be looking at? Any details would be very helpful.

Yes. We're really -- thanks, Eric. This is Eric. We're focused on opportunities that expand our precision manufacturing capabilities. We're looking at the power gen, critical infrastructure, grid hardening, maybe even defense and aerospace, but attractive targets would be complementary in terms of customers, capabilities or capacity. We're not going to recreate the wheel. We see our Gearing business and our Industrial Solutions business as core, and so we want to add to those businesses and serve those customers. That's what we're hunting now, Eric.

Okay. Not too far afield from what you've got in place now, it sounds like?

Yes. We see power gen and critical infrastructure and grid as really long-term plays. I mean, it's a 10- or 15-year demand cycle here. So I think investing in those markets would prove well from an acquisition standpoint for us.

Got it. Okay. And then maybe just turning to Industrial Solutions, good that you've completed the 30% expansion. But I mean, if you could talk about your potential to do that longer term, and I guess the reason for that question is, correct me if I'm wrong, but I think you lag your largest customer by 5 to 6 quarters. And that customer, in the last quarter or 2, have seen a massive upstep in orders and their natural gas turbine backlog. So just thoughts about your potential to expand more beyond the 30%.

Yes, that customer, again, that's GE Vernova. It's common knowledge that they are a primary customer in that segment. They're expecting growth of 18% to 20% given their guidance, and we think we can keep up with that. As I mentioned before, when we move into this new part of our facility, it opens up for packaging -- picking and packaging space there, but it also -- what it also does is allows us to expand our manufacturing footprint in the original space. As we look to M&A, especially if we can find it more local, we will look to add manufacturing footprint there so we can continue to grow local to the Sanford, Raleigh area. So our manufacturing can be local, and then we can use that 130,000-square-foot facility, which is now both manufacturing and picking and packing and shipping to be final picking and packing and shipping. So I think we can grow substantially in that facility, I mentioned before, to a $75-ish million rate. But beyond that, this M&A we're looking at in that specific part of our business could add manufacturing space, allowing further growth.