Broadwind, Inc. (BWEN) Earnings Call Transcript

Greetings, and welcome to Broadwind's Third 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 Third 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 third 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. As we noted last quarter, 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 to our call. During the third quarter, we continued to execute on our strategic transformation into a pure-play precision manufacturing business, focused on domestic power generation and critical infrastructure markets. Our Industrial Solutions segment had yet another strong quarter as orders increased 42% year-over-year to a record $19.6 million, driving backlog to a new record of $57 million. Natural gas turbine demand remained strong supported in part by broad global electrification trends, which include data centers. Gearing orders were $9.8 million and backlog grew to nearly $38 million. Demand growth within the Gearing segment has been supported by strong customer activity within upstream oil and gas. Quoting activity remains robust in this segment. Consolidated revenue increased 48% year-over-year to $22.3 million, and adjusted EBITDA improved to $0.5 million. Total orders were $33.7 million, an increase of 13%, with power generation-related orders representing more than 70% of our third quarter order book. Gearing sales increased 36%, while Industrial Solutions sales increased 32% and Gearing achieved its first operating profit since the second quarter of 2024. Tom will walk through the segment results in more detail. On October 30, we completed our first acquisition in nearly a decade with the purchase of MCM. MCM is a vertically integrated component supplier serving the domestic electrical transmission and distribution market. Based in Alabama, MCM is a precision manufacturer with a 30-year track record of designing, engineering and fabricating metal components for the electric utility and critical infrastructure markets. From its 37,000 square foot facility in Northport, near Tuscaloosa, MCM supplies mission-critical hardware to some of the nation's leading utilities with products engineered to meet stringent standards for corrosion resistance, conductivity and performance under extreme weather conditions and high-power transmission line applications. Through a vertically integrated offering that includes machining, fabrication, assembly, kitting and delivery, MCM has established itself as a leading component provider to the domestic electrical transmission and distribution sector. MCM is 100% U.S.-based and sources all raw materials through an established domestic supplier network, creating a responsive and reliable supply of products fot its customers on demand. The acquisition expands our exposure to a sustained investment in grid expansion, hardening and resilience and is consistent with our power generation and critical infrastructure vertical market strategy. MCM aligns with the key criteria of our acquisition strategy. It adds a higher-margin revenue stream, which we expect to be immediately accretive, serves stable growing end markets, has a strong competitive moat and consistent profitability, operates within a fully domestic footprint and offers a clear pathway toward integration. Our priorities are to integrate MCM successfully, protect customer service and operating continuity and begin capturing the commercial and operational benefits of the combination. During my various visits to MCM, both prior 2 and immediately after the announcement, I've had the pleasure to meet with each team member and share our core values of commitment, accountability, respect, energy and safety. The MCM team is excited to be part of Broadwind and execute our growth plan, leveraging the opportunities we see in the electrical transmission and distribution market. With that, I'll turn the call over to Tom for a discussion of our third quarter financial performance.

Thank you, Eric. Turning to Slide 5 for an overview of our third quarter performance. The third quarter was another strong period for Broadwind, with significant revenue growth, improved profitability, and continued backlog growth across both operating segments. Third quarter consolidated revenues were $22.3 million, up 48% from the prior-year period. The increase reflects strong order activity and backlog conversion across both the Gearing and Industrial Solutions segment, along with higher PRS activity. Adjusted EBITDA improved to $0.5 million compared to an adjusted EBITDA loss of $1.2 million in the prior-year third quarter. Third quarter orders were nearly $34 million, up 13% year-over-year. Order activity was led by continued strength in Industrial Solutions and increased PRS demand where we booked over $4 million in orders. Turning to Slide 6 for a discussion of our Gearing segment. Q3 Gearing orders were $9.8 million, down from the $15.9 million in the prior-year period. The year-over-year decline was attributable to the absence of a $6 million order we received last year from a leading OEM of natural gas turbines. Oil and gas orders were nearly $6 million during the quarter, more than double the prior-year level, partially offsetting the impact of that large gas turbine order. We ended Q3 with $37.8 million in backlog, marking our fifth consecutive quarter of backlog growth. Through the early part of the fourth quarter, Gearing order activity is strong, and we are currently on pace to exceed third quarter order levels. Segment revenue was $9.6 million, the increase both sequentially and versus the prior year, reflective of strong demand across all major end markets served, primarily power gen and industrial. Adjusted EBITDA was $0.7 million compared to $0.1 million in the prior-year period. As we noted previously, as our volumes continue to increase, we expect to benefit from improved capacity utilization and operating leverage supporting higher margins over time. Turning to Slide 7. Industrial Solutions booked $19.6 million in new orders during the third quarter, an increase of 42% over the prior year and 13% sequentially. Industrial Solutions maintained its solid momentum, again, achieving new records in both orders and backlog while extending its backlog growth streak to 9 consecutive quarters. Third quarter segment revenue was $10.4 million, up 32% versus the prior year period reflective of our growing backlog and strong demand for our natural gas-driven content. Third quarter adjusted EBITDA was $1.4 million versus $0.6 million recorded in the prior-year period. This improvement reflects higher capacity utilization and operating efficiencies realized during the quarter. As we discussed last quarter, we expected EBITDA margin to moderate from the high teens levels we experienced over the previous 3 quarters. Consistent with that expectation, third quarter adjusted EBITDA margin is approximately 13%. Looking forward, we believe a low double-digit EBITDA margin is a more appropriate expectation based on our current mix and operating profile. We also currently expect our revenue to remain above recent historical levels, subject to customer schedules, product mix and prevailing market conditions. Turning to Slide 8. We ended the third quarter with total cash and availability on our credit facility of nearly $40 million or $31 million after adjusting for our minimum excess availability requirement. On a pro forma basis, after giving effect to the MCM acquisition and the related credit facility amendment announced on November 2, cash and availability under our creditability was approximately $16.5 million with total debt of $13 million. We believe our pro forma liquidity position provides us the financial flexibility we need to support our growing businesses in terms of operating working capital, and any other growth capital that may be required. Furthermore, with the addition of MCM, we anticipate being able to generate free cash flow moving forward and bring net leverage below our long-term target, 2.0x, through earnings growth and debt repayment. That concludes my remarks. I'll turn the call back over to Eric to continue our discussion.

Thanks, Tom. As we look ahead, our priorities are clear: successfully integrate and grow MCM, continue optimizing our asset base around our vertical market strategy and drive focused organic growth with new and existing customers in power generation and critical infrastructure. In Industrial Solutions, we continue to see strong demand for natural gas turbine components and related products. Our customers are filling our expanded capacity with new orders as they bring additional capacity online. This activity reinforces our view that investment in reliable generation capacity represents a durable, multiyear opportunity. In Gearing, we remain focused on converting stronger demand into consistent earnings improvement through higher utilization, efficient production flow and continued expansion beyond traditional gearing toward new opportunities in precision machine components for power generation, defense, aerospace and other critical applications. As part of our strategy, our progress towards CMMC 2.0 or the Cybersecurity Maturity Model Certification Level 2 continues, and we expect to have that certification early next year. CMMC Level 2 certification represents a meaningful qualification advantage for programs involved in controlled, unclassified information and creates an additional barrier to entry for competing suppliers in the defense market. Additionally, we are seeing improved activity from our traditional oil and gas customers. The MCM acquisition extends our platform into electrical transmission and distribution and provides Broadwind with a complementary higher-margin product offering. Our integration approach will be measured and customer-focused with an emphasis on preserving the capabilities and relationships that have supported MCM's consistent performance. Our capital allocation approach remains focused on long-term shareholder value. Our priorities are to invest in profitable organic growth, integrate MCM and improve operations and reduce debt while maintaining healthy liquidity. Near term, our focus is integration and bringing that leverage below 2.0x. Over time, we will stay selective on acquisitions, looking for durable end markets, a clear competitive advantage, solid profitability, a domestic manufacturing footprint and a fair valuation. In summary, we exited the third quarter with strong organic revenue growth, improved profitability in both reporting segments, robust order momentum and a broader, more diversified platform following the MCM acquisition. We believe Broadwind is increasingly well positioned to serve the growing needs of domestic power generation and critical infrastructure customers and to build a more consistent, higher-quality earnings profile over time. With that, I'll turn the call over to the moderator for the question-and-answer session.

[Operator Instructions] Our first question comes from Eric Stine with Craig-Hallum.

So just maybe starting with Industrial Solutions, obviously, great order trajectory, backlog. But just thinking about this going forward, I know that a big part of that business tied to GE [indiscernible]. And I know you've got a bit of a lag, but given what's happened with their order book and backlog. Just curious if you could talk about capacity needs down the road? I know you've expanded in North Carolina here recently, but it would seem like you may need to do that again.

Yes. Thank you. You're correct. Primary customers certainly are growing. GE [indiscernible] even said their orders were up 178%. So we are expanding to match that capacity requirement. But keep in mind, the 30% we added this year, that's still only 1 shift. So we can move to a second shift to expand that quite a bit. And as we talked about before, if we need to, we can move our manufacturing to an adjacent site, we'd have to find that site to open up more capacity within our Sanford facility. So we feel confident that we can grow materially and keep up with our customers, at least for the next couple of years.

Okay. So not -- I mean, it sounds like fairly minimal CapEx and not really a heavy lift to do that to just stay in a good position there.

Correct. Correct. Of course, you have to find the people, which isn't always easy, but the brick-and-mortar is there, especially with this expansion to match the growth of our customers.