Good day, ladies and gentlemen, and welcome to the First Quarter 2013 Broadwind Energy, Inc. Earnings Conference Call. My name is Shaquana, and I will be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Ms. Joni Konstantelos, Director of Investor Relations. Please proceed.

Thank you. Good morning, and welcome to Broadwind Energy's First Quarter 2013 Earnings Conference Call. With me today are Broadwind's President and CEO, Peter Duprey; and Broadwind's Executive Vice President and CFO, Stephanie Kushner. This morning's earnings news release is available on our website at bwen.com. Second slide, please. 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 8-K and the attached news release filed with the SEC this morning, and our Form 10-Q, which will be filed later today. We assume no obligation to update any forward-looking statements or information. Having said that, I will turn the call over to our President and CEO, Pete Duprey.

Thanks, Joni, and thanks, everyone, for joining the call. Let's start out on Slide 3. This morning, we released our first quarter results. We had a solid first quarter, and we're positioned well to meet our goals for 2013. Our Tower orders were the highest we've seen since 2009. And these orders are coming from the more targeted set of customers. The revenue for the quarter was lower than last year, in part due to a small labor-only contract in our Abilene facility. On an activity-based measure, we produced 51 fewer tower sections than last year, which was quite remarkable given that we reduced production significantly at our Manitowoc facility at the end of the year due to the PTC exploration. In January, we were able to scale up quickly in response to the flurry of orders that begin coming in once the PTC was renewed. Towers and Services each showed approximately $1 million of adjusted EBITDA improvement over 2012. Our Gearing business faced a challenging first quarter with approximately $2 million of revenue falling out of the quarter due to production delays. Stephanie will talk about this in more detail when she covers the financials. In April of 2013, we closed down the sale of our idled tower facility located in Brandon, South Dakota. After the payment of the underlying mortgage on the facility, we put $8 million in our pocket, which improves our liquidity position and in addition to our $20 million borrowing facility. In April, some of the language around the PTC extension was clarified by the IRS. We believe the start of construction language in the renewal is effectively a more than 2-year extension, with net gas prices increasing somewhat and the cost of wind energy continuing to fall, we are more optimistic about the wind…

Thank you, Pete and good morning. Turning to Slide 9 on $45.7 million of revenue. Our gross margin, excluding restructuring, rose to 5.7%, up sharply from Q4 of last year and increased 90 basis points from the first quarter of 2012. Operating expenses totaled $6.7 million, up from last year due to a $500,000 rise in restructuring linked to staff reductions in our corporate office. Our operating loss is $4.5 million, up from last year due $1.1 million of restructuring costs, up from $0.5 million in the prior year quarter. With nearly 70% of our footprint reductions behind us, our restructuring activities are accelerating as they approach conclusion. The EPS loss was $0.34, similarly up from the prior year due to the increased reconstructing. The next slide highlights our pathway towards an acceptable gross margin. The light blue portion of the bar shows our reported gross margin and the dark blue add-on represents the impact of the portion of restructuring costs that were charged to cost of sales. So the total height of the bar represents gross margin without restructuring. As I noted on the prior slide, the first quarter margin totaled 5.7%. The increase from last year reflects the benefit of our reduced square footage, improved productivity, lower material content and more stable pricing in towers and better utilization of our drivetrain service center asset and services. Headwinds for the quarter included the production impacts of the rising share of enclosed drives for gears, which caused some production issues in the first quarter. But it should, once the transition is complete, ultimately boost gearing margin, reflecting the higher value-add of these products. And the softer end markets in mining and natural gas are having an adverse impact on gearing volume, which are our highest incremental margin. This will be…

[Operator Instructions] Your first question comes from the line of Mr. Sanjay from Lazard Capital Markets.

This is Sagrain [ph] for Sanjay today. I have 2 questions related to the Tower business. So with the strong start in Q1 and record orders, can you sort of help us understand how we should think about the profitability embedded in this backlog? And are you seeing any benefit in terms of pricing or being able to sort of increases in pricing or better terms and conditions on these new orders? And then I have a follow-up.

Yes. I'll let Stephanie take that question.

I think that it's fair to say that the margins at our backlog are better. They -- there has been less disruptive supply influence for sure over the course of the last quarter. So that is built in and is reflected in our projection for the year.

Got it, okay. And then another question on the Slide 5. As we look at the projections, which you have here over the next say, 2 years, is there any flex capacity which is available in your manufacturing plant say, by increasing the shift or so in case of demand in either '13 or '14 whether be greater than what you have on Slide 5, you would be able to meet the demand, especially given the fact that you have a very a strong position in the higher megawatt towers?

Yes. I mean, today in -- so we run 12-hour shifts in Manitowoc. So we are running 11 shifts out of a total 24/7 capacity of 14. And in Abilene, we're running about 1.5, so if 24/7 is 2, we're running at about 1.5. So there is some ability to flex up. But as you start to go to a 24/7 type of production, there are some potential inefficiencies. So yes, we're ramping up. As we said during the call, we would expect to be near our capacity of 500 towers for 2014, and we'll start to creep up towards that target in the third and the fourth quarter. So...

I want to add one other point to my -- what I said about the backlog. I think the other important thing about the feature of our backlog is we've been getting larger orders, which then provide longer run, which provide much better efficiencies within our plant. So I think that's also a very important feature that's going to help us deliver better margin.

Your next question comes from the line of Angie Storozynski, representing Macquarie.

I actually wanted to talk a little bit about projections for '14 and '15. So we have the PTC extension, which could help stimulate growth in new build for wind in those years and you're saying that you're getting more of a backlog for 2014. So how should we think about the level of sales roughly speaking for the wind and non-wind businesses in '14 and any indications for '15? And also, if you could remind me how the reduction in the cost of restructuring actually filters through the EBITDA expectations for, say, for '14 and '15?

Angie, so we haven't done a budget yet for '14 or '15, but I think what we did say was that we're going to ramp up from, say, 350 to 500 towers. 150 towers at an average selling price of $375,000 to $400,000 in and of itself could be a $50 million to $60 million bump to our top line in 2014. So you can see it, it should be significantly higher. And in addition to that, any growth that we are able to deliver in other our businesses. On the restructuring, what I commented is that right now, we are at a run rate of about $2.7 million out of that $6 million. And we will start -- so we will start to see next year the rest of the savings from our Gearing business. That's the most complex part of the consolidation. So I would expect we would exit 2014 with that full savings.

And that's showing up in the operating expense line?

A little bit of it is in SG&A. So like we closed our European sales office, I would say, I believe, $1.2 million of the $6 million is in SG&A and that benefit we already have. The balance will be in the cost of sales, yes.

Okay. And now you mentioned that you expect to break even on the net income level in 2015, is that right?

2014.

Okay. And that is -- I mean, is that an optimistic assumption? Or is that already supported by some of the backlog that you have in place?

We think the combination of the backlog and the volume growth and realizing the benefits of the restructuring. If you go back and look at the graph on our gross profit margin with a sort of a 10-ish percent gross margin and with SG&A in the sort of 9% or 10%, the formula give us a positive net income. So we're pretty confident.

Okay. And lastly, can you talk a little bit more about the oil & gas industry and the demand for gearing from that sector? And how should we think about it now that the natural gas prices have ticked up? Are you more correlated with the gas business or with oil business? And how about industrial demand besides at oil and gas business?

Two years ago, the natural gas business was very strong as everyone was going after these shale plays. As natural gas prices dropped fairly significantly, the whole industry kind of shifted to frac-ing for liquids, primarily oil in the Bakken and in Eagle Ford. And so the demand for gearing in that sector really picked up and we've been making the shift from natural gas to oil and then also working with customers on offshore as a standard offshore rig will have anywhere from 50 to 75 gearboxes on it. So today, it's really the oil play. I would say natural gas hasn't rebounded enough where we're going to see a significant demand for gearing in that sector. I think as we start to approach $5 a million Btu for gas, you're going to see more drilling and frac-ing starting to happen, which will increase the demand for gearing. On the industrial side, we're winning business in steel. Mining is a little soft right now, so again, 18 months ago, mining was very strong and we saw good demand there. That's softened a bit. We're still selling, obviously, some gearing in that space, but it's softened. I would expect that we'll start to see a rebound in 2014 at least that's some of the data we're getting out of the AGMA, the gear manufacturing association. So -- but again, we want to try to be very diversified.

How about last quarter, you mentioned that some of the strength that you're seeing in the towers business is not sustainable because some of your competitors might actually return to the market and refurbish their facilities back to produce wind towers, are you seeing that trend? And how sustainable is the strength in the tower orders?

Well, I guess we never underestimate our competitors. I would say in the tower market, it's particularly like Trinity Towers, there -- they have facilities that can toggle between rail cars and towers. They had in their conference call, they had order intake of, I think, it was $48 million of orders and we were double downwards, which was quite unusual given the size comparison. So it's hard to know exactly what they're doing and what others are doing. But I don't see a mad rush of at least at this point, of new manufacturers coming into the market. Vestas, in their large facility out in Colorado, they are now doing some towers for third parties. And we have Korea and Indonesia can still import towers. So I think there's enough demand as there are enough supply to meet the needs for 2014. And it will be a bit of a tight market, but I think there's enough supply to meet the demand in the projections that we have shown here.

Now that the existing fleet of wind farms is aging, I understand that you're struggling on the -- on your plain vanilla maintenance of wind farms with OEMs. But how about refurbishment of aging wind farms, are you actually seeing any traction in that field?

That's really what our Services business is about. Maybe 2 years ago, we were targeting O&M. And when we look at the pricing and the profitability, we really said, hey, we're going to be the non-routine maintenance provider. So blade issues, drivetrain issues, so we were sort of the major overhaulers and repairers in the wind sector. So we are seeing nice demand there. Stephanie mentioned our BladeMAX and our DriveMAX programs. Those are programs designed to educate and help owners understand the recurring maintenance that's needed, and we got some programs around that. We're on blades that every 3 to 4 years, you should be doing some blade inspections and checking the lightning protection and so to prolong the long-term life of the blade. So we're getting some good traction in our Services business on those programs.

Okay. And lastly, I'm actually not sure if you mentioned potential renewable MLPs, do you think that, that could actually have a substantial impact on your business going forward?

I really don't. And we're not an owner-operator, so it will have -- it really won't impact us. If you talk about the industry in general, I think MLPs can bring more capital into the wind industry, but there'll be some owners that won't want to use an MLP. Like a NextEra can't use an MLP. And could it help on the margins? Yes. But it's certainly not a replacement for PTC. And I think it's a long year -- a long-term extension on the PTC is really what the industry needs to have more investment come in and provide a more steady business, while we wait for, I would say, natural gas to kind of rebound to a more normal level. So I'm not all that optimistic.

[Operator Instructions] Your next question comes from the line of Mark Spiegel, representing Stanphyl Capital.

If I could, I'd like to try to back into some sort of big picture numbers for 2014. So let me ask you a few questions sort of based on your presentation. On Slide 10, you're targeting 300 basis points of additional gross margin for next year. Would all of that drop to the EBITDA line? Or what percentage of it would?

Yes, we would expect that to drop to the EBITDA line.

Okay. And then on the restructuring, you're anticipating an additional $3 million of savings for next year. Now I think I heard you say by exit of next year, so I guess that wouldn't be a full year $3 million, it would be what? A partial year?

And part of that is flowing through that gross -- that's part of the expansion. So that's not additive to the 300 basis points.

Okay, fine. So if we were just to say that another 300 basis points and then if we were to say that revenue were just flat next year with the 220 you're looking for this year -- and I did hear you say that, that there's some upside there because of the Tower business, so that would sort of be another roughly $6.5 million dropping to the EBITDA line, is that correct?

Yes.

So again, and tell me if I'm being too simplistic here, if I were just to add that to this year's range, which you've kept at 9 to 12, based on what we know today, would that make the 2014 EBITDA range sort of the $15 million to $18 million range?

Yes, yes. I think that's right, yes.

Okay. That was -- all right, one other follow-up question. On Gearing, I know you did speak about sort of half of it were production problems, half of it the shortfall versus last year and half were reduced orders. Can you get -- I know you hired a new guy, Mr. Johnny [ph], to head this in March from that press release. Can you give us a little bit in terms of specifics of what you're going to do to sort of turn Gearing around?

Well yes, I would say in Gearing, we're going through -- so we're going through the consolidation and I think is maybe caused a little bit of inefficiency in the business. As we're going into more enclosed drives, so the reason we want to move from loose gearing or at least a portion of our business from loose gearing into enclosed drives is there's more value to the customer. So it's a lot of little pieces we can help them design their gearboxes so you're providing a finish kind of product to the customer that should have higher margins. But as we make the shift from doing larger volumes of loose gearing to more one-offs of enclosed drives, that kind of changeover is creating this inefficiency and timing issues in our revenue flow. So I think this is a short-term issue and Dave is very focused on getting the right process in place to ensure that all the parts and pieces when the gearing is done is ready for the gearbox. So I do think that this is a short-term blip but it's -- long-term it's the right place for us to be.

Okay, okay, fine. And one last one. And I guess just on the last call so maybe this is a reiteration, annualized maintenance CapEx exclusive of this restructuring stuff. I think last quarter you said it would be running around $4 million a year sort of on a normalized basis, is that still accurate?

Yes. I think that's still good. As we look at -- we could end up spending a little more in our Tower business to tie in -- open up some extra capacity. But again it's maybe a couple of million dollars additional.

But presumably that's -- I mean, that's sort of not maintenance CapEx at that point, that's...

Right, it's more. Yes, that's fair.

At this time, there are no further audio questions. I will now like to turn the call back over to Mr. Peter Duprey for closing remarks.

Okay, thanks. I would just say we're off to the best start since I joined Broadwind. We have great visibility in the demand for towers. We continue to work on cost takeouts. We're starting to plant seeds for growth outside the wind market. Our liquidity position is very strong with the sale of Brandon. And frankly, I personally feel very proud of the progress that the team has made over the last 2 years. And I think 2013 is going to provide the company with a momentum to be profitable in 2014. And I think 2014 is going to be a record year. So I'm very positive about what we've accomplished and I appreciate everyone joining the call and the questions, and I look forward to updating everyone next quarter. Thanks.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a great day.