Good morning and welcome to the Broadwind Energy Second Quarter 2017 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Joni Konstantelos, Director of Investor Relations. Please go ahead.

Thank you. Good morning and welcome to Broadwind Energy’s second quarter 2017 earnings conference call. With me today are Broadwind’s President and CEO, Stephanie Kushner; and Broadwind’s Vice President and Corporate Controller, Jason Bonfigt, who has recently been named Broadwind’s Chief Financial Officer effective August 7. 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 we’ll 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 Stephanie Kushner.

Good morning. Thank you, Joni. I’m pleased to be joined today by Jason Bonfigt who was announced as our new CFO just yesterday. Jason has been with Broadwind for eight years in both line management and financial roles. Most recently, he’s been our VP and Corporate Controller. Jason has an undergraduate degree in Accounting and MBA from Northwestern and CPA. I’m excited about the breath of thinking that Jason brings to his new role, and personally, very pleased to relinquish this CFO title and to be able to increase my focus on the commercial and strategic side of the business. Our Q2 results were consistent with our guidance, $43 million of revenue, $2 million of EBITDA and a $0.05 per share operating loss. Our revenue was flat with Q2 of 2016. The short summary is that tower sales were down, offset primarily by revenue gain from the addition of Red Wolf, but also reflecting the early signs of an uptick in gearing revenue, which will be more pronounced in the second half. Towers performed very well in the quarter. Segment earnings rose from last year, despite a 19% lower volume throughput because of improved mix, higher productivity and cost efficiencies. We’re seeing strong operational performance in towers. Our production leaders are consistently achieving our productivity improvement objective. Our market outlook is mixed with near-term weakness in towers, strong recovery in gears, some modest softness in gas turbine installations and continuing weak demand for new CNG stations. Our diversification and growth strategy is gaining traction. Over the past several quarters, we’ve invested in our commercial organization, adding positions and boosting training and development, and added some important technical certifications. I’m excited to see that we’re growing relationships with important customers like Komatsu and Caterpillar. At our Weldments business, we’ve begun production…

Thank you, Stephanie. Turning to Slide 8. Sales for the quarter were $43.4 million, in line with the prior year quarter and at the low end of our guidance. Q2 Tower sales were lower compared to Q2 2016 as our customers begin to work off inventories that were previously built to support the terms of the production in tax qualification period. In Gearing, revenues were up 13% over the prior year quarter as we begin to meet the rise in demand from oil and gas and other industrial customers. Lastly, our Process Systems segment added an incremental $3 million of sales during the quarter. Our margins, including gross margin of 8.9% and an operating loss of 1.2%, were below the prior year as Process Systems’ operating loss outweighed improvements in our Towers and Gearing segments. We generated $2 million of EBITDA during the quarter, or 4.5% of sales, and our loss per share was $0.05 for the quarter, in line with our guidance. Year-to-date, revenue was up 10% year-over-year due to the acquisition of Red Wolf and higher Tower revenues, and we’ve generated $1.1 million of operating profit relative to a breakeven last year. EBITDA margins have increased by 160 basis points, resulting in $5.9 million of EBITDA for the six-month period. Continuing EPS for the six-month period is $0.38, which includes a one-time $0.34 tax adjustment associated with the Red Wolf acquisition in Q1. A result of netting the deferred tax liabilities related to the book-to-tax differences associated with the purchase against our full valuation allowance. Moving to Slide 9. Despite the reduced production levels indicated on our last call, Tower sales exceeded expectations as we mind our customers request to expedite completions near quarter-end. As anticipated, towers sold during the quarter were down 19% versus the prior year,…

Thanks. So looking at our outlook and priorities, we are forecasting third quarter revenue of $30 million as we’ve reduced the Tower throughput to support inventory reduction by our largest customer. As Jason described, revenue for both Gears and Process Systems should be up and partially compensate. At this revenue rate, we expect to generate EBITDA of approximately $1 million and an operating loss in the range of $0.15 to $0.17 per share. Our priorities for the second half of the year include working through the near term weaker Tower demand, which could reduce our EBITDA generation down to the $1 million to $2 million quarterly run rate, depending on how quickly we add new customers and to deliver earnings growth with our other businesses. We are committed to making progress with our growth and customer diversification strategy and are very excited about our recent progress. Although we do not have any immediate plans to use it, we are filing a shelf registration this quarter to give us optionality in the event we want to raise capital to fund an acquisition. The board, Jason and I, all think this is important to provide strategic flexibility. We will complete commissioning the capital investments at are Abilene plant that support higher, more flexible production. This will give us the ability to manufacture efficiently multiple tower designs. And currently, we’re adding unique machining capabilities in Manitowoc, Wisconsin to support growth of our large Weldments product line to support diversification outside of wind towers. We are working on market expansion initiatives for Red Wolf, bringing their kitting and assembly capabilities into other markets. We are expanding our production and workforce in Gearing in support of our revenue growth, and expect this to be a profitable business beginning in Q3. And we continue to evaluate bolt-on acquisitions that will add capabilities and customer diversification that aligns with our precision manufacturing strategy. So that concludes our prepared comments, and I’ll turn it over to Steven for Q&A.

Thank you. [Operator Instructions] And our first question comes from Justin Clare with Roth Capital Partners. Please go ahead.

Hi, everyone. Thanks for taking my questions.

Good morning, Justin.

Good morning. So first off, it sounds like you’ve made some productivity gains in Towers segment. And I was just wondering, in 2018, if we do see a rebounds in demand and you’re able to get to a point where you’re fully utilizing capacity, do you have a sense of operating margins could be at that point, in that scenario?

I think that as we work on productivity gains, at least the way we’re discussing this with our customer, we’ll probably share those gains, the economics on those gains with them. And we’re still discussing the projects that we will be working on and how that will impact the pricing. So I think it’s premature to answer that question. But it’s definitely – we made a lot of progress on our productivity already. But there is definitely even more urgency, in part because some of the pricing pressure.

Okay, great. And then with the recovery that you are seeing in oil and gas volumes, you talked about getting to a run rate of $8 million in revenue in Q3. Beyond Q3, how do you see your ability to grow after that point? Can we expect sustained growth beyond $8 million in revenues a quarter?

Yes, I think that we’ll exit this year at that $8 million, maybe a little higher than that run rate. And then our objective is to get this business off to a $50 million or $60 million revenue run rate over a couple of years.

Okay, great. And then just one last one from me. So your cash balance was fairly low in Q2. It sounds like it is a bit higher now, but I just like to understand your plans to manage liquidity a bit better. And then what level of cash are you typically comfortable with on your balance sheet?

So generally anytime we are drawn on our credit line, we’re not going to show any cash. Because all the cash as it comes in and it pays down the credit line. The only time you’ll start seeing rise in cash balance is if our credit line is fully repaid. We expect to be into our credit line, this year or the rest of the year. But probably, up to $10 million, so a little bit lower than we were at the end of Q2 that was unusually high we’re about $9 million, I think today, we expect to be around that level for the rest of the year.

Okay, great thank you very much.

[Operator Instructions] And our next question comes from Jeff Osborne with Cowen & Company. Please go ahead.

Hey, good morning, Stephanie. Just a couple of questions from my end. I was wondering, can you just talk about the Siemens-Gamesa merger and the kind of information flow of the combined company is, as our management structure been set up and you are getting good visibility from them. It’s – the issue that you are experiencing is just an inventory issue? Or is there any information dissemination problem?

We are starting to get the information flow, it’s getting clear, by the day almost. I think that one of the things that – we are seeing changes. So for example, they are introducing new tower models and there are design implications on those and so on. So we are seeing some changes, but we had very good relationships with both of those customers, they were both important customers for us. So we’re working with them very closely and communicate – getting better and better communication all the time.

And maybe just a follow-up on that is the new tower models that you just referenced. Is that what you are alluding to in the press release and on the call about the complexity within towers? Is that from existing customers, I guess.

Yes, I mean that’s a piece of it, anytime, a new tower model, anytime we will have a new tower model, there is a learning curve. And in the case of the tower models that we are looking at now, they are – we’re still getting the information that we need to allow a good smooth introduction.

Got it. That’s helpful. And then you alluded to some other applications within Weldments in the tower segment that you are exploring with asphalt. How do we think about what the margin impact of that? Given its more of a bespoke opportunity or are you able to capture more margin than you would for wind towers. Or is it vice versa. There maybe there is more of a margin impact, because they are just manufacturing a bit of a pain?

I think we’re still learning about that, so I would say, to your point, the individual product margins are maybe a little bit higher. But the production flow could be more erratic. So at this point, I’d say, maybe those two things offset each other. But it’s still early day.

Okay. I just had two other quick ones, if you don’t mind. One is I think in the past you talked about synergies within the Red Wolf procurement team within the towers organization for kind of the ancillary components that you need that you are buying from a host of different providers. Is that something that you’ve implemented yet or looking to implement in calendar 2017?

So we are actively calling on opportunities, and but we have not landed any material piece of business yet. But, so it’s still kind of early.

Got it. And then last question…

The bigger, the biggest opportunity we see kind of is that the market continues, to strengthen as we kind of build into this. Late 2018, 2019 types that’s probably going to be our best opportunity.

Makes sense. And then can you just talk about the visibility that you are getting from your key customers and maybe potential new customers for Q4, just given the vagueness in the presentation and on the call, about kind of the run rate within towers in particular, exiting the year. Are you getting 30 to 45 day forecast about their inventory that they are depleting or is it over the longer?

Yes, I mean normally – yes, normally we would have probably six to nine months of visibility. And I’d say right now, that’s squeezing down to the three to four months window. We expect – we expect, as the year progresses that to a widen back out a little bit and we are very active in the market calling another opportunities. We built towers for just about every turbine OEM and we think that gives us good perspective and our top plans and in the right location.

Make sense, I appreciate all the detail. Thank you.

Thanks, Jeff.

Our next question comes from Angie Storozynski with Macquarie. Please go ahead.

Thank you. Okay, so I want to talk about the expansion of the manufacturing capacity of the towers business. So, I mean, are you having any second thoughts about it? Do you think that it’s just a temporary slow down, in orders? But do you think that this increased manufacturing capacity going be filled up with wind new build that suppose to materialize by the end of 2020?

Yes. So we’re just completing the expansion, I would say, it will come on line in Q4 and no, we won’t really use it in Q4, which is a little bit of disappointment. But keep in mind that the investment did two things, one is that grow our capacity by two, it gave us a second paint facility and also a separate pre-standing assembly building and both of those things are what give us the ability to deal with multiple tower models, at a given time, at any one point in time, much more effectively. So it was all also about eliminating the risk of a 2015 type production problem, where we got hung up with two towers models and we basically couldn’t get the production out of the plant very smoothly. So we’re still getting the flexibility, we’re getting improved flow, we’re getting improved paint application, because of our paint kitchens that’s part of our productivity gains. And, yes, I think we will use that capacity, beginning next year.

Okay. And then the shelf registration. I understand that this is to give you more of a flexibility, but what would these acquisitions do? Is this entering a different markets or so, and an attempt to further diversify your sales? Is this to grow scale in one of the businesses that you already have?

Yes, it would likely be scaled in the existing business, and there are a few things that we are looking for. One is some more technical capabilities, some more engineering competencies, specifically, so that we can get out an – a more active role in the design of products. And then separately, to the extent that – we’ve also been evaluating opportunities to either expand our profit systems or expand our Weldments volume and customer base. So these are bolt-ons, Angie.

But they would not be – they would not be focused on the wind industry? They would be more industrial or oil and gas.

So we think of CNG as still being in the clean tech space, so – but they would not necessarily be in wind. I’ll give you another example. We were looking at a gearbox repair facility that was mainly doing wind gearboxes, and that was interesting because it gave us geographical diversification and also an increase in some of the aftermarket work on the Gearing side. In that particular case, it didn’t work out, but it would’ve been some customer diversification and also some interesting geographic and aftermarket-type business.

Okay, thank you.

Sure, thanks.

Our next question comes from Carter Driscoll with FBR Capital Markets. Please go ahead.

Thanks for taking my question first of all. Congratulations, Jason, on the permanent position. So my question is, you made a comment earlier, Stephanie, with the – certainly the uncertainty of the current administration and the constant policy shifts. You made a comment about your happiness that it looked like the steel tariff discussion was waning. Have you done any type of quantitative impact or assessment on, certainly, the Towers business, but potentially all of your segments? If such a tariff was put into place, obviously, using some level of assumption. I think I’ve heard of increasing number of firms that are starting to do that, we certainly have the sore tariff trade case that people try to estimate the potential impact there. So that’s my first question, then I have one more follow-up. Thank you.

Yes, I guess I don’t have a very crisp answer for you other than to say it’s – not – would not be a good thing because of the steel that we consume in our businesses. On the Towers side, Towers are bulky, so the transport cost is high, but there, clearly, is a cost differential for steel, particularly in Asia. Now there – this other trade legislation, the countervailing duties that block imports from China, and, maybe to a lesser extent, other parts of Asia. So that kind of helps to mitigate that. But still, to the extent that the domestic steel manufacturers can keep hedging up there steel prices, it’s not a good thing in terms of the tower market. I’m not – in our Gearing business and some of our other business, the steel content is not quite – the material content is not so high as a percent, so it’s less of an issue. And then getting a very good, high-quality gear steel, for example, would tend to either come from either come from Europe or the U.S., there is not a lot of that today coming in for Asia.

So you would not yet come to a point where you need to evaluate whether you have to sort of more domestical?

Source more what domestic?

More steel. I mean, you’re not at a point where…

Yes, we are – we source our – we are sourcing our steel predominantly in the U.S.

Okay. So it’s more about the ability of them to raise prices than actual?

Yes, it’s more about our steel suppliers raising prices because of a tariff which removes some of their competition.

Okay, understood. And then just – really, it’s probably not a lot, you can say, in terms of some of the acquisition targets. Do you have specific financial metrics or a range of what you’re hoping to do, whether from a either revenue or margin contribution, I know, you talked about customer and geographic diversity and then – primarily, these bolt-ons. But are there specific financial criteria you have in place or what makes an accretive transaction? And does that accretion have to be upfront? Or could some of these – could some of the gains be in longer-term in nature? Like you said as…

Yes. Because we are just fairly turned profitable ourselves and because we have a very large $200 million NOL, we are not looking at transactions that we don’t believe would be immediately accretive.

Perfect. That’s all I have, thanks guys.

Thank you.

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

Thanks very much for your interest. Our quarter was in line with our guidance and last year. As we’ve explained, we are navigating through some weak quarters in Towers, but we’re excited about the contribution from Gears and Process Systems as well, and we expect to gain some visibility as the year progresses. So we will keep you informed. Thank you very much.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.