Good morning, and welcome to the Broadwind Energy Q3 2018 Earnings Conference Call. [Operator Instructions]. 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, Brandon. Good morning, and welcome to Broadwind Energy's Third Quarter 2018 Earnings Conference Call. With me today are Broadwind President and CEO, Stephanie Kushner; Broadwind Chief Operating Officer and President of Broadwind Towers, Eric Blashford; and Broadwind Vice President and CFO, Jason Bonfigt. 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 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 10-Q and our Form 8-K in the attached news release filed with the SEC this morning. We assume no obligation to update any forward-looking statements or information. Having said that, I will turn the call over to Stephanie Kushner.

Thanks, Joni, and good morning. We booked strong Gearing and Heavy Fabrications orders in Q3, with total orders up 12% from last year. Our customer diversification efforts remain on track. We finished the quarter with $31.4 million of revenue and slightly positive EBITDA. This was in line with the preannouncement we made in early September, and reflects the decision to slow down our tower production mid-quarter because of a delay in obtaining steel to meet the scheduled production mix. Outside of Towers, our other businesses operated as planned. Steel tariffs are continuing to present operating challenges for towers and are causing cost escalation for our other businesses with high-steel content. We, and the rest of our industry, are adjusting to the higher prices, and we expect something closer to business as usual next year. Our Gearing business delivered a profitable quarter, with heavy - with healthy EBITDA margins and good consistent production. We've strengthened the management team and improved core processes. And our supply chain has performed much better as demand has stabilized at the current run rate. As we look into 2019, Broadwind's order book and production schedule are firming up for a more consistent year, with quarterly revenue averaging back above the $40 million range, and consistent quarterly positive EBITDA generation. Through September 30, we booked $67 million of orders, and are closing the gap versus last year. In Towers and Heavy Fabrications, we booked $3.8 million in the quarter. We have nearly $70 million of tower orders in backlog to be delivered over the next 12 months, but finalizing new tower orders has been slow because we and our customers work through the implications of the spike in domestic steel. Outside of towers, demand from Heavy Fabrications customers remained strong. For these products, the steel content is…

Thank you, Stephanie. Hello, everyone. Moving on to our Towers and Heavy Fabrication segments. Orders for the quarter were $3.8 million, more than double and unusually low Q3 2017. The order improvement comes mainly from our growing heavy fabrications product line. Our Heavy Fabrications line, which operates in mining, construction and other industrial markets, is seeing increasing demand in all markets served, and we're expanding our flexible manufacturing resources to meet this demand. Requirements in this product line averaged - leveraged many of the process capabilities and skill sets as those used in our towers business. Our opportunities within the markets served continue to expand, and we are considering strategic investments to support further growth and diversification. We sold 132 tower sections during the quarter, up 5% from the 126 sections sold in the prior year quarter. Year-to-date, tower sections sold are down nearly 40% versus 2017, as our largest tower customer continues to reduce inventories. Our efforts to add new tower customers continue, and we're confident that these efforts will bear fruit, especially given our multi-plant footprint and our practical experience in producing towers for nearly all turbine OEMs in the U.S. market. As a result, Q3 sales were $17.3 million versus $16 million in Q3 2017, and EBITDA was $600,000 positive versus a $200,000 loss in Q3 '17. The improvement reflects our progress in growing the heavy fabrications product line, combined with the effectiveness of our operational improvement efforts, which have yielded better plant utilization, reduced overhead and lower operating expenses. Our 2018 priorities remain consistent with the previous call. We are working with our primary tower customer to schedule planned production and secure additional orders with them, as well as continuing to work to diversify our tower customer base. As we've discussed, the pricing pressure resulting from…

Thank you, Eric. Consolidated sales were $31.4 million during the quarter, within our guidance range and a 6% year-over-year improvement. As Eric mentioned, we are capitalizing on the end market strength in our Gearing segment, notably in oil and gas and mining, and our gearing backlog is healthy and diversified. Gearing business is now operating at a $40 million annualized revenue run rate. We're encouraged by our progress, leveraging our welding and fabrication competencies outside of tower production. We have made recent low dollar, but strategic capital investments in this product line. As a result, our order book is approaching a $14 million to $15 million annual run rate, up from only $6 million in 2017. The year-over-year tower production was six sections higher, but the impacts of delayed second half steel availability drove us to spread Q3 production into Q4. This lowered revenues by approximately $2 million to $2.5 million during the quarter. However, it allowed us to retain our key workforce in preparation for healthier 2019 production levels. Year-over-year gross margins improved from 3.4% to 4.7%. This improvement was driven by greater leveraging our gearing business, a result of increased productivity, better material management and overall improved operational performance. Encouragingly, gearing has also seen lower manufacturing variances, a result of ongoing continuous improvement programs, focused on machine uptime, reduction of scrap and rework and cost control, however, positively impacting Broadwind's gross margin is the ability to flex our manufacturing resources between producing towers to other fabrications. This not only allows us to offset margin pressure during periods of tower - lower tower production, but helps us retain our core workforce and leverage our competencies in adjacent markets. Despite the volatile nature of steel pricing from the introduction of tariffs earlier in the year, material margins have not been…

[Operator Instructions]. Our first question comes from Justin Clare with Roth Capital Partners.

This is Phil on for Justin. I wanted to get your view on 2019. And I know you talked about increased, I think, coating activity and you have a number of discussions to secure additional orders. I was wondering if you could give us just the touch more visibility there? For example, what is the potential to add a new customer incrementally from this quarter relative to last quarter? How do you feel incrementally better or worse? And then for your primary customer, what is the gating factor to secure more orders? Is steel the primary issue? Or is there another issue for us to think about?

Phil, this is Eric. I'll take that question. But first of all, we are confident going into 2019. We have about $60 million of scheduled backlog today. We're finalizing another project that should be worth about $14 million on top of that. And that would be announceable once that order is locked in. We do have heavy coating activity, both with that customer and with other customers that we feel confident it is going to yield us some wins in 2019. So with that - with the - with what we have in backlog, what we know are in discussions right now with our primary customer in heavy coating and capacity discussions with other customers, we feel much more confident about 2019.

And so Eric, this quarter relative to last quarter, would you - could you say that it's incrementally more visible and better as it relates to, especially the activity with new customers as well?

Okay. So you're saying, our knowledge right now in this quarter versus last quarter, yes, it's greater and more positive than we knew last quarter. We're getting more visibility and that's encouraging.

And what is the driving factor there besides just being - besides time? Did any other variables or things changed? Or is it just that maybe with steel prices kind of hovering where they are, the OEMs realized this is the reality that they have to face and they are just going to lock in the orders now?

Well, well, steel cost does have an impact, of course, on project valuation. But the OEMs that we're working with understand the market dynamics and that they do have to pass those steel increases on to their customers. So with regards to the timing of orders, it has a lot to do with when the projects are let and when the projects are announced by the developers and when the turbine OEMs are able to secure their projects. Once they have a secure project they begin working with us on supply.

And I will just add to that Phil, that comment I made in my opening remarks was, it's feeling more like business as usual. I think probably a quarter ago, and maybe the quarter before that people were just almost waiting to see what was going to happen.

Good. And that's kind of what I am trying to get at so that's good to hear. Shifting back to steel for a bit. You talked about in your prepared remarks, new procurement approaches, can you share kind of what you're doing to that might be new, number one? And then number two, how do you ensure the steel supply for 2019? I know you can pass it all along, but what kind of - how much risk is there that you're not able to supply all the steel that you would need to be able to supply your 2019 or service year 2019 outlook?

I'll start and then Eric will probably add. So in terms of changes, we are expanding the number of steel suppliers that we deal with, both within the U.S. and outside. We have actually made some changes in our organization as well. I think with respect to the certainty of getting this deal, once the deal has been struck and the purchase has been made, the lead times have lengthened, but deliveries are still happening to those agreed longer lead times. So I don't think it's a risk of whether we will get the steel once it's all been agreed and purchased. It's just as things were changing during 2017 that caused some disruption.

Q3 and Q4 was an unusual dynamic and that the tariffs increased, allowed the steel companies in the U.S. to increase their prices significantly. And as those prices were being increased, other customers from other industries were taking advantage of that available capacity to lock in orders. And if we didn't have project for which we needed to purchase steel immediately, which we did not, other customers and other industries were able to take that capacity from our domestic steel mills.

As it relates to the competitive dynamics, are you seeing any new market entrants? Or perhaps maybe not new, but market players that weren't able to access the U.S. from Asia or abroad in the past? Are they actually getting in here now, are they winning orders at all? I wonder how that's - earlier, Stephanie, you mentioned that it's feeling more like business as usual that would suggest to me that the competitive dynamics are not coming in, but to what degree are you seeing those competitive forces?

Well, again, I'll start. I think that imports are definitely more competitive further into the U.S. than they were a year ago just because of a gap between the domestic and the Asian steel price. And we're seeing certainly, more pressure, as a result of that, more pricing pressure. Again, depending on the geography. In terms of new entrants right now, as we look, we're seeing - we're seeing more towers coming from Asia. But that data is reported with somewhat of a lag. So we're not certain how much that's - how much more that might be increasing kind of as we speak.

So Phil, if you were referring to tower producers, Stephanie answered that question, but if you were referring to turbine OEMs we're seeing some announcements, public announcements from companies like Nordex and Senvion that are not really new entrants into The United States, but they are starting to gain a foothold in addition to the big three, Siemens Gamesa, GE, and Vestas.

Eric, I was referring more to the towers. But that's helpful as well. So as a follow-up to that, when you think about your 2019 demand for towers, can you quantify how much of it might be coastal regions that could be served by imports, assuming steel tariffs remain in place versus no more in land where you guys may have an advantage or - a pricing advantage there?

I didn't know if we know that number. I don't know if we know how the distribution is. We are seeing more projects moving up north, but there's still significant activity down in the Gulf coast area.

Just as a reminder, we have a plant in Wisconsin and a plant in Texas, so we have the wind belt covered, but as it gets closer to the coast, obviously the transportation costs are less for imports and the competition is stiffer. But we just don't know where the projects are necessarily going to be won at this time Phil.

Okay. So when you lock in your tower orders, you don't necessarily know where that tower is going. You don't know if it's the West Coast or somewhere around?

Yes. Sorry, there was a - yes, sorry. There was a time when we didn't know, but now that the tower orders are coming in project by project, we tend to know. We definitely have better visibility than we once did.

Assuming the final question then on that count then when you look at especially the backlog that you have for next year, would you say the majority of those orders are within the wind belt and there is very few along the coast or are you also winning your fair share of the coast business as well?

So what I should explain is, when you refer to the coast, are you referring to Southern Texas, we consider that within the wind belt, Central U.S.

I'm referring more to the West Coast, yes, sorry.

If you're referring to the West Coast, it's very unlikely that we would win a project across the Rockies because it is very expensive to ship a tower from our plants across the Rocky Mountain.

[Operator Instructions]. Our next question comes from Hailey Xu with Macquarie.

Hi, this is Hailey Xu, filling in for Angie. We're just wondering if you could provide more color on your cash and liquidity situation. Because it looks you're getting tied with liquidity with the $6 million left of the $25 million credit line. So if you could talk more about that, it would be great?

Sure. I'll take that. We are expecting our working capital requirements to come down in Q4. Really what's that's going to be driven by is the number of deposits that we are expected to receive in Q4 under our main tower supply agreement for 2019 production. So we're looking at kind of this $18.8 million kind of line of credit balances being a higher point for us in 2018, and we expect that to improve through the balance of the year and into early next year. We're also looking at, I mentioned in the prepared remarks that we're looking at other debt instruments that we're going to be kind of reviewing in Q4 here that should help us with probably additional working capital requirements as we move into next year that comes with higher tower production levels. So we feel this is a high point for our line of credit balances.

That's very helpful. Another question, I don't want to repeat the question on foreign competition, but just given that competitive pressure from foreign tower manufacturers, we are just wondering what are your plans for the updated tower manufacturing capacity at Abilene? Are you going to maybe reduce staffing levels or are you hoping that in 2019 and '20 you will see so much growth in wind you will be able to get all tower manufacturers with the tower orders?

Well, we do balance our workforce with our production levels. We do feel like the production levels we have now are at a low point. And so we have been able to retain our core workforce that was part of the plan to move some production out of Q3 into Q4. So we're retaining those core competencies and, yes, we do feel that more business will come to both of our plants, in early 2019, we will be able to recover that workforce and read that demand. So, no, I don't expect we will be reducing our production capabilities further than we already have.

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. And thanks for attending our call, we look forward to speaking to you again, in about three months. Bye-bye.