Good day and welcome to the Broadwind Energy Quarter Two 2019 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 that this event is being recorded. I would now like to turn the conference over to Jason Bonfigt, Vice President and CFO. Please go ahead.

Thank you and good morning and welcome to Broadwind Energy's second quarter 2019 earnings conference call. With me today are Broadwind President and CEO, Stephanie Kushner; and Broadwind COO, Eric Blashford. 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 8-K in the attachments we filed with the SEC this morning and our Form 10-Q that we will file later today. We assume no obligation to update any future-looking statements or information. Having said that, I'll turn the call over to Stephanie Kushner.

Thanks, Jason. Good morning. We booked $105 million of orders in the second quarter. The strong bookings boosted our backlog to $145 million. Revenue was $41.2 million in line with our guidance and all of our segments showed revenue growth. Gearing remains a bright spot despite some weakness in demand from our oil and gas customers, revenue was $9 million. We reported a 10% operating margin and a 16% EBITDA margin for this segment. Total EBITDA was $1.9 million and again all operating segments generated positive EBITDA. Our balance sheet continues to strengthen. At quarter-end, our liquidity had risen to $8 million and will continue to improve in the second half as we convert steel inventories and bank customer advances. Our plants are running well and our safety performance is better than both industry averages and our performance last year. I'm proud of our operations team. They're delivering this result despite the fact that we're stepping up our production level. We do see some supply chain risk in our Tower business as the industry ramps up for a couple of strong wind farm development years. Demand for raw materials is tight particularly for the inner components that we install inside our wind towers. We are managing shortages and timing aggressively and expected to work through the issue. Assuming we can navigate through these problems, our outlook on the year has not changed. We expect total revenue in excess of $160 million and EBITDA of approximately $8 million. Turning to orders. We booked $96 million in Towers and Heavy Fabrication. This brings our first half book-to-bill up to 1.9 times. Heavy fab orders continue to grow steadily as both existing and new customers recognize the quality, welding, and manufacturing engineering capabilities we bring. In Towers, the spike in orders reflects a…

Thanks, Stephanie. Moving to our Towers and Heavy Fabrication segment. Q2 Tower orders of $96 million were strong as several OEMs placed orders with us to meet scheduled turbine installations. Coating activity continues to be robust with customers expressing interest in capacity at both tower plants. Our Heavy Fabrications line which operates in mining, construction, marine, and other industrial markets continues to grow. As a reminder, orders for this business have grown from less than $2 million in 2015 so they should approach $20 million this year. We continue to make capital investments to grow this business and to provide a more complete solution for our customers. We sold 201 tower sections during the quarter consistent with Q2 2018 and up 7% sequentially. The volatility of our production over the last eight quarters is evidenced on the graph at the lower left hand of the slide. We are pleased with our operation team's ability to flex production to meet this choppy demand and are encouraged to have relatively stable production levels for two consistent quarters albeit lower capacity. We are proud that our safety metrics and employee retention levels are improving, while our quality, productivity, and delivery remain at or above expected level. Our decision late last year to maintain a critical core of highly skilled team members during a period of low production was sound. Given that we are now seeing the anticipated rebound in demand. During the quarter we started producing a new Tower model on our Abilene Texas plant which is taller and heavier than previous runs and is indicative of a market trend toward taller towers. Producing these larger heavier Towers require requires careful process planning, and equipment modification, and production is on track. This quarter our CI team improved the throughput of our weld line…

Thanks, Eric. Q2 consolidated sales were $41.2 million, up 12% year-over-year and driven by increases in each of our business unit segments. Towers and fabrication sales represented the majority of improvement up $3.4 million year-over-year. The revenue increase was driven by heavier, more complex tower designs, and attributable to steel price escalation. We continue to deliver higher throughput and improved operational performance in our Gearing business. And the Gearing product mix sold in the quarter was well diversified across customers and end markets. Gross profit margins improved to 9.5% in Q2, a significant improvement year-over-year and approximately 100 basis point improvement sequentially. The Q2 year-over-year change was primarily driven by the operational improvements reflected in the Gearing segment results. Our focus on continuous improvement efforts centered around quality, plant throughput, supply chain execution, and strong cost management have transformed this business. And our ongoing investment and focus on the Heavy Fabrication product line has also driven improvement in gross margins. Partially offsetting the year-over-year gains was continued margin pressure on our Tower product line. Our Tower and Fabrication segment EBITDA margin declined by 320 basis points driven by increased competition from imports. In many circumstances, we have had to lower our conversion pricing to become competitive and ultimately to retain our workforce and not temporarily idle our plants. Operating expenses were $4.1 million during the quarter down from $8 million in the prior year quarter. Prior year quarter included a $3.8 million non-recurring charge which was then net of $5 million impairment of goodwill and the release of a $1.1 million earn-out reserve. Lower amortization of intangibles of approximately $300,000 was partially offset by increases in incentive compensation expenses. Our operating expenses continue to trend below 10% of revenue. Our consolidated EBITDA was $1.9 million in Q2 and was ahead…

We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Justin Clare with ROTH Capital Partners. Please go ahead.

Everyone thanks for taking my questions.

Hey Justin.

Good morning.

So I guess first I just wanted to start out with your Tower orders given the large increase that we saw this quarter can you give us a sense for how you see revenues trending in Q4 and then into early 2020. Do you anticipate revenues moving higher from Q3? And then I know you mentioned some supply chain risk. So I'm wondering if you could just elaborate on that a bit and could that limit the growth in say Q4?

I'll start that and Jason may want to add. So I think basically, we would expect our revenue to grow sequentially. The supply chain question is really if we're unable to get the internals that we need for the Towers, so we wouldn't be able to invoice some portion of them. So that could mitigate some of the Q4 growth but if it doesn't come Q4, it would just be that much stronger in 2020. And we do expect 2020 to be up in a meaningful way, we'll know better. We've only got about 40% or so of our capacity is booked at this time, so. As the -- over the next quarter we'll have more confidence about that.

I think we still expect -- I think we still expect to be about $40 million for above revenue.

Yes, even with that risk we would be above $40 million I think we will do better if we are able to ship them.

Okay, okay that's helpful. And then you mentioned that there's some headwinds to tower margins in Q3. Could you talk more broadly about your backlog and the orders that you won, do you anticipate those orders -- like all of the orders that you've recently won to also have that margin headwind associated with it. Or do you see some potential for improvements or can you mitigate the headwind?

Well Q3 not only is that competitive pressure it's also just may be a less favorable mix. What we're seeing is we're booking now is it’s going to be a busy market next year. So our Tower prices are firming maybe not as much as we would like to see but there is a little bit of an upward trend.

Okay. Okay, great. And then, so earlier this week the Department of Commerce announced the initiation of ADCVD investigations into imports of utility scale wind towers. So given your experience with the 2012 wind trade case, I was wondering if you could talk about the probability that tariffs are actually implemented there and what that could mean for the domestic market?

I guess I don't really like to handicap it except to say we wouldn't be pursuing it if we didn't think there was good evidence of dumping and damage -- of dumping up on the part of these countries and also damage that we've sustained and others in the industry have sustained as well. I think I'll stop there. Time will tell, it's obviously a relatively fast process. There will be some determinations and initial determination in 45 days then there will be a determination by the Department Commerce maybe four or five months after that. But the whole process will be over in about 13 months, so there's a lot of detail on the Department of Commerce website.

Right, right. Okay. So one thing I have been trying to understand is just -- is it possible that the tariffs could be retroactively applied. So and if that is the case do you anticipate any changes in market conditions in the near-term?

I think that the application of the tariffs would not be any earlier than about six months out. And obviously it adds some uncertainty to making a purchase from these countries which is helpful for the domestic manufacturers.

Right. Right. Okay and then shifting gears a bit. You mentioned that you are increasing your efforts in cross-selling products from your different business segments to the same customer. I was wondering if you could talk about the type of customer that you're targeting there and then maybe just give a little bit more detail on how much progress you're making?

Yes, thanks for the question. This is Eric. Well we do have a broad offering. If you think about the target -- the target products such as a very large mining dump truck or a piece of mining equipment or even a material handling piece, a large material handling equipment for port, you have a lot of heavy structures there, a lot of precise welding required plus a gearbox and some assembly. So what our sales people are doing is being cross trained on the capabilities of the other divisions, so they can competently go out there and not only sell their primary product line but remind the customers that we have this -- this additional service that we can provide and that's starting to gain some traction. We've had a couple. I wouldn't say it's mature enough to announce but certainly it's encouraging that customers frankly they say [indiscernible] I'm glad you mentioned that because we do have a need for that particular service. And let them talk about that. We have had some wins in material handling and construction and mining industry where they buy from both Brad Foote Gear and Heavy Fabrications.

Okay, great, that's helpful. And then maybe one final one from me in terms of your Heavy Fabrications business, you talked about $20 million of orders this year, I believe versus I think was $2 million in 2015.

Correct.

Can you talk about what the potential is for this business? How big could this business be and what kind of growth can we expect here because obviously it's been fairly meaningful so far.

I think the trajectory can continue. I think we're looking at things like the markets and even our plants, what we could do within our plants to expand our capacity. But I think the trajectory could continue and could possibly be a $50 million or even $100 million business over the next three to five years.

Okay, okay.

That’s certainly our objective.

Right, okay. I think that's will do it for me. Thanks for the questions.

Yes, thank you, Justin.

[Operator Instructions]. This concludes our question-and-answer session. I would like to turn the conference back over to Stephanie Kushner for any closing remarks. Please go ahead.

Okay. Thanks for your attention. We feel like we're making some very encouraging progress and we're positioned well to exit this year strong and particularly -- particular strength in 2020 and beyond that. So we look forward to updating you again next quarter. Thanks and bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.