Greetings. Welcome to the Broadwind’s Fourth Quarter and Full Year 2021 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tom Ciccone, Vice President and Chief Accounting Officer. Thank you. You may begin.

Good morning. And welcome to the Broadwind fourth quarter 2021 results conference call. Leading the call today is our CEO, Eric Blashford; and I'm Tom Ciccone, the company's Vice President and Principal Accounting Officer. We issued a press release before the market opened today detailing our fourth quarter and full year 2021 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. At the conclusion of our prepared remarks, we will open the line for questions. With that, I'll turn the call over to Eric.

Thanks, Tom. And welcome to those joining us today. During the fourth quarter, we delivered $26 million in revenue, reflecting a year-over-year decline in wind tower sections sold as we're in a temporary pause in some wind projects due to higher raw material costs, and continuing uncertainty about the scope and scale of potential federal tax incentives. The net result of these conditions was that certain tower orders we expected to ship in the fourth quarter have been pushed into 2022. We're working with multiple turbine OEMs, who have placed orders to secure about 50% of our optimal 2022 tower capacity so far and are in discussions for further orders. In February alone, we booked $29 million in new tower orders, which we believe is early evidence of stabilization in development activity as we look out over the next 24 months. Throughout the pandemic, we've continued to manufacture and ship products to our customers’ precise fabrication requirements. Pandemic related supply chain constraints continued in the fourth quarter. But we're closely managed to minimize customer disruption as much as possible. Cost inflation on key materials remains a headwind for our wind turbine customers and one that has dampened near term capital investment in wind. This is most apparent with respect to the cost of steel, which has increased significantly in the past year and remains at a multiyear high. While Broadwind absorbs only minimal direct commodity price risk, we believe some customers are waiting for raw material costs to normalize. This, when balanced against wind developers’ efforts to align projects with a potential Production Tax Credit or PTC extension, has pushed tower orders out several quarters. Our diverse end market strategy performed as intended during the quarter, as record order growth in our non-wind markets helped to offset softness in tower…

Thank you, Eric. Turning to Slide 5 for an overview of our fourth quarter performance. Fourth quarter consolidated sales were $26 million, compared to $40.3 million in the prior year quarter. Versus the prior year Q4 sales declined, primarily due to a decrease in wind tower sections sold, as the wind market continues to experience a pause resulting from higher steel prices and policy uncertainty. In addition, we like others in the industry, were hampered by material delays throughout the quarter given supply chain constraints. In Q4, we recognized an adjusted EBITDA loss of $1.2 million, a decrease of $1.4 million versus the prior year period. The decrease in adjusted EBITDA is reflective of the overall lower volume level and the resulting plant underutilization in the current year quarter. Turning to Slides 6 and 7 for a discussion of our Heavy Fabrications segment. Fourth quarter sales were $14.7 million, down 51% when compared to the $29.8 million in the prior year quarter, due to the aforementioned pause in wind tower activity. Fourth quarter orders were $31.1 million, a 13% increase from the prior year period. Despite the pause in overall tower activity, tower orders were flat versus the prior year. Tower demand out of our Manitowoc facility continues to be soft, but there continues to be strong interest in our Abilene production capacity due to ongoing or planned projects in that region. As a result of our continued focus on diversification and expansion of our Industrial Fabrication product line, related order intake remained strong, increasing over 150% to $9.1 million in Q4 versus the prior year. This product line experienced record quarter and annual order levels in Q4 and 2021, respectively. This volume has helped us to maintain our plant utilization, given the near-term softness in wind tower demand. As…

Thanks, Tom. Turning to Slide 11 for further discussion of our outlook for the domestic wind market. There are some encouraging signs for the medium to long-term, as we expect more than 100 gigawatts of onshore wind energy capacity to be added through 2030. In the near to medium term, we view the potential PTC or production tax credit extension, rising commercial and industrial demand and repowering activity as catalyst for increased installations. Last week, the DOE or Department of Energy released a document titled America's strategy to secure the supply chain for a robust clean energy transition, which lays out the challenges and opportunities faced by the U.S. in the energy supply chain, as well as the federal government's plans to address them. It's accompanied by several deep dive assessments produced in response to Executive Order 14017, addressing America's supply chains, which directs the Secretary of Energy to report on supply chain for the energy sector. This executive order is spurring the federal government to build more secure and diverse U.S. supply chains, including energy supply chains. In this document, we're happy to see that the DOE reaffirms the need to extend and revise tax credits, such as the PTC and the investment tax credit, or ITC to support the continuing domestic construction of renewable energy projects using domestic manufacturing. Broadwind certainly welcomes this. In this revised forecast on Slide 11 with Mackenzie, a recognized independent energy research firm, maintains its installation forecast for 2022, while showing a slight softening in 2023 before steady growth through the end of the decade, echoing our confidence in wind. The long-term outlook remains positive, as the energy market transitions from fossil fuels to renewable energy, which includes wind power. As we look outside of wind, our progress continues across a number of…

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Justin Clare with Roth Capital Partners. Please proceed with your question.

Hi, good morning.

Hey, Justin.

Hey, so I guess, first, typically for guidance, you had provided revenue and adjusted EBITDA for the upcoming quarter. This quarter, you just provided adjusted EBITDA. So just wondering, is it possible to provide the outlook for Q1 '22 revenue? Or is there more uncertainties than usual that would make that difficult? And then also, if possible, could you give us a sense for how you see revenue by segment trending in Q1 here?

Yeah. For the first quarter, it's difficult because of the supply chain. We've got things that are in production now. It's particularly towers and adapters, Justin that we're still waiting for some components to come in. So we're going to get the capacity utilization on those. But if the components don't come in, we could finalize them. We just can't recognize the revenue. So that's why it's challenging for Q1. Regarding Gearing, in Industrial Fabrications, we do expect that revenue to be sequentially up, reflecting the strong orders we've had in both those segments, the Gearing and Industrial Solutions.

Okay. Great. That's helpful. And then, you mentioned that you have orders for nearly 50% of your 2022 optimal tower production here. Just given where we are in the year, how much more of capacity for towers do you think you could book? And are you primarily booking for Q4 at this point? Or do you have the potential to increase bookings for Q3 or even Q2 delivery?

At this point, given the supply chain length, and it's actually lengthened a bit longer than normal because of all the things that are all well publicized. Really, it's Q4, Justin, maybe towards the end of Q3, depending if we could get the materials, especially the internals. But it's effectively Q4.

Got it. Okay. And then just shifting to the Gearing segment. Backlog is up meaningfully here to $32 million. What is the time frame that you expect to deliver that revenue? Is that Q1 and Q2 or potentially, later in the year? And then, for that segment, are you seeing any supply constraints, labor constraints or anything that would cause deliveries to slip? Or is there anything that could impact the cost structure of that particular segment as well?

Well, first of all, let me address the cost structure. When we -- most of what we do -- in fact, nearly all of what we do is project based. And as we get the orders, as we do the quote, as we get the orders, we place material orders right then. We are factoring in, in our quoting model, some anticipated increases in some incidentals, welding wire, gases, things like that, Justin. So I think we've got a pretty good handle on that. With regard to when that backlog ships? Gearing tends to have a bit of a longer backlog than some industrial fabrication. Some can ship within, say a quarter of when the orders are received, some, two and three quarters out. We're actually pretty well -- the backlog last all through 2022 at this time.

Okay. Great. That will do for me.

Thanks, Justin. Appreciate the questions.

Our next question comes from the line of Eric Stine with Craig-Hallum. Please proceed with your question.

Hi, Eric. Hi, Tom.

Hi, Eric.

So maybe, I'll just stick with gearing a little bit here. I mean, obviously, backlog order trends have been very good and expectation that, that continues. I mean, is it fair to say that 2023 then, given the length of time that this flows through that 2023 is when -- I mean, you likely are at 2018 levels, which I think would be your previous record or above that? And then, assuming what you just discussed on the cost side, I mean, should we still think about the same margin profile when you get to those 2018 levels and higher?

Yeah. I think as far as the margin profile, the answer is yes. This is a heavily leveraged -- it's capital intense. So once we -- a lot of machines over there. So once we get to a certain level, we really start throwing that kind of EBITDA percentages you've seen before in 2018. Regarding the strength throughout 2022 and 2023. The answer is yes. Our power generation, our energy, which is oil and gas, which we participate in. We think that's going to remain strong throughout 2022 and into 2023. It may soften a bit in 2023, but we expect other segments such as steel, infrastructure, mining, material handling to offset that. Because we're growing those segments in anticipation of a bit of a softness in oil and gas coming here in 18 months or so. Because that's cyclical. Oil and gas is a market that tends to run in 18 months to two-year cycles.

Yeah. Absolutely. Okay. That's helpful. Maybe, just turning to wind that you mentioned. And obviously, we all know the -- we know the challenges in wind right now, but you've got, what $29 million in orders here as of late. But talking about orders postponed to the second half. I mean, do you have any thoughts or any details on maybe, the quantity of those orders pushed to the second half? And I would just love your thoughts. I mean, is it -- it's the PTC uncertainty as the number one factor in all this? Or do you think that it's equal versus some of the supply chain concerns?

My take -- again, this is just my take in researching and participating in the industry. I think it's mostly the PTC. I think the cost of materials is a bit of a doubling down of some of the financials of the projects. But I think the PTC, that uncertainty is really what has people remaining on the sidelines as they wait for their projects to mature. Again, I'm looking for some sort of clarity. I did hear President Biden last night on his statement, he did mention this support for climate and U.S. production. So I'm encouraged that the Congress may do something. Something smaller or something specific to climate change, PTC, ITC, as I mentioned in my prepared remarks. I think that's the primary driver causing the pause.

And I mean, any way to quantify the magnitude of the orders that you think have been pushed? Or is that more about just why -- I mean, you're clearly cautiously optimistic that as you get into the back half of the year, things do start to improve in terms of the outlook?

Yeah. What I think is happening is our customers are really looking at 2023 as a stronger year. So again, they're cautious as well. So what they're talking about is capacity to both plants, ramp-up plans. So they're optimistic about 2023. I think you're waiting for the news as the rest of us are. So when you're talking about the quantity of orders, that's tough for me to answer. I just believe that there's going to be a lift towards the end of 2022 as they prepare for 2023 installations.

Got you. Okay. Maybe last one for me, and this is a -- I thought it was a pretty interesting product announcement or offering announcement a few quarters ago. But your pressure reducer systems, at the time, you've gotten some initial orders and we're seeing some interest. Just would like an update on that.

Yeah. That product is -- again, for those of you who don't know, that's participating in the virtual pipeline, which we see as natural gas as a transitional fuel. And so what that product does is when some gas is flared or wasted at the site where it was generated, that gas is captured, compressed, shipped to where it's used and then decompressed at the point of use, whether it be a hospital or a different pipeline a factory or whatnot. So we see that as a very, very much supportive of our participation in clean energy and a cleaner future. So what that does is, again, it reduces the pressure at the point of use. So we're putting that through its paces in the field. It's performing very well, Eric, and demand is up, in fact -- and we're ramping up our capacity to meet that demand. So I expect that product line to be solid for us. And I also expect our NPD focus to be broadening that product line and other products that are used in that virtual pipeline market.

Okay, that’s great. Thanks.

Thank you.

Our next question comes from the line of Amit Dayal with H.C. Wainwright. Please proceed with your question.

Thank you. Good morning, everyone. Appreciate you taking my question.

Good morning, Amit. Good morning.

Hey. My other question is, you've already gone through them. With respect to sort of the oil and gas segment, is that -- slows down for you or softens for you over the next few quarters? What other sectors can fill any gaps from that slowing down?

Yeah. And that's also where we did some investing in capabilities in that particular business. So we’re working on mining gas turbines which is casket [ph] or large or small gas turbines, transportation rail. We can do things for railroads and whatnot, even medical. This capability allows us to get into the medical field. And dealing with the infrastructure segment, steel mills use our products as do cement processing mills. So we are aggressively working to grow our business outside of energy, or outside of oil and gas for just that eventuality. We’re also trying to make certain that we limit frankly how much capacity that we offer to the oil and gas market to make sure that we’ve got available capacity for those other customers and other segments that are coming to us.

Okay, thank you for that, Eric.

You’re welcome.

The increase, sort of the improvements in backlog and the new orders on the wind tower side, are these at normal margins? Or are you having to give up some margins from inflationary pressures? Just trying to see how you're managing your own pricing relative to current trends in the market from all these different macro factors?

Yeah, those would be at historically consistent margins.

Okay. Thank you. All right.

So if we can set [ph] the margins.

Yeah, that’s all I have. I’ll take my other questions offline. Thank you.

Thank you.

Our next question comes from the line of Martin Malloy with Johnson Rice. Please proceed with your question.

Good morning. Thank you for taking my question.

Hey, Martin.

I wanted to talk to you about liquidity at the company. When I look at last year's results, the $1.2 million EBITDA and that benefited from $7 million in employee retention tax credit of $9.2 million PP loan forgiveness that occurred during first half of '21. And still, operating cash flows were negative I believe, $12.8 million for the year. What happens with the availability under your revolver, your credit facility as these government, the ERTC and the PPR anniversary in the second quarter?

Yeah. So our liquidity, we feel it's going to be adequate going forward based on our projections. We just recently signed a new agreement with CIBC, our bankers which is disclosed with our -- we filed this morning. Within that agreement, we were able to automatically increase our liquidity by another $2.5 million based on reducing some of the -- or backing off some of the reserves that were put in, in Q3. So we feel that given our rising asset base, during the year, we're going to have adequate liquidity underneath the revolver that we have.

So you don't think you'll need to issue equity?

At this point, no, Marty.

Okay. Thank you. Those are my questions.

Thank you.

There are no further questions in the queue. I'd like to hand the call back over to Mr. Blashford for closing remarks.

Yeah. Thank you for your attention and your interest in Broadwind. And we look forward to reporting our results to you after the first quarter. Have a great day.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day.