Broadwind Inc (BWEN) 2013 Q2 法說會逐字稿

Welcome to the second quarter 2013 Broadwind Energy Incorporation Earnings Conference Call, my name is Larissa and I will be your operator for today's call. At this time, all participants are in a listen-only mode.

Later, we will conduct a question and answer session. I will now turn the call over to Joni Konstantelos. Joni, you may begin.

Thank you. Good morning. And welcome to Broadwind Energy's Second 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. I will just turn to slide three.

This morning, we reported our second quarter results. We completed another solid quarter with results in line with our overall forecast.

The Towers business was the shining start of the Group. This segment had strong order intake of $52 million, the industrial weldments business increased topline revenue by 42% compared with a year ago.

EBITDA for the segment almost tripled to $5.3 million as a result of greater productivity, less rework, and improved tower mix, as well as a reduction in excess capacity in the market.

The tower business would have had an even better quarter had it not been for $4.4m of revenue for completed towers awaiting in customer sign-off on a first article qualification falling out of the quarter.

Customer sign off was subsequently received and the revenue will be recognized in the third quarter. On the flip side, the gearing business, we faced a number of challenges as we deal with a weaker market in mining and natural gas, somewhat offset by a stronger oil market.

The gearing business faced many of the same challenges that the tower business faced last year, our gearing product mix has become more variable with more machine setups and we have shifted production to more completed gearboxes which is more complex compared to loose gearing.

Similar to the tower segment, the gearing business has engaged in a series of process improvement projects, to improve their ontime delivery and throughput which I will discuss later in the call.

In the services business, we have experienced a significant slowdown in Field Service work, as a result of wind farm owners insourcing more work during this period of record low construction activities or their deferring work such as turbine upgrades. We expect this trend to reverse as construction activity increases in the fourth quarter of this year and into 2014.

We are doubling our efforts to leverage our infield service capabilities around gearboxes and to extend this expertise more deeply into the industrial markets served by our gearing business.

This will smooth out some of the volatility around wind services, and enhance the value proposition we offer to our gearing customers.

As we previously reported, we closed on the sale of the idle tower facility located in Brandon, South Dakota, the $4 million mortgage on the facility was paid off and we put $8 million in the bank.

Turning to the market outlook, we are seeing a strong wind energy market over the next few years. The industry is seeing greater activity on the part of utilities to purchase windfarms outright or to provide power purchase agreements to enable a financing of wind projects.

We also expect over the next three years that some of the existing older coal fired power plants will be taken offline and be replaced with a combination of wind and natural gas powered power generation particularly in the central and Mid-Atlantic states.

The natural gas market has strengthened a bit but is not expected to return in the foreseeable future to activity levels that we saw in 2011 for mud and frac pump gearing needs.

So all in all, towers had a terrific quarter, we are aggressively addressing the challenges in gearing, and working to smooth the volatility and services.

The balance sheets saw improved strength with the sale of Brandon and the improved towers performance. Moving to slide four, talk about order intake. The tower business continues to book significant orders. We have sold our available capacity in 2013 of approximately 400 towers and w continue to ramp up our planned capacity for 2014 of approximately 500 towers. We have sold about 50% of our capacity for 2014, which includes the $70m tower order we received at the end of Q2.

Quoting activity remains strong and we have been discussing some volume commitments from customers for 2050.

Order volume and gearing was particularly low during the second quarter. As we have mentioned in the previous quarters, the fall off in natural gas and mining markets has had a significant impact in our gearing business. Additionally, we have seen greater competition from European gear manufacturers.

As Europe demand for gearing deteriorated in a weak economy, these manufacturers have sought out the US markets to sell their excess capacity at more competitive pricing than we have historically experienced.

In response to both of these challenges, we have targeted our selling efforts in the oil and steel markets where customers seem to be spending more on CapEx for gearboxes as we have tightened our focus on sales, we have seen a pickup in order intake recently. We are looking to expand the gearing salesforce by the end of the year to reach more customers. I am confident that our Q3 gearing orders will be more in line with our historical trend.

In June, we recorded a $35 million order cancellation in towers which was associated with a multi-year frame agreement made in 2010. As the markets strengthened in 2013, we found that the terns of this original contract were not as favorable as the current market.

The customer did not want to take delivery of the towers in 2013, and we couldn't mutually agree on terms for 2014 deliveries. We therefore, sold this 2013 capacity to another customer.

Our backlog was down at the end of Q2 to about $143 million primarily due to this tower order cancellation. As the graph shows, a $70 million tower order was booked in July, and as a result, our current backlog is approaching $200 million.

Slide five, with the sale of the idle Brandon, South Dakota facility, we have reduced our footprint by over 400,000 square feet and achieved 73% of our square foot reduction goal. The next big reduction is the sale or closure of the Cicero avenue facility as we consolidate into the central avenue factories.

We do not expect to generate a significant amount of cash on the sale, however, having our entire gear manufacturing operation under one roof will streamline production and eliminate certain fixed costs.

We continue to work hard to control SG&A, although there was a slight uptick in the percentage of revenue, the actual dollar cost are down. Stephanie will cover this in more detail later in the call.

Regarding the diversification strategy, since 2010, we have consistently been able to grow topline as depicted by the size of the pie charts.

The first half of 2013, is in line with 2012. Strategically, we aspire to have a 50/50 mix between revenue from building installations compared to other markets. Given the strength in towers, our mix will be heavier in new wind for the near future.

With a rebound in gearing and services business, and future growth in weldments, the 50/50 mix is a reasonable target in the midterm.

Slide six, I like to discuss our gearing business. To frame some of the challenges this business has faced. Over the last ten years, the strategic focus of this business has changed from nicely diversified independent gear manufacturer to a predominantly wind energy manufacturer with significant smaller set of customers and then back again, to an industrial gear manufacturer by making the switch into wind gearing, we gain certain expertise and precision gear manufacturing and improved our core capabilities.

This knowledge came at the cost of losing focus with some of our markets and our industrial customers. We have been winning them back but the change in strategy did impact the business.

You can see from the graph as the wind gearing market declined, we expanded into natural gas, oil and mining. 2011, these markets look compelling with good growth prospects. By 2012, mining and natural gas were softening while oil held steady.

Looking to the future, we are taking the following steps in gearing, in conjunction with our plant consolidation which is targeted for substantial completion by the end of the year.

We have focused on leveraging our sales and engineering resources to more closely collaborate with customers on designing gearing solutions that better fit their fits and are closely aligned with what is important to the customer, be it reliability, cost or standardization. We are leveraging our continuous improvement resources and looking at all the front-end processes to reduce cycle time, eliminate dwell time in some of our process handoffs.

We believe that on time delivery can be a strategic advantage in the future. Similarly, there are synergies with our service group that can leverage the network of wind service technicians which can be utilized with our gearing customers to offer service contracts and more diagnostic or reliability products.

With some of the industry consolidation that has occurred, now, more than ever, we believe there is a strong need for a third party high quality precision gear manufacturer in the business and should be able to deliver above average revenue growth in the future.

Turning to slide 7. We kicked off our company-wide continuous improvement program in the second half of 2012. Currently, we have 13 projects in process around ontime delivery, total productive maintenance, product quality, and manufacturing throughput. We have hired three C.I. leaders to train, mentor, and drive the overall program across the Company. We are using real time, business selected projects to train key staff in the C.I. concepts.

Each business has started a process of creating value stream maps to better understand how we can eliminate non-value added stuffs.

With this level of focus, the expectation is to improve throughput, lower cost, and improve customer satisfaction. Improved tower production, and a margin seen in the first half of 2013, are in part, a result of these initiatives and I'm confident we will reap similar benefits across the Company.

On slide seven, we have highlighted two examples of how with a little focus on operational improvement, we can reduce waste and improve productivity. Environment health and safety is of great importance to me and the whole Broadwind team. We made great progress in the last few years.

The graph on the left side represent some of the benefits that have come from a greater focus on EHS. 2011, we committed more resources to a holistic EHS program and as a result, we have reduced our injury rate in half from 2010, and reduced the cost of these claims by over $1 million. On the right side of the slide, shows an example of some of the efforts around continuous improvement and gearing.

We held a kaizen event focusing on the process from the time the order is accepted to when the work instructions are complete. We found that every part that went through -- we found that every part went through the same process whether it was a recurring part or a new part. For recurring parts, the supply chain was already established and engineering was complete and many of the steps could be skipped.

For the recurring orders, we were able to significantly reduce non-value added steps in completing the shop folder. Thus, the order will get released to the shop for one to two months faster than the old process. The number of handoffs have been reduced from 43 to 10 which helps expedite the entire process and reduces potential errors.

Looking back, some of this should have been obvious, but until we took the time to question the current processes, with all the stakeholders in a room, it wasn't.

The nature of the corrective process is iterative, and by the end of the year, we would have -- we will have completed Kaizen events on the entire order to delivery cycle which should uncover many process improvement and significantly improve ontime delivery.

Overall, I'm pleased with the way the business is embracing the C.I. initiative and is beginning to be a part of our culture.

I'm excited to see the engagement across all levels in the organization. I will now turn the call over to Stephanie to discuss the financials in more detail.

Thank you, Pete, and good morning. Turning first to slide 8, the abbreviated income statement, as Pete discussed, our sales revenue was down from last year and lower than we expected due to weak gearing and services revenue and slippage of $4.4 million have completed tower revenue into Q3.

Despite the lower revenue, our gross profit and gross profit margin improved significantly, gross profit of $2.6 million was net of $1.2 million of restructuring costs. And the gross profit margin excluding restructuring of 7.4% was double the prior year, bringing in the year to date profit margin to 6.6%, up 240 basis points from last year.

Operating expenses were up $100,000 from last year but include a $450,000 increase in intangible amortization expense. The effect of which was marginally offset by lower expenses across a number of other categories.

Our operating loss of $2.3 million included $1.3 million of restructuring expense as we accelerate spending into the final stage of the Cicero plant consolidation.

Adjusted EBITDA was $2.7m, up sharply from last year, and bringing the year to date total to $4 million. This is in line with the guidance provided last quarter despite the lower revenue. The EPS lost was $0.01 per share, we have guided to a slight positive EPS but the net asset sale gain which included both the brand and some surplus gearing assets was smaller than we forecasted.

Slide 9 please. Simply put, Broadwind's turnaround plan is dependent on raising a gross margin percent and holding or decreasing the percent of revenue spent on operating expenses. On the left hand side, we have updated the gross margin chart to show the results from the first half, an average of 6.6% excluding restructuring, and on track with our 2013 target of 6% to 7%.

The production improvements in towers, the quality of the sales mix, and the impact of some of our restructuring activities are showing in the margin. On the right hand side, is the operating expense trend.

Operating expense includes SG&A, plus intangible and goodwill amortization, plus any restructuring expenses that affects the staff areas.

As you will see, after dropping sharply for the past two years, the operating expense picked up to 12.2% of sales in the first half, mainly because of a $600,000 increase in restructuring expenses and the acceleration of intangible amortization which is up $900,000 from last year.

Looking at the light blue portion of the bar which includes these two items, operating expense would be lower by $900,000 and was nearly flat versus the prior year. With revenue more heavily loaded into the second half, we expect the full year operating expense to average between 10.5% and 11% of sales, all in.

To reiterate then, our goal for 2014 is to deliver a gross profit margin in the 9% to 11% range and limit operating expenses to 9% to 10%, therefore, generating positive operating profit, with minimal interest expense and almost no income tax, this should also result in positive EPS.

Turning to slide 10, we sold 85 towers in the quarter, up from 76 in the prior year, the section count was actually down on a higher tower count because these were heaving sections.

And 39 sections for a new tower design were completed as planned in the quarter, but remained in inventory because of the timing on customer sign off slipped beyond June 30th. As a result Q3 tower sales should be over $45 million.

Second quarter revenue of $37.5m was up very slightly from last year and included $3.2 million of industrial weldments. Operating income and EBITDA were significantly higher as Pete mentioned in the second quarter of 2012, we were dealing with multiple new tower models and throughput and productivity suffered, making this quarter a relatively easy comparison.

Partly due to our continues improvement initiatives, and because of a less variable and higher margin mix that towers produced, throughput was much improved and profitability has jumped. Our EBITDA margin was 14% in the quarter and 12.8% year to date.

The second half of the year should also be strong, and volume will rise was we trend up to more than 100 towers per quarter. By 2014, we expect to be producing about 125 towers per quarter.

Slide 11, please. Peter has already talked about the weaker revenue in this segment, $10.5 million in the quarter, down $3.6 million from the 2012 figure. Of the reduction, $1.6 million was attributable to lower orders, primarily from customers making mining, and natural gas fracking equipment.

The remaining $2 million reduction in sales was due to a delay in completing a line of gearboxes for an oil equipment customer which was shipped later this year. Margins were also lower due to the effects of lower volume on the absorption of the fixed cost, but also because our costs are about higher than expected on these new gearboxes.

Looking at the illustration on the bottom right hand side, the share of sales of enclosed drives or complete gearboxes has risen to 20% of six-month revenue this year, up from 5% in 2012. We believe this transition will ultimately be positive for our margins of profitability, but it is currently pulling margins down.

The Q2 EBITDA margin for gearing was slightly negative, down significantly from 2012. Our plant consolidation is progressing well, as we move our largest machines this quarter. We expect to vacate the larger of the two Cicero Avenue plants earlier in the fourth quarter, a couple of months ahead of schedule which will allow us to begin to experience some cost reductions.

Next slide, services also had a difficult quarter. As shown in the bottom right hand corner, turbine installations plummeted from over 13,000 megawatts in 2012, to an estimated 2,000 to 3,000 megawatts this year.

And the quarterly installation figures are even more dramatic. The industry commissioned 8,380 megawatts of capacity in the fourth quarter of last year, and only 2 megawatts in the first half of this year.

From a record high to a record low, this underscores the extent to which federal policy drives artificial cyclicality in the wind energy business.

More encouragingly today, a growing number of projects are in the pipeline and there has been significant activity in recent months in terms of utilities issuing RFPs for renewable energy and signing purchase power agreements.

Despite the fact that our focus is on non-routine maintenance, the curtailment of installation activities in the first half has left the turbine OEMs with surplus technician which has increased the competition for work on the installed based.

We think this situation will start to even out in the back half of the year and into 2014. In the meantime, we are managing our way through a difficult period, and making headcount and expense reductions where we can.

Second quarter revenue of $4.1 million was down $1.6 million from the prior year quarter. EBITDA was down only $100,000 on the $1.6 million revenue reduction due to cost reductions and some better operating practices we instituted in previous quarters.

Turning to the next slide, our operating working capital dropped during the quarter to $9.5 million or 5% of annualized revenue. This is a result of receiving significant prepayments on tower production and in some cases, our customers want us to lock in the steel prices in the current pricing environment.

Partly offsetting these advances was a $7 million increase in inventories to support the higher tower production level, and due to the unusually high level of completed towers and gearboxes, which were in inventory at June 30.

We expect our working capital balance to remain very low for the remainder of the year, since a portion of the customer advance is already in hand for tower scheduled for building in 2014.

Next slide please. At quarter end, our liquidity position was very strong. We had $18 million of cash, zero drawn on our credit line and debt and capital leases totaling less than $5 million. And significantly, of the $4.8 million debt and lease balance, $2.9 million was low or zero interest debt which will be forgiven over time.

At this debt level, our interest expense including commitment fees will drop to about $125,000 per quarter in the second half of the year.

Next slide, please. Looking now into the back-half of the year with both tower and gearing revenues pretty well locked in. We are narrowing our guidance to the lower end of the range of our 2013 outlook. We expect the revenue in the $215 million to $220 million range with EBITDA of $9 million to $10 million and EPS of a $0.55 to $0.65 loss.

The EPS loss is higher than previously indicated because we have accelerated our restructuring somewhat and adjusted down our asset sale gain slightly.

We expect our towers and weldments business to continue to perform well and sell more than 225 towers in the back half of the year. Our gearing revenue should rise slightly in the back half of the year, but margins will likely stay depressed until orders improve and the disruptions related to our consolidation projects are behind us early in 2014.

Our services segment is the most difficult to project because the lead time on orders is so short. We are forecasting this business conservatively, but hope to see some improvement in the order rate in the second half of the year as turbine installations ramp up.

In the third quarter, revenue should exceed $60 million and EBITDA should be above $2.5 million, for a $0.12 to $0.16 loss.

My final slide shows the status of our restructuring initiative. Our capital outlays which are essentially all to support the gearing consolidation are 76% complete.

Our expense dollars, mainly for consolidation items that are not capitalized, are about two-thirds behind us. So our cash uses in total are $7.9 million since the inception with $3.1 million still ahead of us.

Also shown in this schedule are the Brandon plant sale gain of $3.6 million and a non-cash charges we have taken as we accelerate the depreciation on the Cicero plant which we will eventually sell.

Turning to the final bullet point, I would just note that the shareholder litigation that was initiated in the early 2011 has now been settled in full by our D&O insurance carrier and approved by the court on June 27th. We are happy to have this distraction resolved.

This completes our formal remarks, I will not turn it over to Pete to moderate the Q&A.

Thank you. We will now begin the question and answer session. (Operator Instructions). Our first question is from Sanjay Shrestha from Lazard Capital.

Great. Good morning, guys. A few questions. So as we sort of think about 2014, obviously with meaningful uptake in the tower business.

When you talk about getting to the profitability for that year, how are you sort of thinking about the gearing business and some of the opportunities maybe even consolidation or obviously ongoing for the cost reduction. Can you sort of further elaborate on that a little bit?

Sure, Sanjay. I will start by saying we haven't done our budget yet or we are just starting you know, kicking off the budgeting process for 2014, so I'm going to speak in generality.

Please.

You know, we expect to see improvement in gearing in 2014, because most of the disruptive portion of the consolidation now is going to finish a little bit earlier in the fourth quarter.

So we are going to get -- we expect to get some better product flow and we also, you know, we have kind of expanded our sales and marketing efforts and we think we are going to be able to bring more revenue to the topline.

The towers is going to be fairly significant, you know, we are talking about 100 tower increase, those towers are you know, $400,000 or so a piece. And the margin we get -- you know, double digit margins so that is going to help us, you know, very significantly. Getting that plant -- those plants really operating at full capacity.

Right now, you know, we are -- it's just too soon to call what is going to happen in services. A lot of it is going to depend on what we see this quarter with some improvement in the installation rate but obviously, that is the smallest part of our business.

Got it. So to follow on that, that was going to be my follow up question, actually. On the service side, you are right, if the general expectation on you know, basically you know, sort of installation picking up pretty dramatically from 13 to 14, shouldn't it naturally also lead to more service business as the market is now back to being a bit more normal and therefore, with everything, you guys are doing, we should see some nice uptick in that business for you guys. You don't know?

Yes, I think, Sanjay, we were kind of maybe throwing a curve ball a bit and you know, Stephanie mentioned, we went from 8.4 gigawatts to almost nothing in the -- 8.4 in the fourth quarter to almost nothing in the first half of this year. I -- you know, I don't think we expected it to be that dramatic and I think a lot of the owner operators kind of hunkered down and were -- you know, getting a lot of their development efforts underway.

So you know, we do expect to see an uptick in the third and fourth quarter of this year and you know, I think, in many respects, '14 is going to look, from an activity level, look a lot like last year, a lot of projects going in the ground and so they will need construction support and redeploy some of their people working on non-routine maintenance to construction that will open up some opportunity for us.

So you know, again, as Stephanie mentioned, we haven't done our budget yet for next year but we certainly would expect a rebound in services for 2014.

And one final question, so as we sort of go through the second half of this year. We should probably hear continued -- sort of the win for you guys on the tower side of the business given you know, what is looking like a pretty big growth in the wind market, right? That is a fair assessment.

Yes, the general market is very robust right now and the quoting activity, you know, we are working with the OEMs on their volume needs and figuring out what locations, you know, one thing that I think that has happened is some of the OEMs were out locking in the supply chain before they had orders.

So, you know, they weren't totally sure where they were going to lock in all of their orders so we have been working very closely with a few OEMs on making sure that we are meeting their needs.

Got it. That is all I had, guys, thank you so much.

Thanks.

Thank you. The next question comes from Angie Storozynski from Macquarie.

Thank you. So we are hearing from wind power developers that pretty much they have to firm all of their construction plans by the -- you know, by the fall of this year to qualify with new builds for the PPC and all of the rules regarding the start of construction.

So do you think that by then, they will have a firm bill of their purchases for you know, powers and turbines and equipment and so by then, you will have a good sense of you know, your total backlog for say, the next year or two or is there still a chance that somebody is going to be actually procuring more equipment come 2014.

Angie, I would say that if you look at the rules on the PTC extension, essentially, the developer has to have started construction or put 5% of the total project cost down on -- you know, have expanded that 5%. So I'm not sure that everyone will have locked in their turbine supply but I would think substantially, most of them will, and I do expect that we will see you know, some orders in '14 for '15 -- 2015 deliveries.

So you know, I think what is going to be happening is there is - we are going to have to work with our manufacturers on shifting around depending on when they get orders and -- but you know, directly to your question, your question is do we expect to be locked in to 2014 by the end of the year, and I think that is definitely the case and you know, I think with the activity that I see, we are -- I think we are going to have a good visibility.

You know, we are 50% of the way there and locking in the pipeline for '14 now and I would expect in the third quarter to see additional orders being recorded and really having great visibility into '14 by the end of the third quarter.

Yes, you mentioned I think last quarter, that some of the strength and the towers business was not sustainable because some of the players you know, might be coming back or might be -- you know, reverting their manufacturing capacity or capability structure manufacturing towers. Have you seen any of those?

I don't think there is going to be an influx of new players into the market. I mean there is a question as to what, the best this is doing is how much it's going to be for their internal use versus third parties, there have been some announcements made that this is out doing manufacturing of towers for other players, and then obviously trinity, you know, it's not totally clear how much of their capacity for towers has shifted into rail car and other fabrication work.

But you know, I just don't see a lot of people making huge investments in tower capacity in the United States.

Okay and lastly on the gearing segment. So you know, it seems like you are experiencing some growing pain, so if you try to you know, move into gearing boxes, so you are investing money into growing your sales force and focusing on the oil and gas business. And so when do you think, you know, you will have more actually to say about the capacity of that business as it is being you know, refocused now on the oil and gas sector.

I mean should we expect that there is going to be a meaningful pickup already in '14 or is this more a function of what happens to oil and gas prices.

Well, the business has the capacity for, you know, around you know, we have enough foot print in the machines to do somewhere between $120 million and $150 million of revenue on an annual basis so we have plenty of capacity.

You know, what I tried to outline in the presentation was you know, we move from wind into natural gas and mining and those markets got soft, as we all know, oil is doing well and we continue to focus on winning back those new customers.

So you know, I would expect that we would have you know, good growth for next year because our consolidation will be done, will have some of this continuous improvement initiatives done on the front end, and we will have new sales people.

So I would expect that we would see a double digit type of growth on the top line for next year in gearing.

But is in predicated on you showing actually a good track record as far as manufacturing capabilities? Is that what is slowing down some of the progress in the orders, the fact that you are -- have some manufacturing issues?

I think there have been some manufacturing issues, I think most customers feel like we have good quality and we are a good gear manufacturer. I think you know, as you go -- as you win back, you know, some of our former customers and new customers, there is a whole qualification process you have to go through and sometimes, that takes longer to get completed depending on the nature of the gearbox that we are making or the customer requirements.

So I think it's a good six to nine month process to really have a solid qualification with the customer.

And lastly, I know a lot has been said and talked about your services business but have you -- I mean, it's been you know, we have been waiting for that recovery for quite some time and demand for our [floor] services business, our activities now. I mean have you or your structuring process thought about maybe you know, maybe doing away with those activities?

I mean do you feel like they actually add to the total value that the Company offers? The total you know, product package that you offer?

Yes, I do. I mean I think we have some unique capabilities in our services business that we have -- a team that -- they know gearboxes, they know they can fix major items, were building relationships with some of the major players and I think, you know, so in the wind business, it's still fairly competitive. I would have expected to see more progress and people consolidating or exiting like we saw in towers by now.

So maybe we underestimated how quickly that was going to occur but I think the other thing is we have this network of service technicians in the united states for wind, a lot of them can do the same thing for industrial boxes and that is -- as I spend more time with the gearing guys, I think that is a growth opportunity to use those service techs to help offer service agreements on new gearboxes to work with customers on diagnosing problems with their existing gearboxes, it should also enhance new sales for the gearing business.

So I'm not -- to a point where I'm going to give up on the service initiative, I think there are synergies between services in gearing and we just got to do a better job of proving that out.

That is great. Thank you very much.

Thank you. (Operator Instructions). I'm showing no further questions at this time, I will now turn the call over to Peter Duprey for final remarks.

Well, I would like to thank everyone for participating on the call, overall, it was a strong quarter and we certainly know we got some challenges in gearing and services but we faced those challenges last year in our tower business and we have turned that around for this year and going forward and I'm very confident that we can do the same thing in gearing and services.

And our tower business, we got some of the best visibility looking forward than we have had in the last three to five years and I'm really looking forward to the upcoming calls and showing the progress that we are making and thanks for participating in the call.

Thank you ladies and gentleman, this concludes today's conference. Thank you for participating. You may now disconnect.