Broadwind, Inc.
Q2 2013 Earnings Call Transcript

Published: 2 Aug 2013

[Operator:]

Welcome to the second quarter 2013 Broadwind Energy Incorporation Earnings Conference Call. My name is [Lorisa] and I’ll be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session. Now I’ll turn the call over to Joni Konstantelos. Joni, you may begin.

[Joni Konstantelos:]

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.

[Peter C. Duprey:]

Thanks, Joni and thanks, everyone for joining the call. Let’s turn to Slide 3. This morning, we’ve 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 top line 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. Tower business would have had an even better quarter and had not been for $4.4 million 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 Towers segment, the Gearing business has engaged in a series of process improvement projects to improve their on-time delivery and throughput, which I’ll 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 in sourcing more work during this period of record low construction activity 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 in 2014. We are doubling our efforts to leverage our in field 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’re seeing a strong wind energy market over the next few years. The industry is seeing greater activity on the part of utilities to purchase wind farms 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 off-line and be replaced with the combination, wind and natural gas powered power generation, particularly in the Central and Mid-Atlantic states. The natural gas market has strengthened a bit, but it 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 4, talking about order intake; the Tower business continues to book significant orders. We have sold our available capacity in 2013 of approximately 400 towers and we 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 $70 million tower order we received at the end of Q2. Quoting activity remains strong and we have been discussing some volume commitments from customers for 2015. Order volume in Gearing was particularly low during the second quarter. As we’ve mentioned in previous quarters, the fall off in natural gas and mining markets has had a significant impact in our Gearing business. Additionally, we’ve seen greater competition from European gear manufacturer. As Europe demand for Gearing deteriorated in a weak economy, these manufacturers have sought out the U.S. markets to sell their excess capacity and more competitive pricing than we have historically experienced. In response to both of these challenges we have targeted, our 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 sales force by the end of the year to reach more customers. I am confident our Q3 Gearing orders will be more inline for historical trend. In June, we recorded a $35 million order cancellation in Towers, which was associated with a multiyear frame agreement made in 2010. As the markets strengthened in 2013, we found that the terms of this original contract were not as favorable of 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 5, with the sale of 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 the 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 costs are down. Stephanie will cover this in more detail later in the call. Regarding the diversification strategy, since 2010 we had consistently been able to grow top line as depicted by the size of the pie charts. The first half of 2013, is inline with 2012. Strategically, we aspire to have a 50/50 mix between revenue from new wind 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 mid terms. Slide 6, I’d like to discuss our Gearing business, to frame some of the challenges this business has faced. Over the last 10 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 a 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’ve been winning them back with 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 needs and are closely aligned with what’s important to the customer for 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’t be a strategic advantage in the future. Similarly, there are synergies with our Services 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 strong need for third-party high-quality precision gear manufacturer in the business and should be able to deliver above the average revenue growth in the future. Turning to Slide 7, we kicked off our Companywide continuous improvement program in the second half of 2012. Currently, we have 13 projects in process around on-time delivery, total productive maintenance, product quality and manufacturing throughput. We have hired three CI leaders to train, mentor, and drive the overall program across the Company. We’re using real-time business selected projects to train key staff in the CI concepts. Each business has started a process of creating value stream and that’s to better understand and we can eliminate non-value added stuffs. With this level of focus, the expectation is to improve throughput, lower costs, and improved customer satisfaction. The improved tower production and the margin we seeing 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 7, we have highlighted two examples of how with the little focus on operational improvement, we can reduce waste and improve productivity. Environmental health and safety is a great importance to me and the whole Broadwind team. We made great progress in last few years. The graph on the left side represents some of the benefits that have come from a great 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 in 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’ve done at every part that went through, we found that every part went through the same process where there was a recurring part or a new part, for recurring parts the supply chain was already established, engineering was complete and many of the steps could be skipped. With 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 folder 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 in total we took the time to question the current processes that all the stakeholders in the room it was. The nature of the corrective processes is iterative and by the end of the year, we would have completed kaizen events on the entire order to delivery cycle which should uncover many process improvements and significantly improve on time delivery. Overall, I’m pleased with the way the business is embracing the CI initiatives and is beginning to be part of our culture. I’m excited to see the engagement across all levels in the organization. I’ll now turn the call over to Stephanie to discuss the financials in more detail.

[Stephanie Kushner:]

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 of 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 cost 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 which was largely offset by lower expenses across the 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 stages of our Cicero plant consolidation. Adjusted EBITDA was $2.7 million 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 loss was $0.01 per share, we had guided to a slight positive EPS but the net asset sale gain which included both the brand and plant and some surplus Gearing assets was smaller than we forecast. Slide 9 please, simply put, Broadwind’s turnaround plan is dependent on raising our gross margin percent and holding or decreasing the percent of revenues spent on operating expenses. On the left hand side, we’ve 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’ll 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 excludes these two items operating expense will 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 that 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 heavier sections and 39 sections for new tower design were completed as planned in the quarter remained in inventory because timing on customer sign-off slipped beyond June 30. As the result Q3 tower sales should be over $45 million. Second quarter revenue of $337.5 million 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 relatively easy comparison partly due to our continuous improvement initiatives and because of a less variable and higher margin mix of 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 raise as 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. Pete 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 the line of gear boxes for an oil equipment customer which will ship later this year. Margins were also lower due to the effects of lower volume on the absorption of fixed cost but also because our cost will run higher than expected on these new gearboxes. Looking at the illustration on the bottom right hand side the share sales of enclosed drivers 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 and 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 early in the fourth quarter, a couple of months ahead of schedule which will allow us to begin to experience some cost reduction. 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 two 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 uncertainty drivers 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 turbine OEMs with surplus technician which has increased the competition for work on the installed base. We think this situation will start to even out in the back half of the year and into 2014. In the mean time, we are managing our way through a difficult period and making head count 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 the result of receiving significant prepayments on tower production, in some cases our customers want us to lock into steel prices in the current pricing environment probably offsetting these advances worth $7 million increase in inventories to support the higher tower production level hence 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 the portion of the customer advances already in hand for towers scheduled for building in 2014. Next Slide please. At quarter end, our liquidity position was very strong, we had $18 million in 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 quarter of the year. Next Slide please. Regarding 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 revenue in the $215 million to $220 million with EBITDA of $9 million to $10 million and EPS of $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 sales gain slightly. We expect our towers enrollment business to continue to perform well and sell more than 225 towers in the back-half of the year. Our Gearing revenues raised 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 orders are 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 $0.12 to $0.16. My final Slide shows the status of our restructuring initiatives, our capital outlays which are essentially all to support to the Gearing plant consolidation are 76% complete. Our expense dollars mainly for consolidation items that are not capitalized are about two-thirds behind us. So our cash used in total are $7.9 million since the inception with $3.1 million still ahead of us. Also shown on this schedule are the Brandon plant sale gain of $3.6 million and the non-cash charges we have taken as we accelerate the deprecation 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 early 2011 has now been settled in full by our D&O insurance carrier and approved by the court on June 27. We are happy to have this distraction resolved. This completes our formal remarks and I will turn it over to Pete to moderate the Q&A.

[Operator:]

(Operator Instructions) Our first question is from Sanjay Shrestha from Lazard Capital.

[Sanjay Shrestha:]

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?

[Stephanie K Kushner:]

Sure Sanjay. I’ll start by saying we haven’t done our budget yet or we are just starting kicking off the budgeting process for 2014, so I’m going to speak in generality. 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 – we’ve kind of expanded our sales and marketing effort and we think we are going to be able to bring more revenue to the top line. The towers is going to be fairly significant, we are talking about 100 tower increase though the towers are $400,000 or so a piece, and the margin we get double digit, so that’s going to help us very significantly, getting that plan, really though the plans really operating at full capacity. Right now it’s just too soon to call what is going to happen in services, a lot of its going to depend on what we see this quarter with some improvement in the installation rate, but obviously that’s a smallest part of our business.

[Sanjay Shrestha:]

Got it. So on that – that was going to be my follow-up question, actually. On the service side, you are right, if the general expectation on basically, 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. Is that a no you don’t know?

[Peter C. Duprey:]

Yeah I think Sanjay, we were maybe thrown a curve ball a bit, as Stephanie mentioned, we went from 8.4 gigawatts to almost nothing in the – 8.4 in fourth quarter to almost nothing in the first half of this year. 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 we are getting a lot of their development efforts underway. So we do expect to see an uptick in the third and fourth quarter of this year, and I think in many respects 2014 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, redeploy some of their people working on non-routine maintenance to construction, that will open up some opportunity for us. So 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.

[Sanjay Shrestha:]

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 what is looking like a pretty big growth in the wind market, right. That is a fair assessment.

[Peter C. Duprey:]

Yeah the tower market is very robust right and now and quoting activity we are working with many of the OEMs on their volume needs and figuring out what locations, one thing that I think that’s happened is some of the OEMs were out blocking in the supply chain before they had orders. So they weren’t totally sure where they were going to lock in all of their orders, so we’ve been working very closely with a few OEMs on making sure that we are meeting their needs.

[Sanjay Shrestha:]

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

[Stephanie K Kushner:]

Thanks.

[Operator:]

Thank you. And the next question comes from Angie Storozynski from Macquarie.

[Angie Storozynski:]

Thank you. So we are hearing from wind power developers that pretty much they have to firm all of their construction plans by the fall of this year to qualify with new builds for the PTC 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 powers and turbines and equipment and so by then you will have a good sense of your total backlog for say to the next year or two or is there still a chance that somebody is going to be actually procuring more equipment come 2014?

[Peter C. Duprey:]

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 – 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 some orders in 2014 for 2015 deliveries. So I think is going to be happening is there is we are going to have to work with our manufacturers on shifting projects around depending on when they get orders. But I think directly to your question, I think your question is do we expect to be locked into 2014 by the end of the year and I think that is definitely the case in with the activity that I see, I think we are going to have very good visibility, we are 50% of the way there on locking in the pipeline for 2014 now. I will expect in the third quarter to see additional orders being recorded in and really having great visibility in the 2014 by the end of the third quarter.

[Angie Storozynski:]

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

[Peter C. Duprey:]

No, 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 [west] is doing is, how much is going to be for their internal years versus third-party, there have been some announcements made that west is out doing manufacturing of towers for other players, and then obviously Trinity its not totally clear how much of their capacity for towers has shifted into rail car and other fabrication work, but I just don’t see a lot of people making huge investments in tower capacity in the United States.

[Angie Storozynski:]

Okay and lastly on the Gearing segment. So it seems like you are experiencing some growing pain, so if you try to move into gearing boxes, so you are investing money into growing your sales force and focusing on the oil and gas business. So when do you think you will have more actually to say about the capacity of that business as its being refocused now on the oil and gas sector. I mean should we expect that there is going to be a meaningful pickup already in 2014 or is this more a function of what happens to oil and gas prices?

[Peter C. Duprey:]

Well the business has the capacity for around – we have enough footprint in machines to do somewhere between $120 million and $150 million of revenue on an annual basis, so we have plenty of capacity. What I tried to outline in the presentation was that we moved 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 I would expect that we would have good growth for next year because our consolidation will be done, we will have some of the 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.

[Angie Storozynski:]

But is it 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?

[Peter C. Duprey:]

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 as you win back some of our former customers and new customers, there is a whole qualification process you have to go through and some time that takes longer to get completed depending the nature of the gearbox that we are making or the customer requirement. So I think it’s a good six to nine months process to really have a solid qualification with the customer.

[Angie Storozynski:]

And lastly, I know a lot has been said and talked about your services business, but have you I mean, it’s been – we have been waiting for that recovery for quite some time and demand for services business activities now. I mean have you obviously in your structuring process thought about 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 product package that you offer?

[Peter C. Duprey:]

Yeah I do, I mean I think we have some unique capabilities in our services business that we have a team, they know gearboxes, they know – they can fix major items, we are building relationships with some of the major players, and I think so in the wind business its so fairly competitive, I would have expected to see more progress on people consolidating or exiting like we saw in towers by now. So maybe we under estimated 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’s as I spend more time with the gearing guys I think that is a growth opportunity to use those service tax to help offer service agreements on new gearboxes to working with customers on diagnosing problems with their existing gearboxes that should also enhance new sales for the Gearing business. So I’m not at the point where I’m going to give up on the service initiative. I think there are synergies between Services and Gearing and we’ve just got to do a better job of proving that out.

[Angie Storozynski:]

That’s great. Thank you very much.

[Operator:]

Thank you. (Operator Instruction) I’m showing no further questions at this time. I will now turn the call over to Pete Duprey for final remarks.

[Peter C. Duprey:]

I would like to thank everyone for participating in the call, overall it was a strong quarter, we certainly know we’ve got some challenges in Gearing and Services, but we faced those challenges last year in our Tower business and we’ve turned that around this year in going forward and I’m very confident we can do the same thing in Gearing and Services. In our Tower business, we’ve got some of the best visibility looking forward than we’ve 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.

[Operator:]

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