Broadwind, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; the filing also provides unaudited fourth-quarter results. Unless otherwise noted, dollar amounts are in thousands.
Business context
Broadwind manufactures precision structures, equipment and components for energy, mining and infrastructure customers, primarily in the United States. Its three segments are Heavy Fabrications (including wind towers and industrial fabrication), Gearing, and Industrial Solutions (including gas-turbine supply-chain and assembly services). Wind energy remained its largest end market, representing 49% of 2023 sales.
Key financial results
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $203,477 | $176,759 |
| Gross profit / margin | $32,508 / 16.0% | $10,710 / 6.1% |
| Operating income (loss) / margin | $11,139 / 5.5% | ($6,607) / (3.7%) |
| Net income (loss) | $7,649; $0.36 per diluted share | ($9,730); ($0.48) per diluted share |
| Adjusted EBITDA (non-GAAP) | $21,474 | $2,444 |
| Operating cash flow | ($6,946) | $16,643 |
| Capital expenditures | $6,405 | $3,098 |
| Free cash flow (non-GAAP) | ($3,843) | $17,506 |
| Cash at year-end | $1,099 | $12,732 |
| Total debt | $12,153 | $8,311 |
Debt and finance lease obligations together were $17,678 at year-end. The company had $4,657 outstanding on its revolving facility, $6,135 outstanding on its term loan, and reported $21,714 of additional borrowing availability. Operating working capital increased to $19,408 from $475, primarily because of higher receivables.
Fourth-quarter results and changes versus prior year
Fourth-quarter 2023 revenue was $46,598 versus $40,060 in Q4 2022. Gross profit was $7,032 versus $2,556; operating income was $2,274 versus an operating loss of $2,102; and net income was $1,071 versus a net loss of $2,851.
Full-year revenue increased 15.1%. Heavy Fabrications revenue rose 14% to $133,368, Gearing revenue rose 7% to $45,408, and Industrial Solutions revenue rose 41% to $25,159. Profitability improved across all three segments. However, new orders fell to $101,060 from $368,027, and year-end backlog declined 38% to $183,088. Book-to-bill was 0.5 versus 2.1.
- Heavy Fabrications: Segment operating income was $15,006 versus a $1,044 loss. The improvement included the benefit of $14,493 in gross Advanced Manufacturing Production (AMP) credits. Tower sections sold increased to 600 from 570.
- Gearing: Operating income increased to $1,846 from $43, although orders declined 54%, mainly reflecting weaker oil-and-gas and mining demand.
- Industrial Solutions: Operating income increased to $3,160 from $120, supported by higher gas-turbine and aftermarket demand.
Outlook, risks and unusual items
- Management said available cash, operating cash generation, the credit facility and potential financing and AMP-credit proceeds were expected to cover cash needs for at least the next 12 months. The filing provides no specific revenue or earnings guidance.
- A wind-tower supply agreement announced in January 2023 was valued at approximately $175 million, with fulfillment originally planned through year-end 2024. The parties discussed shifting about half of the tower-section orders planned for 2024 into 2025 while maintaining the total contracted quantity.
- The $14,493 of gross 2023 AMP credits was recorded as a reduction of cost of sales. The company sold $6,952 of credits at a 6.5% discount, recorded a $490 expected loss on the remaining receivable and incurred related administrative costs. The remaining 2023 credit receivable was collected in Q1 2024. The auditor identified AMP-credit accounting as a critical audit matter, citing significant judgment and evolving guidance.
- Cash declined by $11,633 during 2023; operating cash use reflected the AMP-credit receivable and lower customer deposits, among other working-capital movements. The company also relies on supply-chain financing to accelerate receivable collections.
- Customer concentration remains material: the five largest customers generated 65% of sales, and one customer generated $88,144 of revenue. Wind-market policy incentives, customer order variability, steel and supply-chain costs, skilled-labor availability, interest rates, debt covenants and the ability to realize backlog are important risks.
- The company incurred approximately $1,780 in proxy-contest expenses in 2023; the contested election resulted in none of the activist’s nominees being elected. The company reported compliance with credit-facility financial covenants at year-end, after a 2023 amendment and limited waiver.
- Management reported effective disclosure controls and internal control over financial reporting as of year-end. The auditor issued an unqualified opinion on the financial statements; it was not engaged to opine on internal-control effectiveness.
Important facts for investors to verify
- Whether the sharply lower order intake and backlog convert into revenue, and the timing and customer performance under the tower supply agreement.
- Whether operating cash flow and working capital improve as AMP receivables are collected and customer-deposit levels fluctuate.
- The sustainability of margins and earnings excluding AMP-credit benefits, and the final treatment of credits under IRS and Treasury guidance.
- Available borrowing capacity, debt-covenant headroom, interest costs and refinancing or other funding needs.
- Exposure to the largest customers and wind energy, and progress in diversifying sales into other markets.
- Potential limits on use of approximately $290 million of NOL carryforwards, including the existing Section 382 annual limitation and ownership-change risk.