Broadwind, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Broadwind manufactures precision structures, equipment and components for wind energy and other energy, mining and infrastructure markets. Amounts below are in millions of dollars unless otherwise noted.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $44.8 | $40.4 | $136.7 | $119.6 |
| Gross profit / margin | $3.7 / 8.4% | $2.1 / 5.1% | $8.2 / 6.0% | $4.6 / 3.8% |
| Operating loss | ($0.5) | ($2.0) | ($4.5) | ($8.6) |
| Net income (loss) | ($1.8) | ($2.1) | ($6.9) | $6.9 |
| Adjusted EBITDA (non-GAAP) | $1.9 | $0.4 | $2.3 | $14.4 |
| Free cash flow (non-GAAP) | $0.2 | ($3.3) | ($8.2) | ($1.9) |
- Cash flow: Nine-month operating cash use was $10.3, investing cash use was $2.8, and financing provided $13.7. Cash was $1.5 at September 30, 2022, up from $0.9 at year-end 2021.
- Liquidity and debt: Current assets were $59.7 and current liabilities $48.9. Debt was $24.1 under management’s key metrics; debt plus finance lease obligations totaled $29.0. The company had $13.3 of additional borrowing capacity under its new credit facility.
- Orders: Q3 orders were $84.5 versus $42.6 a year earlier; backlog was $132.2 versus $76.5. Q3 book-to-bill was 1.9, compared with 1.1.
Material changes versus comparable periods
- Q3 revenue rose 11%; gross margin improved to 8.4% from 5.1%, and net loss narrowed. Higher sales and labor efficiencies helped, while higher material costs and interest expense offset some improvement.
- Q3 Gearing revenue increased 35%, and Heavy Fabrications revenue increased 7%; Industrial Solutions revenue decreased 5%, with management citing logistics delays. Tower sections sold fell 26% year over year, while industrial fabrication revenue rose 95%.
- Nine-month revenue increased 14%, and gross margin rose to 6.0% from 3.8%. However, the company moved from net income to net loss. The prior-year comparison included $9.2 of PPP loan forgiveness and $7.0 of employee retention credits; these benefits did not recur in 2022.
- Interest expense rose to $2.4 for the first nine months from $0.8. Supply-chain financing discount fees, recorded as interest expense, were $1.1 versus $0.2 for the comparable period.
- Debt increased substantially from year-end 2021. In August 2022, Broadwind replaced its prior facility with a Wells Fargo facility comprising a $35.0 revolving line and a $7.6 term loan. The new facility has SOFR-based rates, financial covenants and collateral commitments.
Outlook, commentary and risks
- Management said it expects cash resources, operating cash generation, available credit, equipment financing and potential equity sales to meet liquidity needs for at least the next 12 months. This outlook depends on production, sales, collections, customer deposits and new orders meeting expectations.
- The company reported compliance with its new credit-facility financial covenants at September 30, 2022. Deteriorating performance could jeopardize covenant compliance or access to credit, and could lead to delayed investment or additional financing. Equity financing could dilute shareholders.
- Management cited strong wind-tower order intake as customers reserved 2022 and 2023 capacity, alongside demand growth in Gearing from oil and gas, mining and industrial customers. COVID-19 effects, supply-chain disruption, staffing constraints, logistics delays, material costs and customer concentration remain risks.
- No numeric earnings or revenue guidance was provided. The company had an at-the-market sales agreement authorizing up to $12.0 in common-stock sales; approximately $11.7 remained available at quarter-end.
- Management said ordinary-course litigation was not expected to have a material adverse effect, while acknowledging outcomes are uncertain. No liquidated-damages reserve was recorded at quarter-end.
Important facts for investors to verify
- Whether order growth and the $132.2 backlog convert to revenue and cash on expected schedules, particularly given lower tower shipments and reported logistics delays.
- Whether gross-margin recovery continues despite material costs, ramp-up expenses and ongoing operating losses.
- Cash conversion and working-capital needs: nine-month operating cash use was $10.3, and free cash flow was negative $8.2.
- Borrowing availability, interest costs and covenant headroom under the Wells Fargo facility, including dependence on receivables financing and potential equity issuance.
- Comparability of prior-year earnings and adjusted EBITDA, which benefited from PPP forgiveness and employee retention credits.