Broadwind, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; balance-sheet figures are as of March 31, 2020. Broadwind manufactures precision structures, equipment and components for wind energy and other energy, mining and infrastructure markets. Wind energy accounted for 74% of Q1 revenue. The company changed its name from Broadwind Energy, Inc. to Broadwind, Inc., effective May 4, 2020.
Financial performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $48.6 million | $41.7 million |
| Gross profit / margin | $6.2 million / 12.7% | $3.5 million / 8.5% |
| Operating income (loss) | $1.7 million | $(0.5) million |
| Net income (loss) | $1.0 million; $0.06 per diluted share | $(1.0) million; $(0.07) per diluted share |
| Adjusted EBITDA | $3.6 million | $1.7 million |
| Operating cash flow | $(1.0) million | $(11.3) million |
| Capital expenditures | $0.7 million | $0.6 million |
| Free cash flow | $(0.3) million | $(11.5) million |
Revenue grew 16.7%. Higher tower production and capacity utilization lifted consolidated gross margin to 12.7%; SG&A increased 12.6% to $4.3 million. Interest expense was $0.7 million and income-tax provision was $0.1 million. Free cash flow is a company-defined non-GAAP measure.
Segments: Heavy Fabrications revenue rose to $38.4 million from $28.3 million; operating income was $3.5 million versus a $0.2 million loss, with a 9.2% margin. Gearing revenue fell to $6.2 million from $10.0 million; it recorded a $0.3 million operating loss versus $1.4 million income, and margin fell to (4.2%) from 13.8%. Industrial Solutions revenue increased to $4.0 million from $3.3 million; operating income was $0.2 million versus a $0.3 million loss.
Financial position and liquidity
- Cash was $2.7 million, up from $2.4 million at year-end 2019. Current assets were $62.3 million and current liabilities were $70.9 million. Inventory increased to $40.8 million from $31.9 million.
- Debt was $16.7 million, including $14.0 million drawn on the revolving credit facility; finance lease obligations were $1.1 million. Debt plus finance leases totaled $17.8 million. The company reported $16.3 million of additional borrowing availability and compliance with financial covenants at quarter-end.
- The $35 million asset-based credit facility matures February 25, 2022. The company reported operating lease liabilities of $21.9 million.
- Management stated that cash, facility availability, expected operating cash flows, PPP proceeds and potential securities sales were expected to cover liquidity needs for at least 12 months. It cautioned that weaker production, sales, collections, deposits or new orders could create liquidity pressure. It also noted limited near-term equity-raising capacity and the Form S-3’s October 10, 2020 expiration.
Orders, backlog and material changes
- New orders were $33.8 million versus $24.0 million; book-to-bill was 0.7 versus 0.6. Backlog increased to $127.4 million from $81.1 million a year earlier.
- Heavy Fabrications’ tower sections sold rose 66% to 312. Segment orders increased to $15.5 million, primarily on industrial fabrication demand, while tower orders declined due mainly to timing.
- Gearing orders increased to $12.4 million, but revenue declined 38%. Customers delayed approximately $1.0 million of purchases amid lower oil prices and market uncertainty; weaker activity, mix and manufacturing inefficiencies reduced profitability.
- Industrial Solutions benefited from demand for new gas-turbine content, partly offset by lower aftermarket demand.
Outlook, risks and unusual items
- COVID-19 had not materially affected Q1 financial results, but the filing said the company, its suppliers and customers, and related supply chains were affected. Since the outbreak, order activity in Gearing, Industrial Solutions and industrial fabrications had declined, and Gearing customers had delayed scheduled purchases.
- In April, the company received $9.53 million in PPP loans at 1% interest, with maturities scheduled to begin April 5, 2022. Forgiveness depends on qualifying use and applicable program terms; the company intended primarily to use the proceeds for payroll costs.
- Management described cost controls and precautionary measures, including reduced executive and director compensation, delayed merit increases, lower discretionary spending, travel restrictions, remote work where feasible and supply-chain review. No formal financial guidance was provided.
- Key risks include COVID-related disruption, customer and supplier concentration and stability, wind-market and policy changes, oil-price volatility, order/backlog conversion and collections, covenant compliance, and access to financing. The company cited a full valuation allowance against deferred tax assets and potential limits on net operating loss use under Section 382.
- The company reported ordinary-course legal proceedings and environmental obligations; management did not expect pending litigation to have a material adverse effect, while noting litigation outcomes are uncertain. No reserve for liquidated damages was recorded at quarter-end. The interest-rate swap liability was $0.2 million, with fair-value changes affecting earnings.
Important facts for investors to verify
- Whether COVID-19-related order declines, customer delays and supply-chain effects persist, and how they affect backlog conversion and cash collections.
- PPP loan use, eligibility and forgiveness status, and repayment obligations if amounts are not forgiven.
- Borrowing-base availability, covenant headroom and the company’s ability to maintain liquidity if operating performance weakens.
- Whether Heavy Fabrications’ improved margins continue and whether Gearing can recover from its Q1 sales and margin decline.
- Customer concentration, the 74% wind-energy revenue exposure, and potential limits on using tax loss carryforwards.