Broadwind, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2020. Amounts below are in millions of dollars unless stated otherwise. Broadwind is a precision manufacturer serving energy, mining and infrastructure markets; U.S. wind energy accounted for 72% of first-half revenue.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $54.9 | $41.2 | $103.6 | $82.8 |
| Gross profit / margin | $5.4 / 9.9% | $3.9 / 9.5% | $11.6 / 11.2% | $7.4 / 9.0% |
| Operating income (loss) | $1.0 | $(0.2) | $2.7 | $(0.7) |
| Net income (loss) | $0.5 | $(1.0) | $1.5 | $(2.1) |
| Diluted EPS | $0.03 | $(0.06) | $0.09 | $(0.13) |
| Adjusted EBITDA (non-GAAP) | $2.9 | $1.9 | $6.5 | $3.6 |
- Cash flow: First-half cash used in operations was $8.2 million, versus $14.6 million used in the prior-year period. Investing activities used $0.9 million; financing provided $8.9 million. Cash declined $0.3 million to $2.1 million.
- Liquidity and debt: Current assets were $67.6 million and current liabilities $64.4 million at June 30. Debt was $22.5 million, including $12.1 million drawn on the revolving line and $9.2 million of net PPP loans; finance lease obligations were $2.8 million. Debt plus finance leases totaled $25.3 million. The company reported $19.8 million of additional borrowing availability and compliance with financial covenants.
- Working capital and orders: Operating working capital was $20.1 million. Q2 orders were $39.6 million, backlog was $112.1 million, and book-to-bill was 0.7, compared with $104.6 million, $144.7 million and 2.5, respectively, in Q2 2019.
Changes and operating drivers
- Q2 revenue rose 33% year over year; first-half revenue rose 25%. Higher tower production and capacity utilization drove the improvement: tower sections sold increased 59% in Q2 and 62% in the first half.
- Heavy Fabrications revenue increased to $43.6 million in Q2 from $29.0 million; segment operating margin improved to 7.3% from 1.1%. Prior-year tower orders were unusually high as customers reserved capacity ahead of expected 2020 installations, contributing to the steep year-over-year orders decline.
- Gearing remained weak: Q2 revenue declined 25% to $6.9 million and the segment recorded a $0.7 million operating loss, versus $0.9 million operating income a year earlier. Lower demand, delayed customer purchases, unfavorable sales mix and manufacturing inefficiencies weighed on results.
- Industrial Solutions Q2 revenue rose 50% to $4.4 million, primarily on demand for gas-turbine content; its operating margin improved to 4.9% from 1.0%.
- First-half free cash flow, a company-defined non-GAAP measure, was negative $9.0 million versus negative $14.6 million. Working-capital investment, including higher receivables and inventory, remained a cash use.
Outlook, risks and unusual items
- Management said available cash, operating cash generation, credit availability and potential securities offerings were expected to meet liquidity needs for at least 12 months. This outlook depends on production, sales, collections, customer deposits and new orders meeting expectations; management cautioned that liquidity could come under pressure if they do not.
- COVID-19 had adversely affected order activity and customer schedules. The company cited risks of weaker demand, extended payment requests, customer failures, supply-chain disruption, staffing constraints and further operating restrictions. It was right-sizing its workforce and delaying some capital expenditures; the potential future impact could be material and could not be reasonably estimated.
- The company received $9.5 million in PPP proceeds and repaid $0.4 million. It reported using at least 60% for payroll costs and intended to apply for forgiveness. Forgiveness was not assured; loans exceeding $2 million could be audited, and any unforgiven portion would generally be repayable over two years at 1% interest.
- The $35 million asset-based revolving credit facility matures February 2022 and is secured by specified assets and facilities. A $6.0 million interest-rate swap fixes the LIBOR component at 2.13% before the credit spread; mark-to-market changes can affect earnings.
- No specific financial guidance was provided. Management warned that interim results are not necessarily indicative of full-year results. Risks also include wind-market and policy changes, customer concentration, oil and gas volatility, debt-covenant compliance, dilution from future financing, and restrictions on use of tax-loss carryforwards.
- Legal proceedings arise in the normal course; management did not expect a material adverse outcome but noted litigation uncertainty. PPP forgiveness, customer collections, backlog conversion and the ability to sustain covenant compliance are notable contingencies to monitor.
Important facts for investors to verify
- Whether PPP loans were forgiven in whole or part, and whether any audit or repayment obligation arose.
- Subsequent order intake, book-to-bill and backlog conversion, especially given the substantial Q2 order decline and prior-year comparison effect.
- Receivable collections, inventory levels and operating cash flow, and whether working-capital demands remain supportable.
- Gearing segment demand and profitability, and whether Heavy Fabrications can maintain utilization as wind-tower production and customer schedules change.
- Available borrowing capacity, covenant headroom and liquidity assumptions, including the company’s stated 12-month outlook.