Broadwind, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Broadwind is a precision manufacturer serving clean technology and specialized industrial markets, with significant exposure to U.S. wind energy. Unless otherwise noted, dollar amounts are in thousands.
Financial results and key metrics
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $41,844 | $32,728 |
| Gross profit / gross margin | $2,012 / 4.8% | $282 / 0.9% |
| Operating loss | $(2,073) | $(4,311) |
| Net loss / loss per share | $(2,404) / $(0.12) | $(1,210) / $(0.07) |
| Adjusted EBITDA (non-GAAP) | $(8) | $1,217 |
| Cash used in operating activities | $(6,005) | $(8,437) |
| Capital expenditures | $492 | $612 |
| Free cash flow (non-GAAP) | $(4,487) | $(9,393) |
Revenue rose 27.9%. Gross margin improved, while the company remained loss-making at the operating and net-income levels. Q1 2022 net loss included no employee retention credit (ERC) benefit; Q1 2021 included $3,372 of ERC income. The filing reports trailing-12-month net income of $1,653, including $12,008 of other income, and cautions that interim results are not necessarily indicative of full-year performance.
Business trends and changes versus prior year
- Orders increased to $52,693 from $34,214; backlog was $117,133 versus $94,400, and book-to-bill was 1.3 versus 1.0.
- Heavy Fabrications revenue rose 20% to $27,272; segment operating loss narrowed to $461 from $1,700. Wind tower orders increased 112%, while industrial fabrication orders fell 36%.
- Gearing revenue increased 98% to $10,584 and operating loss narrowed to $112 from $989, reflecting stronger O&G and mining demand, partly offset by higher material and ramp-up costs.
- Industrial Solutions revenue fell 12% to $4,073, and operating loss widened to $209 from $14, mainly due to project timing and lower-margin sales mix.
- Management attributed the improved gross profit mainly to higher volumes and the absence of prior-year disruptions, partly offset by supply-chain issues, material costs, and ramp-up costs. SG&A declined 11.5%, primarily due to lower legal expenses and salaries and benefits.
Liquidity, debt and outlook
- Cash was $773 at March 31, 2022, down $79 from year-end. Current assets were $64,395 and current liabilities $56,648.
- Revolving credit borrowings were $13,556, with $13,944 of additional borrowing capacity reported. The credit facility was reduced from $35,000 to $30,000 and extended to January 31, 2024. The company reported compliance with all financial covenants at quarter-end.
- Total debt was $14,025 under management’s key metrics; total debt and finance lease obligations were $19,988. Operating lease obligations add $19,749 in present value. The credit facility is secured by specified assets and includes financial covenants and a liquidity reserve.
- The company used $6,005 of operating cash; working capital movements included increases in accounts receivable, contract assets, and inventory, partly offset by higher accounts payable. Financing cash inflow of $6,418, largely from net credit-facility borrowings, offset much of the operating and investing cash outflow.
- Management expects cash resources, credit availability, operating cash generation, equipment financing and potential securities proceeds to meet liquidity needs for at least the next 12 months. No specific revenue or earnings guidance is provided.
Risks, contingencies and unusual items
- Management cited continuing COVID-19 effects, supply-chain disruption, manufacturing inefficiencies, staffing constraints, and possible customer demand, payment, or collection pressures. These could affect cash generation and covenant compliance.
- Wind energy accounted for 53% of Q1 revenue, down from 63% a year earlier. The company also identifies customer concentration, policy and incentive changes, commodity volatility, competition, and access to financing as risks.
- The credit facility has amended EBITDA and fixed-charge coverage requirements; testing of the fixed-charge coverage covenant was suspended through September 30, 2022, with revised EBITDA requirements and a $2,500 liquidity reserve. A later fixed-charge coverage test is scheduled under the amended terms.
- Ordinary-course legal proceedings are not expected by management to have a material adverse effect, though outcomes are uncertain. No reserve was recorded for potential liquidated damages as of March 31, 2022; management did not expect that exposure to be material.
- The company has substantial tax-loss carryforwards, but their use is limited by Section 382 to $14,284 annually based on its prior analysis. A shareholder rights plan is intended to protect these tax attributes.
- Disclosure controls were assessed as effective at quarter-end, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether the growing orders and backlog convert to revenue, and whether margins recover despite supply-chain and ramp-up costs.
- Cash conversion and working-capital needs, particularly receivables, inventory, customer deposits, and collections from large customers.
- Credit-facility availability, covenant performance under the amended terms, and the company’s ability to refinance or obtain additional funding if needed.
- Whether Q1’s segment trends persist, including Gearing growth, Heavy Fabrications’ wind exposure, and weaker Industrial Solutions revenue and margin.
- The sustainability and composition of reported trailing-12-month net income, given the large other-income contribution and prior-period ERC benefits.