Broadwind, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Dollar amounts are in thousands unless stated otherwise. Broadwind manufactures precision structures, equipment and components for wind energy, industrial, mining, oil and gas, infrastructure and other markets. Wind energy represented 53% of revenue in the first half of 2022, down from 68% in the prior-year period.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $50,012 | $46,491 | $91,856 | $79,219 |
| Gross profit / margin | $2,394 / 4.8% | $2,198 / 4.7% | $4,406 / 4.8% | $2,480 / 3.1% |
| Operating loss | $(1,912) | $(2,311) | $(3,985) | $(6,622) |
| Net income (loss) | $(2,703) | $10,252 | $(5,107) | $9,042 |
| Diluted earnings (loss) per share | $(0.13) | $0.53 | $(0.26) | $0.48 |
| Adjusted EBITDA | $372 | $12,800 | $363 | $14,017 |
| Free cash flow | $(3,903) | $5,645 | $(8,391) | $(376) |
Revenue rose 8% in Q2 and 16% year to date. Gross margin improved year to date, while operating losses narrowed. The prior-year profit and adjusted EBITDA comparisons include substantial unusual items: $9,151 of PPP loan forgiveness and $6,965 of employee retention credits in the first half of 2021. These items materially affect comparison with 2022 results.
- Q2 segment revenue: Heavy Fabrications $35,575 (approximately flat year over year); Gearing $10,115 (up 37%); Industrial Solutions $5,049 (up 43%). Segment operating results were $78, $(585), and $32, respectively.
- First-half segment revenue: Heavy Fabrications $62,847 (up 7%); Gearing $20,700 (up 62%); Industrial Solutions $9,121 (up 12%). Each segment reported an operating loss for the half-year: $383, $697 and $177, respectively.
- Cash flow: First-half operating cash outflow was $8,264, investing cash outflow was $1,697, and financing cash inflow was $9,158. Cash declined by $803 to $49.
- Liquidity and obligations at June 30: Current assets were $61,534 and current liabilities $55,856. Total debt was $17,865; debt plus finance leases totaled $22,975. The revolver balance was $17,037, with $10,178 of additional availability under the then-current facility. Accounts receivable rose to $21,161 from $13,802 at year-end; accounts payable rose to $26,105 from $16,462.
- Orders and backlog: Q2 orders were $26,046 versus $26,441 a year earlier; first-half orders were $78,739 versus $60,655. Backlog was $93,249, up from $74,338 year over year. Book-to-bill was 0.5 for Q2 and 0.9 for the first half.
Material changes, outlook and risks
- Industrial fabrication orders and revenue increased, including demand for Pressure Reducing Systems and industrial/mining work. Gearing revenue also grew, supported by oil and gas and industrial customers. These gains were offset in Q2 by a 47% decline in tower sections sold; wind tower orders fell 82% as customers delayed decisions amid uncertainty about federal incentives and elevated steel prices.
- Management cited higher material costs, ramp-up expenses, increased fixed costs, supply-chain disruption and staffing constraints. COVID-19 and emerging variants could affect demand, production, collections and liquidity. The company also noted dependence on large customers and the possibility of delayed deposits or orders.
- Management said available cash, expected operating cash flow, equipment financing and credit availability should be adequate for at least the next 12 months, but cautioned that weaker performance or collections could create liquidity pressure, threaten covenant compliance, restrict investment or require additional financing. Further equity financing could dilute shareholders.
- After quarter-end, on August 4–5, 2022, Broadwind entered a Wells Fargo facility consisting of a $35,000 senior secured revolver, potentially expandable by up to $10,000 at the lender’s discretion, and a $7,578 term loan. It refinanced the prior facility. Both loans mature August 4, 2027; borrowings bear interest at Daily Simple SOFR plus applicable margins. The new agreement includes minimum EBITDA and fixed-charge-coverage covenants.
- Wind-market policy and steel-price uncertainty, supply-chain and labor constraints, customer concentration, market volatility, covenant compliance and access to financing remain important risks. Management reported compliance with the prior facility’s financial covenants at June 30. It reported disclosure controls were effective and no material internal-control changes during the quarter.
- Legal proceedings arise in the ordinary course; management does not expect them to have a material adverse effect, but notes litigation outcomes are uncertain. No liquidated-damages reserve was recorded at June 30.
Important facts for investors to verify
- Whether the August 2022 Wells Fargo facility’s borrowing availability, interest costs and covenant terms provide sufficient liquidity as operations and working capital evolve.
- Whether reported backlog converts to revenue and cash on schedule, particularly given the Q2 book-to-bill below 1.0 and delayed wind-tower orders.
- Whether improved sales and segment losses translate into sustainable positive operating margins after material, freight, ramp-up and fixed costs.
- How receivables, customer deposits, payables and the use and cost of supply-chain financing affect cash generation.
- The impact of the 2021 PPP forgiveness and employee retention credits on comparisons with the underlying 2022 operating performance.