Broadwind, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Broadwind manufactures precision structures, equipment and components for wind energy and other energy, mining and infrastructure markets. Figures below are in millions of dollars unless otherwise noted.
Financial performance
| Metric | Q3 2021 | Q3 2020 | First nine months 2021 | First nine months 2020 |
|---|---|---|---|---|
| Revenue | $40.4 | $54.6 | $119.6 | $158.2 |
| Gross profit / margin | $2.1 / 5.1% | $3.7 / 6.8% | $4.6 / 3.8% | $15.3 / 9.7% |
| Operating income (loss) | $(2.0) | $(0.5) | $(8.6) | $2.2 |
| Net income (loss) | $(2.1) | $(1.0) | $6.9 | $0.5 |
| Adjusted EBITDA | $0.4 | $1.3 | $14.4 | $7.8 |
| Free cash flow | $(3.3) | $7.3 | $(1.9) | $(1.7) |
- Cash flow: Cash used in operating activities was $10.8 million for the first nine months, versus $2.5 million used in the prior-year period. Investing activities used $1.3 million; financing provided $11.1 million. Cash declined $1.0 million from year-end 2020 to $2.3 million.
- Liquidity and debt: Current assets were $47.6 million and current liabilities $34.6 million at September 30. Revolver borrowings were $5.3 million, with stated additional borrowing availability of $18.7 million at that date. Debt was $5.7 million excluding finance leases; debt and finance lease obligations together totaled $10.3 million. Operating lease obligations were $20.6 million.
- Orders and backlog: Q3 orders were $42.6 million and book-to-bill was 1.1; backlog was $76.5 million, down from $97.1 million a year earlier. Nine-month orders were $103.3 million, versus $112.9 million.
Changes and operating drivers
- Q3 revenue declined 26%, primarily because tower sections sold fell 37% amid project delays and lower industry activity. Heavy Fabrications revenue dropped to $28.7 million from $43.4 million and the segment recorded a $0.4 million operating loss, versus $2.0 million operating income.
- Gearing Q3 revenue increased 6% to $7.6 million, and its operating loss narrowed to $0.2 million from $1.0 million. Orders rose 258%, mainly on stronger oil and gas and mining demand. Industrial Solutions revenue rose 3% to $4.2 million, but the segment shifted to a $0.1 million operating loss.
- For the first nine months, revenue fell 24% and gross margin declined to 3.8%. Heavy Fabrications was adversely affected by lower tower volumes, lower average selling prices from product mix, supply-chain inefficiencies, plant underutilization and a temporary weather-related Abilene plant shutdown. Gearing revenue was broadly flat but its operating loss widened; Industrial Solutions revenue was nearly flat and the segment moved to an operating loss.
- Nine-month net income included $9.2 million of PPP loan-forgiveness income and $7.0 million of Employee Retention Credit (ERC) benefits. These items significantly affected the comparison with 2020; the company reported an operating loss for the period.
Outlook, risks and unusual items
- Management said existing cash, expected operating cash, credit-facility availability and potential securities sales should cover liquidity needs for at least 12 months. This is conditional on operating results, customer collections and deposits, and access to financing.
- On November 8, 2021, after quarter-end, the lender waived the fixed-charge-coverage covenant default for the September quarter, suspended that covenant’s testing through September 30, 2022, imposed minimum EBITDA tests for specified periods through September 2022, and reserved $5.0 million of revolving availability through December 31, 2022. The filing does not state the resulting revised borrowing availability.
- COVID-19 and emerging variants, supply-chain disruption, staffing constraints, wind-project delays, steel prices, customer concentration and the timing or availability of federal wind incentives may affect demand, production, margins and cash flow. The company also warned that weaker performance could jeopardize covenant compliance and credit-facility access.
- The company issued 1.9 million shares under its equity distribution agreement during the first half of 2021, receiving approximately $9.7 million before certain other expenses. Further securities sales could dilute shareholders. The company also has substantial tax-loss carryforwards subject to ownership-change limitations.
- Management reported disclosure controls were effective as of September 30, 2021, with no material changes in internal control over financial reporting during the quarter. Legal proceedings are described as arising in the ordinary course; management did not expect them to have a material adverse effect, while noting litigation uncertainty.
Important facts for investors to verify
- Whether the November 8 credit amendment’s EBITDA requirements can be met and how the $5.0 million availability reserve affects actual borrowing capacity.
- Whether wind-tower orders and production recover, and whether diversification into industrial fabrication and PRS products can offset lower tower volumes.
- Whether gross margins, operating cash flow and working-capital needs improve; nine-month reported profit included substantial PPP forgiveness and ERC benefits.
- Customer order timing, backlog conversion and collection performance, alongside COVID-related supply and staffing risks.
- Potential dilution from additional equity issuance and the practical limits on use of tax-loss carryforwards.