Broadwind Energy, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. Unless otherwise stated, financial amounts below are in millions of dollars; the filing presents them in thousands. The registrant named in the filing is Broadwind Energy, Inc.
Business context
Broadwind supplies wind towers and heavy fabrications, precision gearing, and industrial process-system products. Wind energy accounted for 65% of revenue in the first nine months of 2019. The company reorganized segment reporting in 2019, moving its Abilene CNG and heavy fabrication activity into Towers and Heavy Fabrications; prior periods were restated.
Financial results and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $46.1 | $31.4 | $129.0 | $98.2 |
| Gross profit / margin | $4.0 / 8.7% | $1.5 / 4.7% | $11.4 / 8.9% | $3.6 / 3.6% |
| Operating loss | $(0.3) | $(2.6) | $(1.0) | $(12.9) |
| Net loss | $(0.9) | $(0.8) | $(3.0) | $(11.7) |
| Net loss per share | $(0.06) | $(0.05) | $(0.18) | $(0.76) |
For the first nine months, operating cash flow was $4.3, versus cash used of $7.2 in 2018; investing cash use was $1.8 and financing cash use was $3.7. Cash fell to $0.015 at September 30 from $1.2 at year-end. Current assets were $56.5 and current liabilities $66.1, a working-capital deficit of approximately $9.6.
Debt and finance lease obligations totaled $11.5, including $8.7 drawn on the revolving credit facility. The $35.0 asset-based facility runs to February 2022; the company reported $19.2 of additional borrowing availability and compliance with covenants at quarter-end. Operating lease liabilities were separately reported at $18.2. Stockholders’ equity was $41.8.
Changes and segment performance
- Q3 revenue rose 46.7% year over year, led by Towers and Heavy Fabrications, where revenue grew 80% to $33.8 and segment operating income was $0.7 versus a $0.9 loss. Tower sections sold increased 84%.
- Gearing Q3 revenue fell to $8.0 from $10.1 amid weaker oil-and-gas demand, while segment operating income improved to $0.5. Process Systems revenue increased to $4.3 from $2.7 and returned to segment operating income of $0.1.
- Nine-month revenue grew 31.3%; gross margin rose to 8.9%. Management attributed improvement mainly to higher plant utilization, manufacturing efficiency, product mix, and lower depreciation.
- Q3 net loss was slightly larger than the prior-year loss despite improved operating results. Q3 2018 included a $2.249 gain from extinguishing a New Markets Tax Credit transaction. Nine-month 2018 results also included a $4.993 goodwill impairment charge, absent in 2019.
Outlook, risks, and unusual items
Third-quarter orders were $76.5, nearly four times the prior-year quarter, driven largely by tower customers reserving production capacity for expected strong 2020 demand. Management expects available cash, operating cash generation, credit-facility availability, and potential financing to meet liquidity needs for at least 12 months, but gave no specific revenue or earnings guidance.
Management cautioned that weaker-than-expected production, customer orders, deposits, or collections could create liquidity pressure. A significant operating deterioration could jeopardize covenant compliance and access to the credit facility; further equity financing could dilute shareholders, while debt financing could add restrictions. Other risks include foreign tower competition and steel-cost advantages, weaker oil-and-gas demand, dependence on significant customers, and potential limits on tax-loss use under Section 382. A $6.0 interest-rate swap fixes the LIBOR component at 2.13% before the credit-risk margin; mark-to-market changes may cause non-cash earnings volatility. The company identified a Red Wolf impairment trigger but recorded no additional impairment. Routine legal proceedings were disclosed; management did not expect a material adverse outcome, while noting litigation uncertainty.
Investor verification priorities
- Confirm the timing, conversion, and profitability of the large tower order intake and expected 2020 demand.
- Track cash conversion, receivables, inventory, customer deposits, and the very low quarter-end cash balance against available borrowing capacity.
- Review covenant requirements and headroom, especially the fixed-charge coverage test applicable after September 30, 2019.
- Assess whether tower pricing pressure, foreign competition, and steel costs erode margin improvement.
- Monitor Red Wolf performance and impairment assumptions, swap valuation effects, and any material legal or environmental contingencies.