Broadwind Energy, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; comparative figures are for 2018. Amounts are in thousands of dollars unless stated otherwise. The filing is an annual report, not a standalone fourth-quarter filing.
Business context and reporting period
Broadwind manufactures towers, precision gearing and industrial components for wind energy, natural gas power, oil and gas, mining and other industrial markets. Its reportable segments are Heavy Fabrications, Gearing and Industrial Solutions. Wind-related sales remained the largest exposure: 66% of 2019 sales were to the wind energy industry. In January 2020, the company rebranded as Broadwind and renamed two segments.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $178,220 | $125,380 |
| Gross profit / gross margin | $15,412 / 8.6% | $3,065 / 2.4% |
| Operating loss | $(2,357) | $(25,066) |
| Net loss | $(4,523) | $(24,146) |
| Net loss per share | $(0.28) | $(1.56) |
| Operating cash flow | $4,521 | $2,045 |
| Adjusted EBITDA (non-GAAP) | $7,226 | $(1,019) |
| Free cash flow (non-GAAP) | $4,803 | $3,709 |
| Capital expenditures | $1,844 | $2,324 |
Revenue rose 42.1%, while the company remained loss-making. At year-end, cash was $2,416; debt was $13,422, and debt plus finance lease obligations totaled $14,641. The $35,000 asset-based credit facility had $11,517 drawn and $16,577 of borrowing availability. Management reported covenant compliance and expected available resources to meet needs for at least 12 months, while cautioning that cash generation and continued financing access are not assured. Operating working capital was $5,580. Current assets were $54,713 and current liabilities were $64,293.
Material changes versus 2018
- Orders increased to $221,549 from $83,241; year-end backlog rose 48% to $142,302. Book-to-bill was 1.2, compared with 0.7.
- Heavy Fabrications revenue increased to $128,686 from $74,667, supported by a 73% increase in tower sections sold and higher utilization. Segment operating income improved to $1,861 from a $5,440 loss.
- Gearing revenue declined to $34,877 from $38,376 as oil-and-gas demand softened, but segment operating income improved to $3,237 from $51 on better sales mix and manufacturing efficiencies.
- Industrial Solutions revenue increased to $14,664 from $12,467; its operating loss narrowed to $1,059 from $15,348.
- The net loss improvement primarily reflects the absence of the 2018 $12,585 impairment charge and stronger utilization and margins. 2018 also included a $2,249 gain on extinguishment of a New Markets Tax Credit obligation and a $1,140 Red Wolf earn-out reserve reversal, neither repeated in 2019.
Outlook, risks and unusual items
Management cited expected higher wind-tower installations and strong tower orders securing 2020 production capacity; backlog is not a guarantee of future revenue. The filing provides no specific earnings or revenue guidance. The production tax credit was extended to allow a 60% credit for qualifying projects beginning construction by the end of 2020. Pending U.S. trade investigations concerning imported towers had preliminary affirmative determinations; final determinations were expected by August 2020.
- Customer concentration remains significant: the five largest customers generated 79% of 2019 revenue. One Heavy Fabrications customer generated $110,693, about 62% of consolidated revenue, and accounted for $8,428 of receivables.
- Foreign tower price competition pressured margins. Other key risks include changes to renewable-energy incentives, steel tariffs and supply availability, variable customer orders, low utilization, and dependence on financing and covenant compliance.
- The 2018 restructuring was completed in 2019; remaining restructuring costs were $12. The company accelerated $871 of amortization and fully amortized the Red Wolf trade name following its rebranding decision. No 2019 impairment was recorded, although Industrial Solutions remained loss-making and subject to recoverability evaluation.
- Adoption of the new lease standard resulted in $15,980 of operating lease right-of-use assets and $17,917 of operating lease liabilities at year-end. Ordinary-course legal proceedings were disclosed; management did not expect them to have a material adverse effect, subject to litigation uncertainty.
The independent auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective at December 31, 2019; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Whether the $142.3 million backlog converts to revenue on schedule and at margins sufficient to sustain improved utilization.
- Customer concentration, including the largest customer’s ongoing orders, receivables and payment terms.
- Actual 2020 tower demand, the outcome and impact of tower trade investigations, and changes to federal or state renewable-energy incentives.
- Cash generation, working-capital needs, borrowing-base availability and compliance with the credit facility’s fixed-charge coverage covenant.
- Whether Industrial Solutions can improve profitability and whether future asset impairments or warranty, environmental or litigation costs arise.