Broadwind Energy, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; balance-sheet comparisons are to December 31, 2014. Amounts are in thousands of dollars except per-share data. The company supplies products and services to energy, mining and infrastructure customers; 77% of Q1 revenue came from new wind turbine installations.
Financial results and position
- Revenue: $51,051, down 13.2% from $58,800 a year earlier. Gross profit was $739 versus $5,093; gross margin fell to 1.4% from 8.6%.
- Profitability: Operating loss was $4,978 versus $995; net loss was $5,015, or $0.34 per share, versus $1,043, or $0.07 per share. Adjusted EBITDA, a non-GAAP measure, was negative $1,933 versus positive $2,807.
- Segment results: Towers and Weldments operating income fell to $1,135 from $5,612, with margin declining to 2.8% from 11.6%. Gearing’s operating loss narrowed to $1,211 from $2,966. Services’ operating loss widened to $2,624 from $1,339.
- Cash flow: Operating cash used was $20,038 versus $12,117. Investing activities provided $7,184, mainly from security sales and maturities; financing activities provided $855. Cash decreased by $11,999 to $150.
- Liquidity and debt: Cash and short-term investments totaled $150 at quarter-end, versus $20,173 at year-end. Total debt and capital lease obligations were $4,866; $1,302 of debt principal was due in the next 12 months. The company had $1,238 outstanding on its AloStar revolving facility and reported $15,733 of remaining borrowing availability; it was covenant-compliant.
- Balance sheet: Total assets were $137,427 and stockholders’ equity was $83,620. Net inventory rose to $45,855 from $34,921; customer deposits declined to $15,894 from $22,619.
Changes and operating drivers
- Lower revenue and sharply weaker gross margin reflected tower production inefficiencies at Abilene, delayed tower deliveries, a lower-margin tower mix, and weaker Services demand. Abilene produced 18 fewer towers than in the prior-year quarter; management said production was near target by March.
- Finished towers were built ahead of schedule amid West Coast port-related supply constraints. The slowdown was resolved, and the company said firm orders existed for later-2015 delivery. Management cited approximately $5,000 of expected revenue from these finished goods; elsewhere, it described approximately $5,300 of tower revenue value scheduled for later delivery.
- New orders were $23,300 versus $15,800, primarily reflecting the timing of tower orders. Management reported strong demand for wind towers and replacement wind gearing, but weaker oil-and-gas and mining orders, down $8,000 year over year, and lower Services orders, largely due to weaker blade-repair demand.
- To address market weakness, the company idled two facilities, reduced headcount and eliminated positions totaling approximately 10% of its workforce, consolidated service and industrial-weldment activities, and cut discretionary spending.
Outlook, risks and notable items
- No specific revenue or earnings guidance was provided. Management expected cash resources, operating cash generation and available credit to cover liquidity needs for at least 12 months, but cautioned that this depends on production, sales, collections, customer advances and new orders meeting expectations.
- The $20,000 secured AloStar facility was scheduled to expire August 23, 2015; the company was discussing an extension or replacement. If operating results weaken, covenant compliance or access to the facility could be at risk. Management characterized the cash decline and elevated inventory as temporary.
- Inventory growth reflected excess steel at Abilene following production problems and finished towers produced out of sequence. The company increased its obsolete-inventory reserve after deciding to exit servicing older-generation kilowatt and community turbines; Services recorded $702 of inventory impairment charges.
- Brad Foote and Services had operating losses. Management reported that impairment reviews found no impairment indicated at March 31, but continued evaluation of certain intangible and property assets was noted.
- Contingencies include a $513 environmental remediation accrual for the Cicero facility, $736 of warranty liabilities, and $1,362 of self-insured workers’ compensation liabilities. The company also disclosed ordinary-course legal matters and potential liquidated damages, with no reserve for liquidated damages.
- The New Markets Tax Credit structure could expose the company to recapture of $3,900 of tax credits if facility compliance requirements are not met through September 2018; management did not anticipate recapture. The company disclosed $173,823 of tax-loss carryforwards at December 31, 2014, subject to potential Section 382 limitations.
- Disclosure controls were concluded effective; no material change in internal control over financial reporting was reported. The filing reported no material change in risk factors from the 2014 Form 10-K.
Important facts for investors to verify
- Whether the credit facility was extended or replaced before its August 2015 expiration, and whether borrowing availability and covenant compliance were maintained.
- Whether the elevated raw-material and finished-goods inventory was converted into deliveries, revenue and cash collections as management expected.
- Whether Abilene production recovered sustainably and whether Towers and Weldments margins improved from the Q1 level.
- Whether weakness in oil and gas, mining and Services demand continued, and whether announced cost reductions translated into lower expenses.
- Whether cash burn, working-capital requirements, impairment assessments, environmental remediation costs or NMTC compliance risks changed materially.