Broadwind Energy, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2014. Financial statements are unaudited; amounts below are in millions of dollars unless noted.
Business context
Broadwind supplies products and services to energy, mining and infrastructure customers, with its largest presence in U.S. wind energy. For the first nine months of 2014, 76% of revenue related to new wind turbine installations. Its segments are Towers and Weldments, Gearing, and Services.
Financial results and liquidity
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $60.3 | $60.9 | $187.5 | $159.3 |
| Gross profit | $3.9 | $4.6 | $17.6 | $10.2 |
| Gross margin | 6.4% | 7.6% | 9.4% | 6.4% |
| Operating loss | $(1.8) | $(2.3) | $(0.7) | $(9.3) |
| Net loss | $(1.8) | $(2.4) | $(1.0) | $(6.8) |
| Net loss per diluted share | $(0.12) | $(0.17) | $(0.07) | $(0.47) |
| Adjusted EBITDA (non-GAAP) | $2.0 | $2.7 | $10.7 | $7.6 |
For the nine months, operating cash flow was $7.1, versus $21.5 a year earlier; investing used $14.2, and financing used $0.8. Cash and cash equivalents were $17.0 at September 30, while short-term investments were $10.8, for combined liquid funds of $27.9. Total debt and capital lease obligations were $4.2. The $20 million asset-based credit facility was undrawn at quarter-end, with $14.4 available to borrow; the company reported covenant compliance. Current assets were $88.4 and current liabilities $56.9.
Changes versus prior comparable periods
- Q3 revenue slipped 0.9%; gross margin declined to 6.4% from 7.6%, primarily reflecting lower Towers and Weldments volume and production inefficiencies at Abilene, Texas. Net loss narrowed, helped by lower operating expenses and smaller regulatory charges than in the prior-year quarter.
- For the first nine months, revenue rose 17.7% and gross margin improved to 9.4%. Towers and Weldments revenue increased 26%, supported by demand and higher tower production. Net loss narrowed substantially; the prior-year period included a $3.6 million facility-sale gain, so the comparison also reflects unusual prior-year income.
- Gearing revenue was essentially flat year to date, though its operating loss improved. Services revenue declined 28% year to date due to the absence of a large prior-year industrial project, despite a strong Q3 recovery.
- Backlog at September 30 was $228.1 million. Q3 net new orders were $66.1 million, down from $87.0 million a year earlier.
Outlook, commentary, risks and unusual items
- Management expected available cash, operating cash generation and the credit facility to meet liquidity needs for at least the next 12 months, while warning that weaker production, sales, collections or customer advances could create liquidity or covenant pressure. The facility was scheduled to terminate August 23, 2015.
- No quantified revenue or earnings guidance was provided. Management cited variable tower orders, production delays in Gearing, and the need to improve operating performance. The restructuring program was nearly complete: $13.2 million of approximately $13.6 million expected net costs had been incurred.
- The company recorded a $1.566 million estimated SEC settlement charge in 2014, including $0.816 million in Q3. A settlement in principle remained subject to SEC approval and final terms; the filing cautions that publicity or an adverse outcome could affect results, cash flows or reputation.
- Brad Foote had pleaded guilty to a Clean Water Act violation and agreed to a $1.5 million fine, payable in three annual $0.5 million installments. The EPA also imposed a federal contracting debarment related to the Cicero facility; the company was seeking termination. The facility was being closed and planned for sale. The related environmental remediation accrual was $0.5 million.
- Disclosure controls were deemed ineffective at September 30 due to continuing material weaknesses involving journal entries, inventory accrual reconciliation and valuation, ethical-control communications, and revenue recognition. Remediation was incomplete.
- Other notable items: no impairment was recorded after testing certain intangible and long-lived assets; $860,000 due on a note from the former logistics business was fully reserved. On October 29, 2014, the board authorized a discretionary share repurchase program of up to $10 million over six months.
Most important facts for investors to verify
- Whether production disruptions at Abilene and Gearing delays are resolved, and whether the $228.1 million backlog converts to timely, profitable revenue.
- Final SEC settlement approval and amount, and developments in the Cicero environmental remediation and debarment matters.
- Progress in remediating material weaknesses and whether disclosure controls become effective.
- Operating cash generation, borrowing-base availability and covenant compliance, including renewal or replacement of the credit facility before its August 2015 termination.
- Whether the discretionary $10 million repurchase proceeds, given continuing losses and the company’s stated liquidity risks.