Broadwind Energy, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; unaudited. Broadwind manufactures wind towers and industrial weldments, precision gearing, and wind and industrial services, primarily for U.S. customers. Figures below are in millions of dollars except per-share amounts.
Financial results and liquidity
| Metric | Q1 2013 | Q1 2012 / prior date |
|---|---|---|
| Revenue | $45.7 | $54.4 |
| Gross profit / margin | $2.2 / 4.7% | $2.2 / 4.1% |
| Operating loss | $(4.5) | $(3.9) |
| Net loss / diluted loss per share | $(5.1) / $(0.35) | $(3.9) / $(0.28) |
| Adjusted EBITDA (non-GAAP) | $1.3 | $1.4 |
| Cash used in operating activities | $(2.8) | $(1.4) |
| Cash and restricted cash at quarter-end | $0.9 | $0.8 at Dec. 31, 2012 |
| AloStar revolver balance | $6.2 | $1.0 at Dec. 31, 2012 |
At March 31, cash and cash equivalents were $0.5 million and restricted cash was $0.3 million. The company reported $12.3 million of additional borrowing availability under its $20 million asset-based facility. Accounts receivable rose to $26.5 million and inventories to $30.1 million from $20.0 million and $22.0 million, respectively, at year-end. Current liabilities were $50.8 million versus current assets of $69.7 million.
Material changes and operating performance
- Revenue fell 16.1%. Towers and Weldments revenue declined 15% to $30.0 million; Gearing revenue fell 33% to $10.7 million, reflecting weaker industrial demand and production delays. Services revenue rose to $7.5 million from $3.4 million, mainly due to a one-time industrial project.
- Gross margin improved to 4.7% from 4.1%; excluding restructuring charges, management reported 5.7% versus 4.8%. Towers and Weldments operating income increased to $2.0 million from $1.0 million, while Gearing’s operating loss widened to $2.9 million from $1.1 million. Services’ operating loss narrowed to $0.7 million from $1.6 million.
- Net loss increased by $1.2 million year over year. Results included $1.1 million of restructuring charges across cost of sales, operating expenses and other expense; accelerated intangible amortization; and a $0.2 million discontinued-operations charge to reduce the estimated value of a note receivable from the former logistics business.
- Operating cash outflow increased, principally because of higher receivables associated with tower production, partly offset by a customer deposit. Investing cash outflow was $1.4 million, including $1.4 million in capital expenditures. Financing provided $4.2 million, largely reflecting revolver borrowings to fund working capital.
Outlook, risks and unusual items
- No formal earnings guidance was provided. Management cited $104 million of tower backlog scheduled for shipment in 2013. The federal production tax credit was extended for new wind projects started in calendar 2013; management also noted improved near-term U.S. tower supply-demand balance following competitor exits or repurposing of capacity.
- The Brandon, South Dakota facility was sold in April 2013. Sale proceeds were approximately $11.8 million before repayment of about $3.5 million of mortgage debt, leaving approximately $8 million for general corporate purposes. The company expects to record an approximately $3.4 million gain in Q2 2013.
- The company expects total restructuring costs of approximately $12.8 million, including about $7.9 million incurred through March 31, 2013, and anticipates annual savings of approximately $6 million. Plans target an approximately 40% reduction in facility footprint through the end of 2014.
- Broadwind was not in compliance with its fixed-charge coverage covenant at March 31; AloStar had agreed to waive the relevant quarter-end noncompliance, subject to the Brandon facility disposition condition. The company said it was otherwise in compliance with applicable covenants and expects liquidity to meet needs for at least 12 months, while cautioning that results, collections, covenant compliance and credit availability could affect that expectation.
- Legal and regulatory uncertainties include an SEC inquiry into accounting practices at Brad Foote and a federal environmental investigation in which Brad Foote was identified as a target; the tolling period extended to July 18, 2013. Potential losses cannot be estimated. A shareholder class-action settlement of $3.9 million was preliminarily approved and was payable by the insurer, with final approval then pending. A separate Tontine-related settlement required a $0.5 million payment.
- The company maintains a $0.4 million environmental remediation liability associated with the planned sale of its Cicero facility and had accrued $0.1 million for potential customer liquidated damages. It also warned that ownership changes may limit use of tax-loss carryforwards; it adopted a rights plan intended to protect those tax assets.
Important facts for investors to verify
- Whether the $104 million tower backlog converts to shipments, revenue and cash collection on the expected schedule.
- Whether Gearing production delays and weak demand improve, and whether Services can sustain results without the one-time project.
- Revolver availability, working-capital needs and ongoing covenant compliance after the Brandon sale and debt repayment.
- Actual restructuring spending, facility reductions and realization of the expected annual savings.
- Developments in the environmental investigation, SEC inquiry, litigation matters and any resulting costs or operational impact.
- Whether the Brandon sale proceeds and expected gain are recognized as described, and whether tax-loss carryforwards remain usable.