Broadwind Energy, Inc. — Q2 2011 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2011. Amounts below are in millions of dollars unless stated otherwise. Broadwind supplies wind-energy components and services and industrial gearing and weldments, primarily in the United States.
Financial performance
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $39.3 | $33.6 | $82.9 | $55.3 |
| Gross profit (loss) | $2.9 | $0.2 | $5.5 | $(3.3) |
| Gross margin | 7.5% | 0.6% | 6.6% | (5.9)% |
| Operating loss | $(4.3) | $(12.2) | $(8.3) | $(24.3) |
| Net loss | $(4.5) | $(14.2) | $(9.6) | $(28.3) |
| Basic and diluted loss per share | $(0.04) | $(0.13) | $(0.09) | $(0.27) |
| Adjusted EBITDA (non-GAAP) | $0.1 | $(3.2) | $0.4 | $(10.3) |
Q2 revenue rose 17.1%, principally on stronger Towers sales. Improved gross profit and lower operating expenses—especially the absence of the prior-year impairment charge and lower intangible amortization—narrowed the net loss. The company remained loss-making; Adjusted EBITDA is a company-defined non-GAAP measure.
Segments and material changes
- Towers: Q2 revenue was $24.5 million, up 48%; segment operating income was $2.8 million versus a $0.6 million loss. Higher production and a favorable fabrication-only mix supported improvement. For the first half, revenue was $52.7 million and operating income $5.2 million.
- Gearing: Q2 revenue fell to $12.5 million from $14.3 million, and the segment posted a $2.8 million operating loss. Wind gearing weakness and a customer sourcing gearing offshore were partly offset by industrial gearing growth. First-half operating loss improved to $5.2 million from $7.9 million.
- Technical and Engineering Services: Q2 revenue was $2.4 million, down from $2.9 million; operating loss was $2.1 million versus $6.5 million, largely reflecting no repeat of the prior-year impairment. First-half revenue declined to $4.2 million from $4.9 million.
- Six-month SG&A decreased to $13.4 million from $14.7 million, partly offset by $0.95 million of additional legal fees. No impairment charge was recorded in the first half of 2011; the prior-year period included $4.6 million. The company sold its logistics subsidiary in March 2011; its results are presented as discontinued operations.
Cash, debt and liquidity
- Cash and cash equivalents were $10.2 million at June 30, 2011, down from $15.3 million at year-end; short-term investments were $0.1 million and restricted cash was $0.2 million.
- Operating cash use was $2.0 million for the first half, compared with $19.8 million a year earlier. The filing cites reduced operating losses and $12.2 million of customer deposits as important factors. Investing cash use was $1.8 million; capital expenditures were $2.9 million, mainly for the Abilene drivetrain service center. Financing cash use was $0.9 million.
- Reported term loans and notes payable totaled $10.6 million, including $2.9 million due within 12 months. Capital lease obligations totaled approximately $2.3 million. The balance sheet separately reports $1.5 million of current lines of credit and notes payable; the filing text does not clearly reconcile this presentation to the debt-note total.
- Up to $10 million was available under Wells Fargo receivables financing, with no amount drawn at quarter-end and subject to a minimum month-end cash balance of $5 million. In July, a New Markets Tax Credit financing arrangement was expected to provide approximately $2 million for the drivetrain service-center upgrade.
- Management expected available cash and operating cash generation to meet needs for at least 12 months, but warned that weaker-than-expected sales or collections from large customers could create liquidity pressure. Additional financing might be unavailable or dilutive/restrictive. The company had $1.0 million of remaining purchase commitments related to the Brandon, South Dakota facility, which had not begun production.
Outlook, risks and unusual matters
The filing provides no quantified earnings or revenue guidance. Management anticipated near-term improvement in wind-industry conditions but cited uncertainty about long-term government policies supporting wind. Broadwind was diversifying toward oil, gas, mining and other industrial markets. The company identified continued operating losses and potential future asset reviews as concerns; its second-quarter impairment review found no additional impairment.
- A federal securities class action and multiple shareholder derivative suits were pending; the company could not estimate a loss range.
- A federal environmental investigation involved a Cicero facility, including a search and subpoenas concerning wastewater and related compliance. The company said it had not been formally notified it was a target and no fines had been suggested. Prior remediation costs of $0.675 million had been incurred by June 30; no additional remediation expense was accrued, but the estimate could change.
- Badger’s sale proceeds included cash, a secured promissory note and Broadwind shares, and remained subject to working-capital adjustments and contingencies.
Important facts for investors to verify
- Whether revenue growth and Towers profitability can persist, and whether Gearing and Services can reduce operating losses.
- Customer concentration, receivable collections and the sustainability of customer deposits supporting operating cash flow.
- Cash available after debt service, the terms and availability of Wells Fargo financing, and the expected timing and terms of the July financing.
- Developments and potential financial exposure from the shareholder litigation and environmental investigation.
- Plans and commitments associated with the unused Brandon facility, and the company’s ability to diversify as wind-market demand and policy support evolve.