Broadwind, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 25, 2021. Amounts below are in millions of dollars unless noted. Broadwind manufactures wind towers and other heavy fabrications, gears and gearboxes, and industrial supply-chain and assembly solutions. The company rebranded in 2020 and renamed certain segments as part of its diversification strategy.
Financial results and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $198.5 | $178.2 |
| Gross profit / margin | $18.0 / 9.1% | $15.4 / 8.6% |
| Operating income (loss) | $0.4 | ($2.4) |
| Net loss | ($1.5) | ($4.5) |
| Net loss per share | ($0.09) | ($0.28) |
| Adjusted EBITDA | $8.0 | $7.2 |
| Operating cash flow | $5.2 | $4.5 |
| Capital expenditures | $1.5 | $1.8 |
| Free cash flow (company-defined) | $7.0 | $4.8 |
| Orders / year-end backlog | $148.9 / $92.9 | $221.5 / $142.3 |
Revenue rose 11.4% year over year, but new orders fell about 33% and backlog fell 35%; book-to-bill declined to 0.8 from 1.2. Cash was $3.4 at year-end. The company reported $10.8 of debt, including $9.2 of PPP loans, and $14.2 of debt plus finance lease obligations. It had $20.7 of borrowing availability under its asset-based credit facility and reported $24.1 of available liquidity. Operating working capital was $5.1, about 3% of annualized trailing-quarter sales.
Fourth quarter: Revenue was $40.3 versus $49.3 in Q4 2019; gross profit was $2.7 versus $4.0. The company recorded an operating loss of $1.8 and net loss of $2.0, compared with operating and net losses of $1.4 and $1.6, respectively, a year earlier.
Segment performance and changes
- Heavy Fabrications: Revenue increased 21% to $155.2; operating income rose to $10.4 from $1.9, with margin improving to 6.7% from 1.4%. Tower sections sold increased to 1,150 from 934. Orders dropped to $105.8 from $179.7, largely because customers had booked tower capacity earlier.
- Gearing: Revenue fell 28% to $25.1; the segment swung to an operating loss of $3.9 from income of $3.2. Lower demand in oil and gas and mining, an unfavorable sales mix, and manufacturing inefficiencies contributed.
- Industrial Solutions: Revenue increased 25% to $18.3; operating income improved to $0.9 from a loss of $1.1. Higher gas-turbine demand and improved efficiencies helped; 2019 included $0.9 of accelerated Red Wolf trade-name amortization.
Consolidated operating performance improved mainly through higher Heavy Fabrications capacity utilization and better Industrial Solutions results. Higher activity and product mix in Heavy Fabrications offset weakness and inefficiencies in Gearing. Five customers generated 78% of 2020 sales; wind energy represented 70% of sales. Two customers each exceeded 10% of consolidated revenue.
Outlook, risks and unusual items
- Management provided no specific numerical revenue or earnings guidance. It said liquidity sources were expected to cover anticipated cash needs for at least 12 months, while noting that pandemic effects could be material and could not be reasonably estimated.
- COVID-19 disrupted supply chains and staffing and weakened order activity in Gearing and Heavy Fabrications; customers also postponed purchases and projects. Broadwind continued operations as an essential business, right-sized its workforce, managed expenses and deferred some capital spending.
- On February 23, 2021, after year-end, the lender amended the credit agreement: it waived fixed-charge-coverage covenant testing for Q1 and Q2 2021 and added liquidity and minimum-EBITDA covenants for those periods. Broadwind reported compliance with covenants at December 31, 2020.
- The company received $9.530 of PPP proceeds, repaid $0.379 and carried $9.151 at year-end. It planned to apply for forgiveness in Q1 2021; forgiveness was not assured and the loans could require repayment.
- Backlog and earnings remain exposed to customer concentration, volatile order timing, wind-energy incentives and tariffs, steel and supply availability, fixed manufacturing costs, and demand in cyclical oil-and-gas and mining markets. Warranty claims, environmental obligations, labor negotiations, and ordinary-course legal proceedings also present risks; management did not identify material pending litigation expected to have a material adverse effect.
- Broadwind reported approximately $260.6 of federal and state NOL carryforwards, but most related deferred tax benefits were reserved. Section 382 limits use of certain tax attributes, and further ownership changes could restrict them.
- Auditors issued an unqualified opinion on the financial statements. The Gearing long-lived-asset recoverability assessment was identified as a critical audit matter; no impairment was recorded. Management stated disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation.
Key facts for investors to verify
- Whether orders and backlog stabilize or convert to revenue, particularly after the 35% backlog decline.
- Whether Gearing can recover from its operating loss and whether Heavy Fabrications can sustain its improved utilization and margins.
- Compliance with the amended 2021 liquidity and EBITDA covenants, actual borrowing availability, and cash needs.
- The outcome and timing of PPP loan forgiveness, and whether customer concentration or COVID-related disruption changes.
- Assumptions supporting the Gearing asset group’s cash-flow forecasts and the recoverability of NOLs subject to valuation allowances and Section 382 limits.