Business context and reporting period
Broadwind Energy, Inc. (the filing registrant; requested metadata says Broadwind, Inc.) filed this Form 10-K for the fiscal year ended December 31, 2017. It manufactures wind towers, precision gearing, heavy fabrications and industrial systems, primarily for U.S. energy, mining and infrastructure customers. Results include three segments: Towers and Heavy Fabrications, Gearing, and Process Systems. The 2017 acquisition of Red Wolf, a natural-gas-turbine systems fabricator, closed February 1, 2017.
Financial performance and position
Amounts below are in thousands of dollars, except per-share data and percentages.
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $146,785 | $180,840 |
| Gross profit / margin | $8,159 / 5.6% | $18,139 / 10.0% |
| Operating income (loss) | $(7,433) | $1,909 |
| Net income (loss) | $(3,641) / $(0.24) per share | $319 / $0.02 per share |
| Operating cash flow | $(9,350) | $17,300 |
| Cash and short-term investments at year-end | $78 | $21,870 |
| Debt and capital lease obligations at year-end | $16,752 | Not stated on a comparable basis in the filing text |
Total assets were $112,350 and stockholders’ equity was $66,071 at year-end. Current assets of $35,379 were below current liabilities of $40,984. The company had $10,733 outstanding on its revolving credit facility and reported $11,796 of additional borrowing availability. Stated current debt obligations due within 12 months were $15,014.
Material changes versus 2016
- Revenue fell 18.8%, principally because Towers and Heavy Fabrications revenue declined $56,821, including a 41% decrease in towers sold. Its operating margin fell to 2.6% from 8.0%.
- Gearing revenue rose 26% to $26,006 as oil-and-gas demand recovered; the segment remained loss-making, with an operating loss of $2,632 versus $3,244.
- Process Systems, including Red Wolf and the Abilene CNG business, generated $17,390 in revenue and an operating loss of $2,269.
- Net new orders were $87,562, down from $275,010. Year-end backlog fell 27% to $138,198, reflecting the absence of a large 2016 tower order and customer inventory reductions.
- Operating cash flow swung from $17,300 provided to $9,350 used. Investing cash use rose to $19,894, including $16,449 paid for Red Wolf.
- Industrial sales increased to 28% of revenue from 8%; wind-linked sales declined to 72% from 92%. The top five customers still represented 85% of sales, though down from 91%.
Outlook, commentary, risks and unusual items
- Management gave no numerical revenue or earnings guidance. It said available cash, operating cash generation, the credit facility, potential equipment financing and possible debt or equity-market access should cover obligations for at least 12 months, while cautioning that cash generation and covenant compliance are not assured.
- On January 29, 2018, the lender waived the year-end fixed-charge coverage covenant violation and imposed minimum EBITDA and capital-expenditure covenants through June 30, 2018. The fixed-charge coverage covenant is to be recalculated beginning with the quarter ending June 30, 2018.
- Liquidity is tight: cash and short-term investments were only $78 at year-end, and operating cash use was driven partly by reduced customer deposits, payables and accrued liabilities. A material shortfall in production, sales, collections or customer deposits could create liquidity pressure or restrict access to the credit facility.
- The 2017 income-tax benefit of $5,045 included a $5,060 benefit from partially releasing a valuation allowance following the Red Wolf acquisition. This non-cash tax benefit materially offset the operating loss. The Tax Cuts and Jobs Act also reduced the federal corporate tax rate; the resulting deferred-tax-asset reduction was offset by a valuation-allowance reduction.
- Other notable items included a $1,394 reversal of the current Red Wolf earn-out accrual, a $727 release of an environmental reserve after remediation, and a $350 write-down of CNG inventory and fixed assets. The Cicero facility remediation reserve was zero at year-end; the property was being negotiated for sale.
- Fourth-quarter revenue was $17,768, with gross loss of $3,101, operating loss of $6,689 and net loss of $6,981. This was a sharp deterioration from earlier quarters and merits attention.
- Key risks include dependence on a small number of wind-turbine customers, wind-market and policy uncertainty, customer consolidation and inventory changes, underutilized manufacturing capacity, steel and supply-chain exposure, competition, acquisition integration, environmental liabilities, and the possibility of additional financing or dilution. The Cicero union agreement expired in February 2018 and negotiations were ongoing.
- The company reported effective disclosure controls and internal control over financial reporting as of year-end. The auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether the amended loan covenants were met after year-end and whether the company retained access to its borrowing availability.
- Subsequent quarterly revenue, margins, cash flow and tower orders, especially following the severe fourth-quarter decline and lower backlog.
- Customer concentration and the pace of diversification beyond wind towers; verify continued demand from SGRE and other major customers.
- Red Wolf’s profitability, integration progress and any remaining contingent earn-out obligation; the filing reports $1,140 remaining after the 2017 reversal.
- Actual liquidity needs, working-capital movements and ability to fund capital expenditures without additional borrowing or equity issuance.
- Potential impairment of Gearing assets or Red Wolf goodwill, and any further environmental, warranty or tax-related exposures.