Broadwind Energy, Inc. — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; comparisons are with FY 2014. Amounts below are in U.S. dollars. The company manufactures wind towers and industrial weldments, and precision gearing. Its Services segment was exited and reported as a discontinued operation.
Financial performance
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $199.2 million | $225.8 million |
| Gross profit / margin | $7.9 million / 4.0% | $19.7 million / 8.7% |
| Operating loss / margin | $11.9 million / (5.9%) | $1.5 million / (0.7%) |
| Net loss | $21.8 million | $6.2 million |
| Net loss per share | $1.48 | $0.42 |
| Operating cash flow from continuing operations | $(5.5) million | $6.1 million |
- Revenue fell 11.8%. Towers and Weldments revenue declined about $14.0 million; Gearing revenue declined about $12.7 million, including a 55% reduction in sales to oil-and-gas and mining customers.
- Gross margin contracted mainly because of production problems, higher labor and overhead, damaged and scrapped materials, and inventory charges tied to a difficult Abilene tower contract.
- FY 2015 included a $9.6 million loss from discontinued operations, including approximately $3.6 million of Services asset impairment and disposal losses. Continuing-operations loss was $12.2 million.
- In Q4 2015, revenue was $37.6 million, gross loss $6.2 million, operating loss $11.0 million, and net loss $10.8 million.
Liquidity, debt and key balance-sheet items
- At year-end, cash and cash equivalents plus short-term investments were $12.6 million, down from $20.1 million a year earlier. Total debt and capital lease obligations were $5.8 million.
- No revolver borrowings were outstanding at December 31, 2015; reported borrowing availability was approximately $9.5 million. The term loan balance was $2.8 million. The company reported $3.2 million of principal payments due over the next 12 months.
- Operating cash flow weakened partly because customer deposits declined by $12.5 million as orders were fulfilled. Cash used in discontinued operations was $2.5 million.
- Current assets were $52.6 million and current liabilities $36.8 million. Operating working capital rose to $10.2 million from $8.2 million.
Material changes and outlook
- Backlog fell 53% to $93.9 million from $201.4 million; net new orders were $94.0 million versus $120.5 million in 2014. The filing attributes the backlog decline to prior-year tower order timing, lower steel prices passed through to customers, and weak oil-and-gas and mining demand.
- Wind-related installations accounted for 84% of 2015 sales, up from 78% in 2014. The December 2015 extension of the federal Production Tax Credit was expected to support longer-term wind-market stability, although management noted near-term project delays and the potential for increased competition.
- Management cited January 2016 tower orders from a returning customer, but also disclosed unsold 2016 tower capacity. No numerical revenue or earnings guidance is provided.
- The company idled two facilities, reduced its workforce by about 10%, consolidated weldment production in Abilene, and cut spending. It also planned to reduce Gearing capacity in response to weak markets.
Risks, contingencies and unusual items
- The company was out of compliance with its Adjusted EBITDA loan covenant at September 30 and December 31, 2015. Waivers were obtained. A February 23, 2016 amendment extended the revolver maturity to February 28, 2017, reduced its commitment to $10.0 million, imposed a $3.5 million liquidity requirement and reserved borrowing-base availability for the term loan. Continued access depends on meeting the amended terms.
- Disclosure controls and internal control over financial reporting were judged ineffective due to a material weakness in inventory completeness, accuracy and existence. Inventory charges of $919,000 were corrected before filing; management planned further remediation and validation during 2016.
- Customer concentration is high: the five largest customers generated 92% of sales, and Siemens and GE each exceeded 10%. Delivery delays generated $1.5 million of liquidated damages in 2015, with a $379,000 year-end reserve.
- An environmental remediation reserve for the Cicero, Illinois facility was $1.3 million after an $874,000 increase in 2015. The company also disclosed warranty, self-insurance, litigation and New Markets Tax Credit recapture risks.
- The company recorded a $900,000 environmental charge in Gearing and $1.1 million of executive separation costs. Gearing and related long-lived assets had impairment indicators, but management concluded no impairment was required after fair-value testing.
- The independent auditor issued an unqualified opinion on the financial statements; this does not negate management’s disclosed material weakness in internal controls.
Important facts for investors to verify
- Whether tower production quality and inventory controls improved, and whether further inventory adjustments or contract costs arise.
- Backlog conversion, 2016 tower capacity utilization, new orders and customer concentration.
- Cash generation, covenant compliance, minimum liquidity compliance, and access to borrowing under the amended credit agreement.
- Actual Services exit proceeds and remaining disposal obligations, plus the adequacy of environmental, warranty and liquidated-damages reserves.
- Whether weak Gearing markets affect asset recoverability or require additional restructuring or impairment charges.