Business context and reporting period
Broadwind, Inc. filed this unaudited Form 10-Q for the quarter ended September 30, 2020. It manufactures precision structures, equipment and components for energy, mining and infrastructure markets; U.S. wind energy accounted for 72% of revenue in the first nine months of 2020. Reporting segments are Heavy Fabrications, Gearing and Industrial Solutions.
Key financial results
Amounts below are in millions, except per-share data, percentages and orders/backlog where indicated.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $54.6 | $46.1 | $158.2 | $129.0 |
| Gross profit / margin | $3.7 / 6.8% | $4.0 / 8.7% | $15.3 / 9.7% | $11.4 / 8.9% |
| Operating income (loss) | $(0.5) | $(0.3) | $2.2 | $(1.0) |
| Net income (loss) | $(1.0) | $(0.9) | $0.5 | $(3.0) |
| Diluted EPS | $(0.06) | $(0.06) | $0.03 | $(0.18) |
| Adjusted EBITDA (non-GAAP) | $1.3 | $1.9 | $7.8 | $5.5 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(2.5) | $4.3 |
| Free cash flow (non-GAAP) | $7.3 | $18.1 | $(1.7) | $3.5 |
At September 30, cash was $2.5 million; current assets were $56.1 million and current liabilities $52.8 million. Total debt was $17.7 million, including $7.6 million drawn on the revolver and $9.2 million of PPP loans; debt plus finance lease obligations totaled $20.7 million. The company reported $19.2 million of additional revolver availability and compliance with financial covenants. Total assets were $126.1 million and stockholders’ equity $42.2 million.
Changes versus comparable periods
- Q3 revenue rose 18.4%, led by Heavy Fabrications tower sales; tower sections sold increased 28% year over year. Despite higher revenue, gross margin fell to 6.8% from 8.7%, and net loss widened to $1.0 million from $0.9 million.
- Q3 Heavy Fabrications operating income improved to $2.0 million from $0.7 million. Gearing swung to a $1.0 million operating loss from $0.5 million income, with margin falling to (14.4%) from 6.2%. Industrial Solutions operating income was $0.1 million versus $0.1 million.
- Nine-month revenue rose 22.6%; net results improved to $0.5 million income from a $3.0 million loss. Heavy Fabrications drove the improvement, while Gearing’s nine-month operating result declined to a $1.9 million loss from $2.8 million income. Industrial Solutions returned to operating profit.
- Orders weakened: Q3 orders were $39.6 million versus $76.5 million; backlog was $98.6 million versus $174.7 million a year earlier. Book-to-bill was 0.7 versus 1.7. Management attributed the order decline to customers having booked wind-tower capacity earlier, weaker mining/construction demand, and reduced oil-and-gas demand and investment.
- Nine-month operating cash flow shifted to a $2.5 million use from $4.3 million provided, primarily due to lower customer deposits, partly offset by reduced inventory. Cash increased just $0.1 million, aided by financing inflows.
Outlook, risks and unusual items
- Management said available cash, expected operating cash generation, credit availability and potential securities proceeds should meet liquidity needs for at least 12 months, while warning that weaker production, sales, collections, customer deposits or new orders could create liquidity pressure and jeopardize covenant compliance.
- COVID-19 adversely affected orders, customer schedules, supply chains and staffing; the company reported manufacturing inefficiencies, resized its workforce and deferred some capital spending. Further demand weakness, delayed payments, customer failures, supply disruptions or restrictions could materially harm results; the impact could not be reasonably estimated.
- The company received $9.530 million in PPP loans and repaid $0.379 million. It planned to seek forgiveness in Q4 2020, but forgiveness was not assured; audit, repayment and potential penalties were identified risks.
- After quarter-end, on October 29, 2020, the company amended its credit agreement, paid off a syndicated lender and extended the facility maturity to July 31, 2023. The amendment established interest-margin ranges tied to trailing-twelve-month EBITDA.
- The ATM agreement was terminated October 12, 2020 after 91,481 shares were sold during Q3 for approximately $0.321 million net of commissions. A new shelf registration statement became effective October 13, 2020, allowing potential future securities offerings.
- Legal proceedings arise in the ordinary course; management did not expect a material adverse effect but noted litigation outcomes are uncertain. The PPP loans, covenant access, customer concentration, Section 382 limits on tax-loss use, and COVID-related disruption are notable risks.
Investor facts to verify
- Whether PPP loan forgiveness was obtained, and any amount remaining repayable.
- Subsequent order intake, backlog conversion and book-to-bill, particularly in wind towers, Gearing and industrial fabrication markets.
- Cash generation, receivables collections, customer deposits, revolver availability and ongoing compliance with credit covenants.
- Whether Gearing’s utilization and margins recover from the Q3 operating loss, and whether supply-chain and staffing inefficiencies abate.
- Potential dilution or financing terms under the shelf registration statement, as well as the final effects of the October 2020 credit amendment.