Broadwind, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Dollar amounts are in thousands, except per-share data. Broadwind manufactures precision structures, equipment and components, with significant exposure to U.S. wind energy, which generated 68% of first-half revenue.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $46,491 | $54,926 | $79,219 | $103,560 |
| Gross profit / margin | $2,198 / 4.7% | $5,417 / 9.9% | $2,480 / 3.1% | $11,589 / 11.2% |
| Operating income (loss) | $(2,311) | $1,035 | $(6,622) | $2,715 |
| Net income | $10,252 | $529 | $9,042 | $1,482 |
| Diluted EPS | $0.53 | $0.03 | $0.48 | $0.09 |
| Adjusted EBITDA (non-GAAP) | $12,800 | $2,863 | $14,017 | $6,468 |
| Free cash flow (non-GAAP) | $5,645 | $(8,665) | $(376) | $(8,994) |
Q2 net income included $9,151 of PPP loan forgiveness income and $3,593 of employee retention credit (ERC) benefit, both in other income. First-half results included the same $9,151 forgiveness gain and $6,965 of ERC benefits. These items materially boosted reported net income despite operating losses; reported profitability should not be read as evidence of profitable core operations.
- Cash and liquidity: Cash was $4,757 at June 30, up from $3,372 at year-end 2020. First-half operating cash use was $9,987; investing cash use was $742; financing provided $12,114.
- Debt and leases: Debt was $6,620 under management’s key-metrics definition, including $6,000 drawn on the revolving facility. Debt plus finance lease obligations totaled $11,079. Operating lease obligations add another $21,039 at present value.
- Credit availability: The $35,000 asset-based facility matured July 31, 2023; $18,928 was available to borrow at June 30. The company reported compliance with the facility’s terms. Fixed-charge coverage testing was waived for Q1 and Q2 2021; fixed-charge coverage testing resumes for the quarter ending September 30, 2021.
- Balance sheet: Total assets were $129,019 and stockholders’ equity was $58,796. Current assets were $60,586 versus current liabilities of $47,100. Inventory was $31,951, up from $26,724 at year-end.
Changes versus the prior comparable period
- Q2 revenue fell 15.4%; first-half revenue fell 23.5%. Lower Heavy Fabrications sales, project delays, reduced tower volumes and lower average selling prices were major factors.
- Gross margin contracted to 4.7% in Q2 and 3.1% for the first half, from 9.9% and 11.2%, respectively. Management cited lower volumes, capacity underutilization, supply-chain disruptions and manufacturing inefficiencies.
- Heavy Fabrications’ Q2 operating margin was 0.8%, versus 7.3% a year earlier; first-half margin was negative 2.4%, versus positive 8.2%. Gearing and Industrial Solutions also reported operating losses in both 2021 periods.
- Orders were $26,441 in Q2, down from $39,558; first-half orders were $60,655, down from $73,367. Book-to-bill was 0.6 for Q2 and 0.8 for the first half. Backlog was $74,338, versus $112,062 a year earlier.
- Wind tower orders in Heavy Fabrications declined 61% in Q2 and 30% for the first half. Gearing orders more than doubled in Q2, while Industrial Solutions orders declined 14% in Q2.
- The company issued 1,897,697 shares under its equity distribution agreement in the first half, raising approximately $9,725 before other expenses and after commissions. Shares outstanding at August 3 were 19,385,061.
Outlook, risks and unusual items
Management said cash resources, expected ERC proceeds or savings, facility availability, operating cash generation and potential additional securities sales should cover liquidity needs for at least the next 12 months. No numerical revenue or earnings guidance was provided.
Management described continuing adverse effects from COVID-19, including weaker order activity, supply-chain disruption and staffing constraints, and noted uncertainty from emerging variants. Other cited pressures include elevated steel prices, uncertainty about wind-energy incentives, logistics delays, customer project timing and reliance on large customers. A significant deterioration in operations could threaten covenant compliance and access to the credit facility; additional financing could be dilutive or impose restrictions.
The PPP loans were forgiven by the SBA in Q2, resulting in a $9,151 gain. ERC benefits totaled $6,965 in the first half, of which $1,714 remained receivable at June 30. The Abilene facility experienced a temporary weather-related shutdown in Q1. The company disclosed ordinary-course legal proceedings and environmental compliance obligations, but stated it did not expect litigation to have a material adverse effect; outcomes remain uncertain.
Key facts for investors to verify
- Reconcile the reported net income and adjusted EBITDA to operating performance, especially the treatment of PPP forgiveness and ERC benefits in the non-GAAP measure.
- Track orders, book-to-bill and backlog conversion, particularly in wind towers, and assess whether elevated steel prices and incentive uncertainty continue to defer customer orders.
- Monitor gross margins, Gearing manufacturing efficiency, plant utilization and supply-chain conditions for evidence of operational recovery.
- Confirm receipt and timing of the remaining ERC receivable and evaluate the company’s reliance on tax credits and other non-operating support.
- Check borrowing-base availability and covenant compliance as fixed-charge coverage testing resumes in Q3 2021; assess cash use and customer collections.
- Account for dilution from the share issuance and any future sales under the shelf registration statement; also consider customer concentration and COVID-19-related demand risks.