Broadwind Energy, Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. The filing is for Broadwind Energy, Inc. and subsidiaries. Unless noted, dollar amounts below are in millions; the filing presents financial statements in thousands.
Business context and reporting period
Broadwind supplies products to energy, mining and infrastructure customers, with wind energy its largest market. Wind accounted for 57% of revenue in the first half of 2018. Reportable segments are Towers and Heavy Fabrications, Gearing, and Process Systems.
Financial performance and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $36.781 | $43.362 | $66.748 | $99.422 |
| Gross profit / margin | $2.223 / 6.0% | $3.872 / 8.9% | $2.091 / 3.1% | $10.246 / 10.3% |
| Operating income (loss) | ($5.736) | ($0.516) | ($10.273) | $1.087 |
| Net income (loss) | ($6.116) | ($0.780) | ($10.954) | $5.547 |
| Basic net income (loss) per share | ($0.40) | ($0.05) | ($0.71) | $0.37 |
At June 30, cash was $0.076, accounts receivable $17.901 and inventory $20.730. Current assets were $41.038 versus current liabilities of $47.864. Total assets were $108.653 and stockholders’ equity $55.945. Total debt and capital lease obligations were $21.345; this included $14.516 drawn on the revolving credit facility and $2.600 of NMTC-related debt. The company reported $9.634 of additional revolver availability.
For the six months, operating cash flow was negative $2.793, investing cash flow negative $1.676 and financing cash flow positive $4.505. Cash decreased $0.002. Capital expenditures were $1.676.
Material changes versus comparable periods
- Revenue fell 15.2% in Q2 and 32.9% in the first half. Towers and Heavy Fabrications revenue declined $10.303 in Q2 and $42.414 in the first half, primarily on lower tower-section volumes and lower average selling prices.
- Gearing revenue rose to $8.632 in Q2 and $17.438 in the first half, supported by recovering oil and gas demand; the segment nevertheless recorded operating losses of $0.662 and $1.288, respectively.
- Process Systems revenue rose to $4.148 in Q2 and $8.525 in the first half, with mining and industrial activity offsetting weaker natural-gas-turbine demand. A $4.993 goodwill impairment drove much of the segment’s reported losses.
- First-half earnings also compare against a $5.034 income-tax benefit in 2017, principally from a partial release of the deferred-tax valuation allowance after the Red Wolf acquisition. Broadwind recorded only a $0.033 tax benefit in the first half of 2018.
- Q2 orders were $18.602, up 6% year over year. Towers orders increased, while Gearing and Process Systems orders declined.
Outlook, management commentary and risks
- Management expects available cash, revolver capacity, operating cash generation, equipment financing and potential securities offerings to meet liquidity needs for at least 12 months. This depends on production, sales, collections, customer deposits and new orders meeting expectations.
- The company was in compliance with debt covenants at June 30, following amendments that waived earlier covenant noncompliance and adjusted EBITDA requirements. Management warns that weaker performance could threaten covenant compliance and access to the credit facility; future financing could be dilutive or impose additional restrictions.
- A 2018 restructuring targets consolidation of Abilene operations and exit from a natural-gas-compression and fabrication location after NMTC requirements are satisfied. Estimated restructuring costs are $0.738, of which $0.267 had been incurred; expected annual facility-cost savings are approximately $0.575. The company expected to vacate the facility by year-end 2018.
- The $2.600 NMTC transaction was forgiven after June 30. Before forgiveness, noncompliance during the tax-credit period could have exposed the company to recapture of up to $3.900 in credits; management did not expect recapture.
- Key risks include concentrated customers and wind-market exposure, steel tariffs and input-cost availability, low factory utilization, execution of diversification and restructuring plans, potential covenant or liquidity pressure, environmental obligations, and possible limitations on use of tax-loss carryforwards under Section 382. The Cicero facility remediation and union negotiations at the Cicero site are also noted.
- Routine legal proceedings were described; management did not expect them to have a material adverse effect, while acknowledging litigation outcomes are uncertain. The filing gives no formal earnings or revenue guidance.
Important facts for investors to verify
- Whether tower demand, volumes, pricing and utilization recover, and how concentrated customer exposure affects orders and cash collections.
- Whether Gearing and Process Systems can improve operating performance, and whether further impairment charges are possible after the Red Wolf goodwill write-off.
- Actual revolver availability, covenant headroom and liquidity after the post-quarter NMTC forgiveness and as working-capital needs change.
- Whether the Abilene consolidation is completed within the stated timeline and achieves the forecast $0.575 annual savings at the estimated restructuring cost.
- Exposure to steel tariffs and supply constraints, environmental remediation costs, and any further restrictions on tax-loss carryforwards.