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BROADWIND, INC. - Quarter Report: 2020 March (Form 10-Q)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                   to

 

Commission file number 001-34278

 

 

 

BROADWIND, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

88-0409160

(State or other jurisdiction
of incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

3240 S. Central Avenue, Cicero, IL 60804

(Address of principal executive offices)

 

(708) 780-4800

(Registrant’s telephone number, including area code)

 

Broadwind Energy, Inc.

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.001 par value

BWEN

The NASDAQ Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒  No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding twelve months (or for such shorter period that the registrant was required to submit such files).  Yes  ☒  No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer ☐

 

Accelerated filer ☐

 

 

 

Non-accelerated filer ☒

 

Emerging growth company ☐

 

Smaller reporting company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period to comply with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐  No  ☒

 

Number of shares of registrant’s common stock, par value $0.001, outstanding as of May 1,  2020:  16,640,043.

 

 

 

Table of Contents

BROADWIND, INC. AND SUBSIDIARIES

 

INDEX

 

 

 

Page No.

 

 

 

PART I. FINANCIAL INFORMATION 

 

 

 

Item 1. 

Financial Statements

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Stockholders’ Equity

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Condensed Consolidated Financial Statements

5

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

23

Item 4. 

Controls and Procedures

23

PART II. OTHER INFORMATION 

Item 1. 

Legal Proceedings

25

Item 1A. 

Risk Factors

25

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

25

Item 3. 

Defaults Upon Senior Securities

25

Item 4. 

Mine Safety Disclosures

25

Item 5. 

Other Information

25

Item 6. 

Exhibits

25

Signatures 

 

27

 

 

 

 

Table of Contents

 

PART I.       FINANCIAL INFORMATION

 

Item 1.Financial Statements

 

BROADWIND, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

 

    

2020

    

2019

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash

 

$

2,743

 

$

2,416

 

 

Accounts receivable, net

 

 

16,244

 

 

18,310

 

 

Inventories, net

 

 

40,754

 

 

31,863

 

 

Prepaid expenses and other current assets

 

 

2,600

 

 

2,124

 

 

Total current assets

 

 

62,341

 

 

54,713

 

 

LONG-TERM ASSETS:

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

46,989

 

 

46,940

 

 

Operating lease right-of-use assets

 

 

19,932

 

 

15,980

 

 

Intangible assets, net

 

 

4,736

 

 

4,919

 

 

Other assets

 

 

300

 

 

314

 

 

TOTAL ASSETS

 

$

134,298

 

$

122,866

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Line of credit and other notes payable

 

$

16,350

 

$

12,917

 

 

Current portion of finance lease obligations

 

 

462

 

 

546

 

 

Current portion of operating lease obligations

 

 

1,579

 

 

1,326

 

 

Accounts payable

 

 

25,132

 

 

21,876

 

 

Accrued liabilities

 

 

4,392

 

 

4,911

 

 

Customer deposits

 

 

23,022

 

 

22,717

 

 

Total current liabilities

 

 

70,937

 

 

64,293

 

 

LONG-TERM LIABILITIES:

 

 

 

 

 

 

 

 

Long-term debt, net of current maturities

 

 

355

 

 

505

 

 

Long-term finance lease obligations, net of current portion

 

 

594

 

 

673

 

 

Long-term operating lease obligations, net of current portion

 

 

20,324

 

 

16,591

 

 

Other

 

 

66

 

 

44

 

 

Total long-term liabilities

 

 

21,339

 

 

17,813

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding

 

 

 —

 

 

 —

 

 

Common stock, $0.001 par value; 30,000,000 shares authorized; 16,913,980 and 16,830,930 shares issued as of March 31, 2020, and December 31, 2019, respectively

 

 

17

 

 

17

 

 

Treasury stock, at cost, 273,937 shares as of March 31, 2020 and December 31, 2019

 

 

(1,842)

 

 

(1,842)

 

 

Additional paid-in capital

 

 

383,669

 

 

383,361

 

 

Accumulated deficit

 

 

(339,822)

 

 

(340,776)

 

 

Total stockholders’ equity

 

 

42,022

 

 

40,760

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

134,298

 

$

122,866

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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BROADWIND, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

 

2020

 

    

2019

 

 

 

Revenues

 

$

48,634

 

 

$

41,660

 

 

 

Cost of sales

 

 

42,462

 

 

 

38,111

 

 

 

Restructuring

 

 

 —

 

 

 

12

 

 

 

Gross profit

 

 

6,172

 

 

 

3,537

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

4,309

 

 

 

3,828

 

 

 

Intangible amortization

 

 

183

 

 

 

203

 

 

 

Total operating expenses

 

 

4,492

 

 

 

4,031

 

 

 

Operating income (loss)

 

 

1,680

 

 

 

(494)

 

 

 

OTHER EXPENSE, net:

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(673)

 

 

 

(536)

 

 

 

Other, net

 

 

(1)

 

 

 

(1)

 

 

 

Total other expense, net

 

 

(674)

 

 

 

(537)

 

 

 

Net income (loss) before provision for income taxes

 

 

1,006

 

 

 

(1,031)

 

 

 

Provision for income taxes

 

 

52

 

 

 

11

 

 

 

NET INCOME (LOSS)

 

$

954

 

 

$

(1,042)

 

 

 

NET INCOME (LOSS) PER COMMON SHARE—BASIC:

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

0.06

 

 

$

(0.07)

 

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—BASIC

 

 

16,596

 

 

 

15,786

 

 

 

NET INCOME (LOSS) PER COMMON SHARE—DILUTED:

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

0.06

 

 

$

(0.07)

 

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—DILUTED

 

 

16,733

 

 

 

15,786

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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BROADWIND, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Treasury Stock

 

Additional

 

 

 

 

 

 

 

 

 

Shares

 

Issued

 

 

 

Issued

 

Paid-in

 

Accumulated

 

 

 

 

 

 

Issued

 

Amount

 

Shares

 

Amount

 

Capital

 

Deficit

 

Total

 

BALANCE, December 31, 2018

    

15,982,622

 

$

16

 

(273,937)

 

$

(1,842)

 

$

381,441

 

$

(336,253)

 

$

43,362

  

Stock issued for restricted stock

 

141,384

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Stock issued under defined contribution 401(k) retirement savings plan

 

135,636

 

 

 —

 

 —

 

 

 —

 

 

187

 

 

 —

 

 

187

 

Share-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

255

 

 

 —

 

 

255

 

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(1,042)

 

 

(1,042)

 

BALANCE, March 31, 2019

 

16,259,642

 

 

16

 

(273,937)

 

 

(1,842)

 

 

381,883

 

 

(337,295)

 

 

42,762

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, December 31, 2019

 

16,830,930

 

$

17

 

(273,937)

 

$

(1,842)

 

$

383,361

 

$

(340,776)

 

$

40,760

 

Stock issued for restricted stock

 

83,050

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Share-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

308

 

 

 —

 

 

308

 

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

954

 

 

954

 

BALANCE, March 31, 2020

 

16,913,980

 

$

17

 

(273,937)

 

$

(1,842)

 

$

383,669

 

$

(339,822)

 

$

42,022

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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BROADWIND, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

    

2020

    

2019

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

954

 

$

(1,042)

 

 

Adjustments to reconcile net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

1,612

 

 

1,761

 

 

Deferred income taxes

 

 

22

 

 

(9)

 

 

Change in fair value of interest rate swap agreements

 

 

138

 

 

 —

 

 

Stock-based compensation

 

 

308

 

 

255

 

 

Allowance for doubtful accounts

 

 

29

 

 

(14)

 

 

Common stock issued under defined contribution 401(k) plan

 

 

 —

 

 

187

 

 

Gain on disposal of assets

 

 

 —

 

 

(1)

 

 

Changes in operating assets and liabilities, net of acquisition:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

2,037

 

 

(5,040)

 

 

Inventories

 

 

(8,891)

 

 

(10,274)

 

 

Prepaid expenses and other current assets

 

 

(476)

 

 

70

 

 

Accounts payable

 

 

3,545

 

 

8,132

 

 

Accrued liabilities

 

 

(657)

 

 

321

 

 

Customer deposits

 

 

305

 

 

(5,752)

 

 

Other non-current assets and liabilities

 

 

49

 

 

57

 

 

Net cash used in operating activities

 

 

(1,025)

 

 

(11,349)

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(670)

 

 

(577)

 

 

Proceeds from disposals of property and equipment

 

 

 —

 

 

 1

 

 

Net cash used in investing activities

 

 

(670)

 

 

(576)

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from line of credit

 

 

51,552

 

 

42,440

 

 

Payments on line of credit

 

 

(49,070)

 

 

(31,191)

 

 

Payments on long-term debt

 

 

(242)

 

 

(228)

 

 

Principal payments on finance leases

 

 

(218)

 

 

(236)

 

 

Net cash provided by financing activities

 

 

2,022

 

 

10,785

 

 

NET INCREASE (DECREASE) IN CASH

 

 

327

 

 

(1,140)

 

 

CASH beginning of the period

 

 

2,416

 

 

1,177

 

 

CASH end of the period

 

$

2,743

 

$

37

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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BROADWIND, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(In thousands, except share and per share data)

 

NOTE 1 — BASIS OF PRESENTATION 

The unaudited condensed consolidated financial statements presented herein include the accounts of Broadwind, Inc. (the “Company”) and its wholly-owned subsidiaries Broadwind Heavy Fabrications, Inc. (“Broadwind Heavy Fabrications”), Brad Foote Gear Works, Inc. (“Brad Foote”) and Broadwind Industrial Solutions, LLC (“Broadwind Industrial Solutions”).  All intercompany transactions and balances have been eliminated. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the twelve months ending December 31, 2020. The December 31, 2019 condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP. This financial information should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. 

There have been no material changes in the Company’s significant accounting policies during the three months ended March 31, 2020 as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. 

Company Description  

Through its subsidiaries, the Company is a precision manufacturer of structures, equipment and components for clean technology and other specialized applications.  The Company provides technologically advanced high value products to customers with complex systems and stringent quality standards that operate in energy, mining and infrastructure sectors, primarily in the United States of America (the “U.S.”). The Company’s capabilities include, but are not limited to the following: heavy fabrications, welding, metal rolling, coatings, gear cutting and shaping, heat treatment, assembly, engineering and packaging solutions. The Company’s most significant presence is within the U.S. wind energy industry, which accounted for 74% of the Company’s revenue during the first three months of 2020. 

Liquidity

The Company meets its short term liquidity needs through cash generated from operations, its available cash balances,  the Credit Facility (as defined below), equipment financing, and access to the public or private debt and equity markets and has the option to raise capital under the Company’s Form S-3 (as discussed below).

See Note 7, “Debt and Credit Agreements,” of these condensed consolidated financial statements for a complete description of the Credit Facility and the Company’s other debt.

Total debt and finance lease obligations at March 31, 2020 totaled $17,761, which includes current outstanding debt and finance leases totaling $16,812. The current outstanding debt includes $14,000 outstanding under the Company’s revolving line of credit.

On August 11, 2017, the Company filed a “shelf” registration statement on Form S-3, which was declared effective by the Securities and Exchange Commission (the “SEC”) on October 10, 2017 (the “Form S-3”). This shelf registration statement, which includes a base prospectus, allows the Company at any time to offer any combination of securities described in the prospectus in one or more offerings. Unless otherwise specified in the prospectus supplement accompanying the base prospectus, the Company would use the net proceeds from the sale of any securities offered pursuant to the shelf registration statement for general corporate purposes.

On July 31, 2018, the Company entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with Roth Capital Partners, LLC (the “Agent”). Pursuant to the terms of the ATM Agreement, the Company may sell from time to time through the Agent shares of the Company’s common stock, par value $0.001 per share with an aggregate sales price of up to $10,000. The Company will pay a commission to the Agent of 3% of the gross proceeds of the sale of the shares sold under the ATM Agreement and reimburse the Agent for the expenses of their counsel. As of March 31, 2020, the Company’s common stock having a value of approximately $9,967 remained available for issuance with respect to the ATM Agreement. The Company has not used the ATM Agreement in 2019 or 2020.

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In April 2020, the Company received funds under notes and related documents with CIBC under the new U.S. Paycheck Protection Program. For additional discussion, refer to Note 16, “Subsequent Events” of these condensed consolidated financial statements.

 

The Company anticipates that current cash resources, amounts available under the Credit Facility, the loans received

by the Company under the U.S. Payroll Protection Program, cash to be generated from operations and any potential proceeds from the sale of further Company securities under the Form S-3 will be adequate to meet the Company’s liquidity needs for at least the next twelve months. However, the Company does not anticipate that it will have the ability to generate a significant amount of capital from equity markets in the near-term as a result of the low trading volume of the Company’s common stock on the NASDAQ exchange and limitations on the aggregate amount of securities the Company may offer under the Form S-3 due to its public float size. The Form S-3 will expire on October 10, 2020.

If assumptions regarding the Company’s production, sales and subsequent collections from certain of the Company’s large customers, as well as customer deposits and revenues generated from new customer orders, are materially inconsistent with management’s expectations, the Company may in the future encounter cash flow and liquidity issues. If the Company’s operational performance deteriorates significantly, it may be unable to comply with existing financial covenants, and could lose access to the Credit Facility. This could limit the Company’s operational flexibility, require a delay in making planned investments and/or require the Company to seek additional equity or debt financing. Any additional equity financing, if available, may be dilutive to stockholders, and additional debt financing, if available, would likely require new financial covenants or impose other restrictions on the Company. While the Company believes that it will continue to have sufficient cash available to operate its businesses and to meet its financial obligations and debt covenants, there can be no assurances that its operations will generate sufficient cash, or that credit facilities will be available in an amount sufficient to enable the Company to meet these financial obligations.

 

Management’s Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reported period. Significant estimates, among others, include revenue recognition, future cash flows, inventory reserves, warranty reserves, impairment of long-lived assets, allowance for doubtful accounts and health insurance reserves. Although these estimates are based upon management’s best knowledge of current events and actions that the Company may undertake in the future, actual results could differ from these estimates.

 

NOTE 2 — REVENUES

Revenues are recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

The following table presents the Company’s revenues disaggregated by revenue source for the three months ended March 31, 2020 and 2019:

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2020

 

2019

Heavy Fabrications

$

38,368

$

28,294

Gearing

 

6,227

 

10,027

Industrial Solutions

 

4,039

 

3,339

Consolidated

$

48,634

$

41,660

Revenue within the Company’s Gearing and Industrial Solutions segments, as well as industrial fabrication revenues within the Heavy Fabrications segment, are generally recognized at a point in time, typically when control of the promised goods or services is transferred to its customers in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. A performance obligation is a promise in a contract to transfer a distinct product or service to the customer. The Company measures revenue based on the consideration specified in the purchase order and revenue is recognized when the performance obligations are satisfied. If applicable, the transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation.

For many tower sales within the Company’s Heavy Fabrications segment, products are sold under terms included in bill and hold sales arrangements that result in different timing for revenue recognition. The Company recognizes revenue under

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these arrangements only when there is a substantive reason for the agreement, the ordered goods are identified separately as belonging to the customer and not available to fill other orders, the goods are currently ready for physical transfer to the customer, and the Company does not have the ability to use the product or to direct it to another customer. Assuming these required revenue recognition criteria are met, revenue is recognized upon completion of product manufacture and customer acceptance.

The Company generally expenses sales commissions when incurred. These costs are recorded within selling, general and administrative expenses. Customer deposits, deferred revenue and other receipts are deferred and recognized when the revenue is realized and earned. Cash payments to customers are classified as reductions of revenue in the Company’s statement of operations.

The Company does not disclose the value of the unsatisfied performance obligations for contracts with an original expected length of one year or less.

 

NOTE 3 — EARNINGS PER SHARE 

The following table presents a reconciliation of basic and diluted earnings per share for the three months ended March 31, 2020 and 2019, as follows: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

    

2020

    

2019

 

 

Basic earnings per share calculation:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

954

 

$

(1,042)

 

 

Weighted average number of common shares outstanding

 

 

16,596,236

 

 

15,785,954

 

 

Basic net income (loss) per share

 

$

0.06

 

$

(0.07)

 

 

Diluted earnings per share calculation:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

954

 

$

(1,042)

 

 

Weighted average number of common shares outstanding

 

 

16,596,236

 

 

15,785,954

 

 

Common stock equivalents:

 

 

 

 

 

 

 

 

Non-vested stock awards (1)

 

 

137,038

 

 

 —

 

 

Weighted average number of common shares outstanding

 

 

16,733,274

 

 

15,785,954

 

 

Diluted net income (loss) per share

 

$

0.06

 

$

(0.07)

 

 

 

(1)

Stock options and restricted stock units granted and outstanding of 683,019 as of March 31, 2019 are excluded from the computation of diluted earnings due to the anti-dilutive effect as a result of the Company’s net loss for three months ended March 31, 2019.

 

NOTE 4 — INVENTORIES 

The components of inventories as of March 31, 2020 and December 31, 2019 are summarized as follows:

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

    

2020

    

2019

 

Raw materials

 

$

24,325

 

$

22,759

 

Work-in-process

 

 

11,496

 

 

8,366

 

Finished goods

 

 

6,926

 

 

2,915

 

 

 

 

42,747

 

 

34,040

 

Less: Reserve for excess and obsolete inventory

 

 

(1,993)

 

 

(2,177)

 

Net inventories

 

$

40,754

 

$

31,863

 

 

 

NOTE 5 — INTANGIBLE ASSETS

Intangible assets represent the fair value assigned to definite-lived assets such as trade names and customer relationships as part of the Company’s acquisition of Brad Foote completed in 2007 as well as the noncompetition agreements, trade names and customer relationships that were part of the Company’s acquisition of Red Wolf Company, LLC. Other intangible assets are amortized on a straight-line basis over their estimated useful lives, with a remaining life range from 3 to 8 years.

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As of March 31, 2020 and December 31, 2019, the cost basis, accumulated amortization and net book value of intangible assets were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remaining

 

 

 

 

 

 

 

 

 

 

 

 

 

Remaining

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Weighted

    

 

 

    

 

 

    

 

 

    

 

 

    

Weighted

 

 

 

 

 

 

 

 

Accumulated

 

Net

 

Average

 

 

 

 

 

 

 

Accumulated

 

Net

 

Average

 

 

Cost

 

Accumulated

 

Impairment

 

Book

 

Amortization

 

 

 

 

Accumulated

 

Impairment

 

Book

 

Amortization

 

 

Basis

 

Amortization

 

Charges

 

Value

 

Period

 

Cost

 

Amortization

 

Charges

 

Value

 

Period

Intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncompete agreements

 

$

170

 

$

(90)

 

$

 —

 

$

80

 

2.8

 

$

170

 

$

(83)

 

$

 —

 

$

87

 

3.1

Customer relationships

 

 

15,979

 

 

(6,750)

 

 

(7,592)

 

 

1,637

 

5.6

 

 

15,979

 

 

(6,674)

 

 

(7,592)

 

 

1,713

 

5.8

Trade names

 

 

9,099

 

 

(6,080)

 

 

 —

 

 

3,019

 

7.5

 

 

9,099

 

 

(5,980)

 

 

 —

 

 

3,119

 

7.8

Intangible assets

 

$

25,248

 

$

(12,920)

 

$

(7,592)

 

$

4,736

 

6.3

 

$

25,248

 

$

(12,737)

 

$

(7,592)

 

$

4,919

 

6.5

 

As of March 31, 2020, estimated future amortization expense is as follows:

 

 

 

 

2020

 

$

550

2021

 

 

733

2022

 

 

725

2023

 

 

664

2024

 

 

661

2025 and thereafter

 

 

1,403

Total

 

$

4,736

 

NOTE 6 — ACCRUED LIABILITIES

Accrued liabilities as of March 31, 2020 and December 31, 2019 consisted of the following: 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

    

2020

    

2019

 

Accrued payroll and benefits

 

$

3,256

 

$

3,870

 

Fair value of interest rate swap

 

 

216

 

 

78

 

Accrued property taxes

 

 

158

 

 

 —

 

Income taxes payable

 

 

69

 

 

61

 

Accrued professional fees

 

 

91

 

 

136

 

Accrued warranty liability

 

 

118

 

 

163

 

Self-insured workers compensation reserve

 

 

112

 

 

115

 

Accrued other

 

 

372

 

 

488

 

Total accrued liabilities

 

$

4,392

 

$

4,911

 

 

 

NOTE 7 — DEBT AND CREDIT AGREEMENTS

 

The Company’s outstanding debt balances as of March 31, 2020 and December 31, 2019 consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

    

2020

    

2019

 

Line of credit

 

$

14,000

 

$

11,517

 

Other notes payable

 

 

2,363

 

 

1,563

 

Long-term debt

 

 

342

 

 

342

 

Less: Current portion

 

 

(16,350)

 

 

(12,917)

 

Long-term debt, net of current maturities

 

$

355

 

$

505

 

 

Credit Facility

On October 26, 2016, the Company established a three-year secured revolving line of credit with CIBC Bank USA (“CIBC”). This line of credit has been amended from time to time. On February 25, 2019, the line of credit was expanded and extended for three years when the Company and its subsidiaries entered into an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan Agreement”), with CIBC as administrative agent and sole lead arranger and the other financial institutions party thereto (the “Lenders”), providing the Company and its subsidiaries with a $35,000 secured credit facility (the “Credit Facility”). The obligations under the Credit Facility are secured by, subject to certain exclusions, (i) a first priority security interest in all accounts receivable, inventory, equipment, cash and investment property, and (ii) a mortgage on the Abilene, Texas tower and Pittsburgh, Pennsylvania gearing facilities.

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The Credit Facility is an asset-based revolving credit facility, pursuant to which the Lenders advance funds against a borrowing base consisting of approximately (a) 85% of the face value of eligible receivables of the Company and the subsidiaries, plus (b) the lesser of (i) 50% of the lower of cost or market value of eligible inventory of the Company, (ii) 85% of the orderly liquidation value of eligible inventory and (iii) $12.5 million, plus (c) the lesser of (i) the sum of (A) 75% of the appraised net orderly liquidation value of the Company’s eligible machinery and equipment plus (B) 50% of the fair market value of the Company’s mortgaged property and (ii) $12 million. Subject to certain borrowing base conditions, the aggregate Credit Facility limit under the Amended and Restated Loan Agreement is $35 million with a sublimit for letters of credit of $10 million.  Borrowings under the Credit Facility bear interest at a per annum rate equal to, at the option of the Company, the one, two or three-month LIBOR rate or the base rate, plus a margin.  The applicable margin is 5.50% for LIBOR rate loans and 3.50% for base rates loans. Upon certain pay downs, a pricing grid based on the Company’s trailing twelve month fixed charge coverage ratio may become effective under which applicable margins would range from 2.25% to 2.75% for LIBOR rate loans and 0.00% to 0.75% for base rate loans. The Company must also pay an unused facility fee equal to 0.50% per annum on the unused portion of the Credit Facility along with other standard fees.  The initial term of the Amended and Restated Loan Agreement ends on February 25, 2022. With the exception of the balance impacted by the interest rate swap (as defined below), the Company is allowed to prepay in whole or in part advances under the Credit Facility without penalty or premium other than customary “breakage” costs with respect to LIBOR loans.

The Amended and Restated Loan Agreement contains customary representations and warranties applicable to the Company and the subsidiaries.  It also contains a requirement that the Company, on a consolidated basis, maintain a minimum quarterly fixed charge coverage ratio along with other customary restrictive covenants, certain of which are subject to materiality thresholds, baskets and customary exceptions and qualifications. The Company was in compliance with all financial covenants as of March 31, 2020.  

In conjunction with the Amended and Restated Loan Agreement, in June 2019, the Company entered into a floating to fixed interest rate swap with CIBC. The swap agreement has a notional amount of $6,000 and a schedule matching that of the underlying loan that synthetically fixes the interest rate on LIBOR borrowings for the entire term of the Credit Facility at 2.13%, before considering the Company’s risk premium. The interest rate swap is accounted for using mark-to-market accounting. Accordingly, changes in the fair value of the swap each reporting period are adjusted through earnings, which may subject the Company’s results of operations to non-cash volatility. The interest rate swap liability is included in the “Accrued liabilities” line item of the Company’s condensed consolidated financial statements as of March 31, 2020 and December 31, 2019.

As of March 31, 2020, there was $14,000 of outstanding indebtedness under the Credit Facility, with the ability to borrow an additional $16,283, under the Credit Facility.

Other 

In 2016, the Company entered into a $570 loan agreement with the Development Corporation of Abilene which is included in the “Long-term debt, less current maturities” line item of our condensed consolidated financial statements as of March 31, 2020 and December 31, 2019. The loan is forgivable upon the Company meeting and maintaining specific employment thresholds. During each of the years 2019 and 2018,  $114 of the loan was forgiven. As of March 31, 2020, the loan balance was  $342.  In addition, the Company has outstanding notes payable for capital expenditures in the amount of $2,363 and $1,563 as of March 31, 2020 and December 31, 2019, respectively, with $2,350 and $1,400 included in the “Line of credit and other notes payable” line item of the Company’s condensed consolidated financial statements as of March 31, 2020 and December 31, 2019, respectively. The notes payable have monthly payments that range from $1 to $36 and an interest rate of approximately 5%. The equipment purchased is utilized as collateral for the notes payable. The outstanding notes payable have maturity dates that range from April 2020 to August 2022.

 

In April 2020, the Company received loans totaling $9,530 as part of the 2020 Coronavirus Aid, Relief and Economic Stability Act. Please refer to Note 16, “Subsequent Events” of these condensed consolidated financial statements for additional details.

 

 

NOTE 8 — LEASES

The Company leases certain facilities and equipment. On January 1, 2019, the Company adopted ASU 2016-02, Leases (“Topic 842”) and ASU 2018-11 using the cumulative effect method and has elected to apply each available practical expedient. The adoption of Topic 842 resulted in the Company recognizing operating lease liabilities totaling $19,508 with a corresponding right-of-use (“ROU”) asset of $17,613 based on the present value of the minimum rental payments of such leases. The variance between the ROU asset balance and the lease liability is a deferred rent liability that existed prior to the

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adoption of Topic 842 and was offset against the ROU asset balance during the adoption. The discount rates used for leases accounted for under ASC 842 are based on an interest rate yield curve developed for the leases in the Company’s lease portfolio.

 The Company has elected to apply the short-term lease exception to all leases of one year or less. During the three months ended March 31, 2020, the Company had an additional operating lease that resulted in right-of-use assets obtained in exchange for lease obligations of $4,380. 

 Some of the Company’s facility leases include options to renew. The exercise of the renewal options is typically at the Company’s discretion. The Company regularly evaluates the renewal options and includes them in the lease term when the Company is reasonably certain to exercise them.

 

Quantitative information regarding the Company’s leases is as follows:

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

March 31, 2020

 

March 31, 2019

Components of lease cost

 

 

 

 

Finance lease cost components:

 

 

 

 

  Amortization of finance lease assets

 

$ 129

 

$ 136

  Interest on finance lease liabilities

 

26

 

29

     Total finance lease costs

 

155

 

165

Operating lease cost components:

 

 

 

 

  Operating lease cost

 

765

 

786

  Short-term lease cost

 

132

 

146

  Variable lease cost (1)

 

195

 

178

  Sublease income

 

(45)

 

(44)

     Total operating lease costs

 

1,047

 

1,066

 

 

 

 

 

Total lease cost

 

$ 1,202

 

$ 1,231

 

 

 

 

 

Supplemental cash flow information related to our operating leases is

 

 

 

 

as follows for the three months ended March 31, 2020 and 2019:

 

 

 

 

     Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

   Operating cash flows from finance leases

 

 

 

 

               Operating cash outflow from operating leases

 

$ 888

 

$ 875

 

 

 

 

 

Weighted-average remaining lease term-finance leases at end of period (in years)

 

1.2

 

1.6

Weighted-average remaining lease term-operating leases at end of period (in years)

 

10.5

 

10.9

Weighted-average discount rate-finance leases at end of period

 

9.2%

 

8.4%

Weighted-average discount rate-operating leases at end of period

 

8.8%

 

9.0%

 

(1)

Variable lease costs consist primarily of taxes, insurance, utilities, and common area or other maintenance costs for the Company’s leased facilities and equipment.

 

As of March 31, 2020, future minimum lease payments under finance leases and operating leases were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Finance

    

Operating

    

 

 

 

 

 

Leases

 

Leases

 

Total

 

2020

 

$

409

 

$

2,628

 

$

3,037

 

2021

 

 

527

 

 

3,387

 

 

3,914

 

2022

 

 

202

 

 

2,902

 

 

3,104

 

2023

 

 

34

 

 

2,884

 

 

2,918

 

2024

 

 

 —

 

 

2,906

 

 

2,906

 

2025 and thereafter

 

 

 —

 

 

20,119

 

 

20,119

 

Total lease payments

 

 

1,172

 

 

34,826

 

 

35,998

 

Less—portion representing interest

 

 

(116)

 

 

(12,923)

 

 

(13,039)

 

Present value of lease obligations

 

 

1,056

 

 

21,903

 

 

22,959

 

Less—current portion of lease obligations

 

 

(462)

 

 

(1,579)

 

 

(2,041)

 

Long-term portion of lease obligations

 

$

594

 

$

20,324

 

$

20,918

 

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NOTE 9 — FAIR VALUE MEASUREMENTS 

 

Fair Value of Financial Instruments 

The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable and customer deposits, approximate their respective fair values due to the relatively short-term nature of these instruments. Based upon interest rates currently available to the Company for debt with similar terms, the carrying value of the Company’s long-term debt is approximately equal to its fair value. 

The Company entered into an interest rate swap in June 2019 to mitigate the exposure to the variability of LIBOR for its floating rate debt described in Note 7, “Debt and Credit Agreements,” of these condensed consolidated financial statements. The fair value of the interest rate swap is reported in “Accrued liabilities” and the change in fair value is reported in “Interest expense, net” of these condensed consolidated financial statements. The fair value of the interest rate swap is estimated as the net present value of projected cash flows based on forward interest rates at the balance sheet date.

The Company is required to provide disclosure and categorize assets and liabilities measured at fair value into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most reliable measure of fair value while Level 3 generally requires significant management judgment. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. Financial instruments are assessed quarterly to determine the appropriate classification within the fair value hierarchy. Transfers between fair value classifications are made based upon the nature and type of the observable inputs. The fair value hierarchy is defined as follows:

Level 1 — Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 — Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly. For the Company’s corporate and municipal bonds, although quoted prices are available and used to value said assets, they are traded less frequently.

Level 3 — Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.

The following tables represent the fair values of the Company’s financial liabilities as of March 31, 2020 and December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Liabilities measured on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap

 

$

 —

 

$

216

 

$

 —

 

$

216

 

Total liabilities at fair value

 

$

 —

 

$

216

 

$

 —

 

$

216

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Liabilities measured on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap

 

$

 —

 

$

78

 

$

 —

 

$

78

 

Total liabilities at fair value

 

$

 —

 

$

78

 

$

 —

 

$

78

 

 

 

 

 

NOTE 10 — INCOME TAXES 

Effective tax rates differ from federal statutory income tax rates primarily due to changes in the Company’s valuation allowance, permanent differences and provisions for state and local income taxes. As of March 31, 2020, the Company has a full valuation allowance recorded against deferred tax assets. During the three months ended March 31, 2020, the Company recorded a provision for income taxes of $52, compared to a provision for income taxes of $11 during the three months ended March 31, 2019. 

The Company files income tax returns in U.S. federal and state jurisdictions. As of March 31, 2020, open tax years in federal and some state jurisdictions date back to 1996 due to the taxing authorities’ ability to adjust operating loss carryforwards. As of December 31, 2019, the Company had federal and unapportioned state net operating loss (“NOL”)

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carryforwards of $258,834 of which $227,781 will generally begin to expire in 2026. The majority of the NOL carryforwards will expire in various years from 2028 through 2037. NOLs generated after January 1, 2018 will not expire.

Since the Company has no unrecognized tax benefits, they will not have an impact on the condensed consolidated financial statements as a result of the expiration of the applicable statues of limitations within the next twelve months. In addition, Section 382 of the Internal Revenue Code of 1986, as amended (the “IRC”), generally imposes an annual limitation on the amount of NOL carryforwards and associated built-in losses that may be used to offset taxable income when a corporation has undergone certain changes in stock ownership. The Company’s ability to utilize NOL carryforwards and built-in losses may be limited, under IRC Section 382 or otherwise, by the Company’s issuance of common stock or by other changes in stock ownership. Upon completion of the Company’s analysis of IRC Section 382 in 2010, the Company determined that aggregate changes in stock ownership have triggered an annual limitation on NOL carryforwards and built-in losses available for utilization, thereby currently limiting annual NOL usage to $14,284 per year. Further limitations may occur, depending on additional future changes in stock ownership. To the extent the Company’s use of NOL carryforwards and associated built-in losses is significantly limited in the future, the Company’s income could be subject to U.S. corporate income tax earlier than it would be if the Company were able to use NOL carryforwards and built-in losses without such limitation, which could result in lower profits and the loss of benefits from these attributes. 

In February 2013, the Company adopted a Stockholder Rights Plan, which was amended and extended in February 2016 and again in February 2019 (as amended, the “Rights Plan”). The Rights Plan is designed to preserve the Company’s substantial tax assets associated with NOL carryforwards under IRC Section 382. The amendment to the Rights Plan was most recently approved by our stockholders at our 2019 Annual Meeting of Stockholders and has a term of three years.

The Rights Plan is intended to act as a deterrent to any person or group, together with its affiliates and associates, becoming the beneficial owner of 4.9% or more of the Company’s common stock and thereby triggering a further limitation of the Company’s available NOL carryforwards. In connection with the adoption of the Rights Plan, the Board declared a non‑taxable dividend of one preferred share purchase right (a “Right”) for each outstanding share of the Company’s common stock to the Company’s stockholders of record as of the close of business on February 22, 2013. Each Right entitles its holder to purchase from the Company one one‑thousandth of a share of the Company’s Series A Junior Participating Preferred Stock at an exercise price of $4.25 per Right, subject to adjustment. As a result of the Rights Plan, any person or group that acquires beneficial ownership of 4.9% or more of the Company’s common stock without the approval of the Board would be subject to significant dilution in the ownership interest of that person or group. Stockholders who owned 4.9% or more of the outstanding shares of the Company’s common stock as of February 12, 2013 will not trigger the preferred share purchase rights unless they acquire additional shares after that date. 

As of March 31, 2020, the Company had no unrecognized tax benefits. The Company recognizes interest and penalties related to uncertain tax positions as income tax expense. The Company had no accrued interest and penalties as of March 31, 2020.

 

NOTE 11 — SHARE-BASED COMPENSATION 

 

The following table summarizes stock option activity during the three months ended March 31, 2020: 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

 

 

 

 

Weighted Average

 

 

    

Options

    

Exercise Price

 

Outstanding as of December 31, 2019

 

54,362

 

$

11.16

 

Forfeited

 

 —

 

$

 —

 

Outstanding as of March 31, 2020

 

54,362

 

$

11.16

 

Exercisable as of March 31, 2020

 

54,362

 

$

11.16

 

 

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The following table summarizes the Company’s restricted stock unit and performance award activity during the three months ended March 31, 2020: 

 

 

 

 

 

 

 

 

    

 

    

Weighted Average

 

 

 

Number of

 

Grant-Date Fair Value

 

 

 

Shares

 

Per Share

 

Unvested as of December 31, 2019

 

1,356,915

 

$

2.39

 

Granted

 

 —

 

$

 —

 

Vested

 

(121,132)

 

$

3.41

 

Forfeited

 

(89,464)

 

$

5.43

 

Unvested as of March 31, 2020

 

1,146,319

 

$

2.05

 

 

The following table summarizes share-based compensation expense included in the Company’s condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019, as follows: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

    

2020

    

2019

 

Share-based compensation expense:

 

 

 

 

 

 

 

Cost of sales

 

$

22

 

$

30

 

Selling, general and administrative

 

 

286

 

 

225

 

Net effect of share-based compensation expense on net income

 

$

308

 

$

255

 

Reduction in earnings per share:

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.02

 

$

0.02

 

Diluted earnings per share

 

$

0.02

 

$

0.02

 

 

 

 

 

 

NOTE 12 — LEGAL PROCEEDINGS

 

The Company is party to a variety of legal proceedings that arise in the normal course of its business. While the results of these legal proceedings cannot be predicted with certainty, management believes that the final outcome of these proceedings will not have a material adverse effect, individually or in the aggregate, on the Company’s results of operations, financial condition or cash flows. Due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s results of operations, financial condition or cash flows. It is possible that if one or more of such matters were decided against the Company, the effects could be material to the Company’s results of operations in the period in which the Company would be required to record or adjust the related liability and could also be material to the Company’s financial condition and cash flows in the periods the Company would be required to pay such liability.

 

NOTE 13 — RECENT ACCOUNTING PRONOUNCEMENTS 

The Company reviews new accounting standards as issued. Although some of the accounting standards issued or effective in the current fiscal year may be applicable to it, the Company believes that none of the new standards have a significant impact on its condensed consolidated financial statements.

 

NOTE 14— SEGMENT REPORTING 

The Company is organized into reporting segments based on the nature of the products offered and business activities from which it earns revenues and incurs expenses for which discrete financial information is available and regularly reviewed by the Company’s chief operating decision maker.

The Company’s segments and their product and service offerings are summarized below: 

Heavy Fabrications

The Company provides large, complex and precision fabrications to customers in a broad range of industrial markets.  The Company’s most significant presence is within the U.S. wind energy industry, although it has diversified into other industrial markets in order to improve capacity utilization, reduce customer concentrations, and reduce exposure to uncertainty related to governmental policies currently impacting the U.S. wind energy industry. Within the U.S. wind energy industry, the

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Company provides steel towers and adapters primarily to wind turbine manufacturers.  Production facilities, located in Manitowoc, Wisconsin and Abilene, Texas, are situated in close proximity to the primary U.S. domestic wind energy and equipment manufacturing hubs. The two facilities have a combined annual tower production capacity of up to approximately 550 towers  (1,650 tower sections), sufficient to support turbines generating more than 1,100 megawatts of power. The Company has expanded production capabilities and leveraged manufacturing competencies, including welding, lifting capacity and stringent quality practices, into aftermarket and original equipment manufacturer (“OEM”) components utilized in surface and underground mining, construction, material handling, oil and gas (“O&G”) and other infrastructure markets. 

Gearing 

The Company provides gearing and gearboxes to a broad set of customers in diverse markets including; onshore and offshore O&G fracking and drilling, surface and underground mining, defense, wind energy, steel, material handling and other infrastructure markets.  The Company has manufactured loose gearing, gearboxes and systems, and provided heat treatment services for aftermarket and OEM applications for nearly a century.  The Company uses an integrated manufacturing process, which includes machining and finishing processes in Cicero, Illinois, and heat treatment in Neville Island, Pennsylvania.

Industrial Solutions 

The Company provides supply chain solutions, inventory management, kitting and assembly services, primarily serving the combined cycle natural gas turbine market.   

Corporate

“Corporate” includes the assets and selling, general and administrative expenses of the Company’s corporate office. “Eliminations” comprises adjustments to reconcile segment results to consolidated results. 

The accounting policies of the reportable segments are the same as those referenced in Note 1, “Basis of Presentation” of these condensed consolidated financial statements. Summary financial information by reportable segment for the three months ended March 31, 2020 and 2019 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

 

 

 

 

 

 

    

 

 

    

 

 

 

 

 

Heavy Fabrications

 

Gearing

 

 

Industrial Solutions

 

 

Corporate

 

Eliminations

 

Consolidated

 

For the Three Months Ended March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$

38,368

 

 

6,227

 

 

 

4,039

 

 

 

 —

 

 

 —

 

$

48,634

 

Operating profit (loss)

 

 

3,541

 

 

(261)

 

 

 

192

 

 

 

(1,792)

 

 

 —

 

 

1,680

 

Depreciation and amortization

 

 

963

 

 

512

 

 

 

104

 

 

 

33

 

 

 —

 

 

1,612

 

Capital expenditures

 

 

381

 

 

168

 

 

 

120

 

 

 

 1

 

 

 —

 

 

670

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

    

 

 

    

 

 

    

 

 

 

 

 

Heavy Fabrications

 

Gearing

 

Industrial Solutions

 

Corporate

 

Eliminations

 

Consolidated

 

For the Three Months Ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$

28,294

 

 

10,027

 

 

3,339

 

 

 —

 

 

 —

 

$

41,660

 

Operating (loss) profit

 

 

(222)

 

 

1,387

 

 

(285)

 

 

(1,374)

 

 

 —

 

 

(494)

 

Depreciation and amortization

 

 

1,095

 

 

482

 

 

122

 

 

62

 

 

 —

 

 

1,761

 

Capital expenditures

 

 

201

 

 

367

 

 

 —

 

 

 9

 

 

 —

 

 

577

 

 

 

 

 

 

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Total Assets as of 

 

 

 

March 31,

 

December 31,

 

Segments:

 

2020

 

2019

 

Heavy Fabrications

    

$

52,904

    

$

41,432

 

Gearing

 

 

46,802

 

 

47,022

 

Industrial Solutions

 

 

9,107

 

 

8,893

 

Corporate

 

 

239,429

 

 

239,629

 

Eliminations

 

 

(213,944)

 

 

(214,110)

 

 

 

$

134,298

 

$

122,866

 

 

 

NOTE 15 — COMMITMENTS AND CONTINGENCIES 

Environmental Compliance and Remediation Liabilities 

The Company’s operations and products are subject to a variety of environmental laws and regulations in the jurisdictions in which the Company operates and sells products governing, among other things, air emissions, wastewater discharges, the use, handling and disposal of hazardous materials, soil and groundwater contamination, employee health and safety, and product content, performance and packaging. Certain environmental laws may impose the entire cost or a portion of the cost of investigating and cleaning up a contaminated site, regardless of fault, upon any one or more of a number of parties, including the current or previous owners or operators of the site. These environmental laws also impose liability on any person who arranges for the disposal or treatment of hazardous substances at a contaminated site. Third parties may also make claims against owners or operators of sites and users of disposal sites for personal injuries and property damage associated with releases of hazardous substances from those sites. 

Warranty Liability 

The Company warrants its products for terms that range from one to five years. In certain contracts, the Company has recourse provisions for items that would enable recovery from third parties for amounts paid to customers under warranty provisions. As of March 31, 2020 and 2019, estimated product warranty liability was $118 and $218, respectively, and is recorded within accrued liabilities in the Company’s condensed consolidated balance sheets. 

The changes in the carrying amount of the Company’s total product warranty liability for the three months ended March 31, 2020 and 2019 were as follows: 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31,

 

 

    

2020

    

2019

 

Balance, beginning of period

 

$

163

 

$

226

 

Reduction of warranty reserve

 

 

(25)

 

 

(19)

 

Other adjustments

 

 

(20)

 

 

11

 

Balance, end of period

 

$

118

 

$

218

 

 

Allowance for Doubtful Accounts 

Based upon past experience and judgment, the Company establishes an allowance for doubtful accounts with respect to accounts receivable. The Company’s standard allowance estimation methodology considers a number of factors that, based on its collections experience, the Company believes will have an impact on its credit risk and the collectability of its accounts receivable. These factors include individual customer circumstances, history with the Company, the length of the time period during which the account receivable has been past due and other relevant criteria. 

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The Company monitors its collections and write-off experience to assess whether or not adjustments to its allowance estimates are necessary. Changes in trends in any of the factors that the Company believes may impact the collectability of its accounts receivable, as noted above, or modifications to its credit standards, collection practices and other related policies may impact the Company’s allowance for doubtful accounts and its financial results. The activity in the accounts receivable allowance liability for the three months ended March 31, 2020 and 2019 consisted of the following: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31,

 

 

    

2020

    

2019

 

Balance at beginning of period

 

$

127

 

$

190

 

Bad debt expense

 

 

55

 

 

 —

 

Write-offs

 

 

(19)

 

 

 —

 

Other adjustments

 

 

(7)

 

 

(14)

 

Balance at end of period

 

$

156

 

$

176

 

 

Collateral 

In select instances, the Company has pledged specific inventory and machinery and equipment assets to serve as collateral on related payable or financing obligations. 

Liquidated Damages 

In certain customer contracts, the Company has agreed to pay liquidated damages in the event of qualifying delivery or production delays. These damages are typically limited to a specific percentage of the value of the product in question and/or are dependent on actual losses sustained by the customer. The Company does not believe that this potential exposure will have a material adverse effect on the Company’s consolidated financial position or results of operations. There was no reserve for liquidated damages as of March 31, 2020 or December 31, 2019. 

 

 

 

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NOTE 16 — SUBSEQUENT EVENTS

 

COVID-19

In March 2020, the World Health Organization characterized the novel coronavirus disease (“COVID-19”) a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The rapid spread of the pandemic and the continuously evolving responses to combat it have had an increasingly negative impact on the global economy.  The Company’s operations and those of its suppliers and customers, and the supply chains that support the Company’s and its suppliers’ and customers’ operations have been and continue to be affected by COVID-19.  In response to the virus, the Company is following the guidance provided by the U.S. Centers for Disease Control and Prevention to protect the continued safety and welfare of our employees, business partners and their respective communities.  In addition, the Company has taken various precautionary actions including, but not limited to, analyzing its supply chain to determine its exposure and identify alternative sourcing, reducing board of director and executive compensation, delaying applicable merit increases and other discretionary spending, restricting employee travel, encouraging employees that have the ability to work from home to do so, implementing social distancing best practices and preparing various contingency plans in the event the Company faces any material adverse impacts from COVID-19. 

 

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States in response to COVID-19. The Paycheck Protection Program (“PPP”) was formed as part of the CARES Act and is administered by the U.S. Small Business Administration (the “SBA”). The PPP allows certain companies to apply for aid through forgivable loans (“PPP Loans”). Under the terms of the PPP, certain amounts of the PPP Loans may be forgiven if they are used for qualifying expenses as described in the CARES Act. The Company applied for these loans through CIBC Bank and received total proceeds of $9,530. The Company intends to use proceeds from the PPP Loans primarily for payroll costs, in accordance with terms and conditions applicable to loans administered by the SBA. The PPP Loans have a 1.00% interest rate and are scheduled to mature starting on April 5, 2022.

 

For more information, refer to the Company’s supplemental risk factor included in the Company’s Current Report on Form 8-K filed April 17, 2020.

 

Name Change

 

In connection with the Company’s rebranding efforts previously announced, following the approval of the Company’s stockholders at the Company’s 2020 Annual Meeting of Stockholders on May 1, 2020, the Company filed a Certificate of Amendment to the Certificate of Incorporation with the Secretary of State of Delaware, changing the name of the Company from “Broadwind Energy, Inc.” to “Broadwind, Inc.” effective on May 4, 2020. In connection with the Company’s name change, the board of directors of the Company amended the Company’s Second Amended and Restated Bylaws to reflect the Company’s new corporate name.

 

 

 

 

   

 

 

 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto in Item 1, “Financial Statements,” of this Quarterly Report and the audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2019. The discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances including, but not limited to, those identified in “Cautionary Note Regarding Forward-Looking Statements” at the end of Item 2. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties including those arising as a result of COVID-19. As used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” and the “Company” refer to Broadwind, Inc., a Delaware corporation headquartered in Cicero, Illinois, and its subsidiaries. 

(Dollars are presented in thousands except per share data or unless otherwise stated) 

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KEY METRICS USED BY MANAGEMENT TO MEASURE PERFORMANCE

In addition to measures of financial performance presented in our consolidated financial statements in accordance with GAAP, we use certain other financial measures to analyze our performance. These non-GAAP financial measures primarily consist of adjusted EBITDA and free cash flow which help us evaluate growth trends, establish budgets, assess operational efficiencies, oversee our overall liquidity, and evaluate our overall financial performance.

Key Financial Measures

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2020

 

2019

Net revenues

    

$

48,634

    

$

41,660

Net income (loss)

 

$

954

 

$

(1,042)

Adjusted EBITDA (1)

 

$

3,605

 

$

1,715

Capital expenditures

 

$

670

 

$

577

Free cash flow (2)

 

$

(329)

 

$

(11,468)

Operating working capital (3)

 

$

8,844

 

$

17,607

Total debt

 

$

16,705

 

$

24,384

Total orders

 

$

33,809

 

$

24,006

Backlog at end of period

 

$

127,401

 

$

81,126

Book-to-bill (4)

 

 

0.7

 

 

0.6

(1)We provide non-GAAP adjusted EBITDA (earnings before interest, income taxes, depreciation, amortization, share based compensation and other stock payments, restructuring costs, impairment charges, and other non-cash gains and losses) as supplemental information regarding our business performance. Our management uses adjusted EBITDA when they internally evaluate the performance of our business, review financial trends and make operating and strategic decisions. We believe that this non-GAAP financial measure is useful to investors because it provides a better understanding of our past financial performance and future results, and it allows investors to evaluate our performance using the same methodology and information as used by our management. Our definition of adjusted EBITDA may be different from similar non-GAAP financial measures used by other companies and/or analysts.

(2)We define free cash flow as adjusted EBITDA plus or minus changes in operating working capital less capital expenditures net of any proceeds from disposals of property and equipment. We believe free cash flow is a useful measure for investors because it portrays our ability to generate cash from our business for purposes such as repaying maturing debt and funding future investments.

(3)We define operating working capital as accounts receivable and inventory net of accounts payable and customer deposits.

(4)We define the book-to-bill as the ratio of new orders we received to units shipped and billed during a period.  

The following table reconciles our non-GAAP key financial measures to the most directly comparable GAAP measure:

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2020

 

2019

Net income (loss)

    

$

954

    

$

(1,042)

Interest expense

 

 

673

 

 

536

Income tax provision (benefit)

 

 

52

 

 

11

Depreciation and amortization

 

 

1,612

 

 

1,761

Share-based compensation and other stock payments

 

 

314

 

 

437

Restructuring costs

 

 

 —

 

 

12

     Adjusted EBITDA

 

 

3,605

 

 

1,715

Changes in operating working capital

 

 

(3,264)

 

 

(12,607)

Capital expenditures

 

 

(670)

 

 

(577)

Proceeds from disposal of property and equipment

 

 

 —

 

 

 1

     Free Cash Flow

 

$

(329)

 

$

(11,468)

 

OUR BUSINESS 

First  Quarter Overview 

We booked $33,809 in new orders in the first quarter of 2020,  up from $24,006 in the first quarter of 2019 driven primarily by a  $5,286 increase in aftermarket wind Gearing and other industrial Gearing orders and a $3,004 rise in Heavy Fabrication orders, predominately driven by an increase in mining and other industrial customers, a result of our ongoing

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diversification efforts.  Our Industrial Solutions segment realized a $1,513 increase in orders for new gas turbine content, partially offset by a decrease in aftermarket demand.  

We recognized revenue of $48,634 in the first quarter of 2020,  up 17%  compared to the first quarter of 2019,  primarily due to sales growth in the Heavy Fabrications segment as tower sections sold surged 66%  compared to the prior year quarter driven primarily by customer demand to support the expected increase of wind turbine tower installations. This growth was partially offset by a lower average sales price on towers sold due to higher levels of customer supplied materials in the current year.  Industrial Solutions revenue was up $700, or 21% primarily due to higher near-term demand for new gas turbine content, partially offset by weaker aftermarket demand.  Gearing revenue was down $3,800 driven primarily by lower order intake in the second half of 2019 and as customers delayed approximately $1,000 of purchases into future periods. 

We reported net income of $954 or $0.06 per share in the first quarter of 2020,  compared to a net loss of $1,042 or $0.07 per share in the first quarter of 2019 primarily due to higher capacity utilization in towers and overall improved operating efficiencies, partially offset by decreased profitability in our gearing segment due to decreased sales,  a lower margin sales mix and manufacturing inefficiencies associated with lower activity levels.

In March 2020, the World Health Organization characterized COVID-19 as a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. The rapid spread of the pandemic and the continuously evolving responses to combat it have had an increasingly negative impact on the global economy. Although our financial results were not materially impacted in the quarter ending March 31, 2020, our operations and those of our suppliers and customers, and the supply chains that support our and their operations have been and continue to be affected by COVID-19.  Order activity levels for Gearing, Industrial Solutions and industrial fabrications have declined since the COVID-19 outbreak.  Additionally, customers have delayed scheduled purchases in our Gearing segment.  For more information, refer to Note 16, “Subsequent Events” in the notes to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q and our supplemental risk factor included in our Current Report on Form 8-K filed April 17, 2020.

RESULTS OF OPERATIONS 

Three months ended March 31, 2020, Compared to Three months ended March 31, 2019 

The condensed consolidated statement of operations table below should be read in connection with a review of the following discussion of our results of operations for the three months ended March 31, 2020, compared to the three months ended March 31, 2019.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

2020 vs. 2019

 

 

 

 

 

 

 

% of Total

 

 

 

 

% of Total

 

 

 

 

 

 

 

 

 

2020

 

Revenue

 

2019

 

Revenue

 

$ Change

 

% Change

 

 

Revenues

    

$

48,634

    

100.0

%  

$

41,660

    

100.0

%  

$

6,974

    

16.7

%  

 

Cost of sales

 

 

42,462

 

87.3

%  

 

38,111

 

91.5

%  

 

4,351

 

11.4

%  

 

Restructuring

 

 

 —

 

 —

%  

 

12

 

0.0

%  

 

(12)

 

(100.0)

%  

 

Gross profit

 

 

6,172

 

12.7

%  

 

3,537

 

8.5

%  

 

2,635

 

74.5

%  

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

4,309

 

8.9

%  

 

3,828

 

9.2

%  

 

481

 

12.6

%  

 

Intangible amortization

 

 

183

 

0.4

%  

 

203

 

0.5

%  

 

(20)

 

(9.9)

%  

 

Total operating expenses

 

 

4,492

 

9.2

%  

 

4,031

 

9.7

%  

 

461

 

11.4

%  

 

Operating income (loss)

 

 

1,680

 

3.5

%  

 

(494)

 

(1.2)

%  

 

2,174

 

440.1

%  

 

Other expense, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(673)

 

(1.4)

%  

 

(536)

 

(1.3)

%  

 

(137)

 

(25.6)

%  

 

Other, net

 

 

(1)

 

(0.0)

%  

 

(1)

 

(0.0)

%  

 

 —

 

 —

%  

 

Total other expense, net

 

 

(674)

 

(1.4)

%  

 

(537)

 

(1.3)

%  

 

(137)

 

(25.5)

%  

 

Net income (loss) before provision for income taxes

 

 

1,006

 

2.1

%  

 

(1,031)

 

(2.5)

%  

 

2,037

 

197.6

%  

 

Provision for income taxes

 

 

52

 

0.1

%  

 

11

 

0.0

%  

 

41

 

372.7

%  

 

Net income (loss)

 

$

954

 

2.0

%  

$

(1,042)

 

(2.5)

%  

$

1,996

 

191.6

%  

 

 

Consolidated 

Revenues increased by $6,974,  primarily due to higher production levels in the Heavy Fabrications segment as towers sections sold increased 66% from the first quarter of 2019, partially offset by a lower average sales price on towers sold primarily due to higher levels of customer supplied materials in the current year. Industrial Solutions revenue was up $700 from the first quarter of 2019, primarily due to increased shipments of new gas turbine content. Partially offsetting these improvements was a decrease in Gearing segment revenue of $3,800 due primarily to weak order intake in the second half of

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2019 primarily within O&G and other industrial markets. In addition, due to declining oil prices and general market uncertainty, customers delayed approximately $1,000 of purchases into future periods.

Gross profit increased by $2,635 due primarily to higher capacity utilization in towers and overall improved operating efficiencies.  This benefit was partially offset by lower gearing sales across all core industries, a lower margin sales mix and manufacturing inefficiencies associated with lower activity levels. As a result, gross margin increased to 12.7% during the three months ended March 31, 2020, from 8.5% during the three months ended March 31, 2019.

Due to higher revenue levels, operating expenses as a percentage of sales improved to 9.2% in the current-year quarter from 9.7% in the prior year quarter.

Net income increased to $954 during the three months ended March 31, 2020 from a net loss of $1,042 during the three months ended March 31, 2019 due to the factors described above. 

Heavy Fabrications Segment 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

 

2020

 

2019

 

 

Orders

    

$

15,514

    

$

12,510

 

 

Tower sections sold

 

 

312

 

 

188

 

 

Revenues

 

 

38,368

 

 

28,294

 

 

Operating income (loss)

 

 

3,541

 

 

(222)

 

 

Operating margin

 

 

9.2

%  

 

(0.8)

%  

 

 The increase in Heavy Fabrications segment orders was primarily due to increased demand for other industrial fabrications of $4,935, primarily from mining and other industrial customers resulting from ongoing diversification efforts. Partially offsetting this increase was a reduction in tower orders, primarily due to timing of customer purchases.  Segment revenues increased by $10,074 due to a 66% increase in tower sections sold compared to the prior year quarter and the benefit of improved customer diversification. This was partially offset by a lower average sales price on towers sold primarily due to increased customer supplied materials in the current year.

Heavy Fabrications segment operating results improved by $3,763 compared to the prior year. The quarter-over-quarter improvement reflected the higher capacity utilization associated with tower production and overall improved operating efficiencies. Operating margin was 9.2% during the three months ended March 31, 2020, an increase from (0.8%) during the three months ended March 31, 2019.

Gearing Segment 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

 

2020

 

2019

 

 

Orders

    

$

12,421

    

$

7,135

 

 

Revenues

 

 

6,227

 

 

10,027

 

 

Operating (loss) income

 

 

(261)

 

 

1,387

 

 

Operating margin

 

 

(4.2)

%  

 

13.8

%  

 

 Gearing segment orders increased 74% compared to the prior year period primarily due to an increase in aftermarket wind gearing orders, which can fluctuate based on customer order patterns. Gearing segment orders also benefitted from an increase in other industrial customer demand. Revenue decreased 38% from the prior year quarter due primarily to lower order intake in the second half of 2019 within O&G and other industrial markets. In addition, due to declining oil prices and general market uncertainty, customers delayed approximately $1,000 of purchases into future periods. 

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Gearing segment operating results decreased $1,648 from the prior year period.  The decrease was primarily attributable to a decrease in sales across all core markets,  a lower margin sales mix and manufacturing inefficiencies associated with lower activity levels. Operating margin was (4.2%) during the three months ended March 31, 2020, down from 13.8%  during the three months ended March 31, 2019.

 

 

 

 Industrial Solutions Segment 

 

 

 

 

 

 

 

 

Three Months Ended

 

March 31,

 

2020

 

 

2019

Orders

$

5,874

 

$

4,361

    

Revenues

 

4,039

 

 

3,339

 

Operating income (loss)

 

192

 

 

(285)

 

Operating margin

 

4.8

%  

 

(8.5)

%  

Industrial Solutions segment orders and revenues increased from the prior year period primarily due to stronger near-term demand for new gas turbine content, partially offset by lower aftermarket demand.  The revenue increase was a result of recent strong order activity levels associated with an increase in global new gas turbine activity levels. The operating income improvement was a result of the revenue growth and general operating efficiencies. The operating margin improved to 4.8% during the three months ended March 31, 2020 from (8.5%) during the three months ended March 31, 2019.

Corporate and Other 

Corporate and Other expenses increased by $418 during the three months ended March 31, 2020 primarily due to increased salary and benefit related expenses in the current year quarter.

 

LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES 

As of March 31, 2020, cash and cash equivalents totaled $2,743 an increase of $327 from December 31, 2019. Cash balances remain minimal as operating receipts and disbursements flow through our Credit Facility, which is in a drawn position. Debt and finance lease obligations at March 31, 2020 totaled $17,761. As of March 31, 2020, we had the ability to borrow up to an additional $16,283 under the Credit Facility (as defined in Note 7, “Debt and Credit Agreements,” in the notes to our condensed consolidated financial statements). On July 31, 2018, we entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with Roth Capital Partners, LLC (the “Agent”). Pursuant to the terms of the ATM Agreement, we may sell from time to time through the Agent shares of the Company's common stock, par value $0.001 per share with an aggregate sales price of up to $10,000. The Company will pay a commission to the Agent of 3% of the gross proceeds of the sale of the shares sold under the ATM Agreement and reimburse the Agent for the expenses of their counsel. We anticipate that we will be able to satisfy the cash requirements associated with, among other things, working capital needs, capital expenditures and lease commitments through at least the next twelve months primarily through cash generated from operations, available cash balances, the Credit Facility, additional equipment financing, and access to the public or private debt equity markets, including the option to raise capital from the sale of our securities under the Form S-3. However, we do not anticipate that we will have the ability to generate a significant amount of capital from equity markets in the near-term as a result of the low trading volume of our common stock on the NASDAQ exchange and limitations on the aggregate amount of securities that we may offer under the Form S-3 due to our public float size. The Form S-3 will expire on October 10, 2020.

We anticipate that current cash resources, amounts available under the Credit Facility, the loans received under the U.S. Payroll Protection Program, cash to be generated from operations, and any potential proceeds from the sale of our securities under the Form S-3 will be adequate to meet our liquidity needs for at least the next twelve months. If assumptions regarding our production, sales and subsequent collections from certain of our large customers, as well as customer deposits and revenues generated from new customer orders, are materially inconsistent with management’s expectations, we may encounter cash flow and liquidity issues. Additionally new or existing customers may request acceleration of production or we may accept new orders or modify existing orders to purchase steel opportunistically or to build products without deposits, which will reduce our liquidity.  Further in advance of anticipated cash needs, we may also issue debt or sell equity or equity linked securities.  

 

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If our operational performance deteriorates, we may be unable to comply with existing financial covenants, and could lose access to the Credit Facility. This could limit our operational flexibility, require a delay in making planned investments and/or require us to seek additional equity or debt financing. Any attempt to raise equity through the public markets could have a negative effect on our stock price, making an equity raise more difficult or more dilutive. Any additional equity financing or equity linked financing, if available, will be dilutive to stockholders, and additional debt financing, if available, would likely require new financial covenants or impose other operating and financial restrictions on us. While we believe that we will continue to have sufficient cash available to operate our businesses and to meet our financial obligations and debt covenants, there can be no assurances that our operations will generate sufficient cash or that existing or new credit facilities or equity or equity linked financings will be available in an amount sufficient to enable us to meet these financial obligations.

 

Sources and Uses of Cash 

The following table summarizes our cash flows from operating, investing, and financing activities for the three months ended March 31, 2020 and 2019:

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2020

 

2019

Total cash provided by (used in):

 

 

 

 

 

 

    Operating activities

    

$

(1,025)

    

$

(11,349)

    Investing activities

 

 

(670)

 

 

(576)

    Financing activities

 

 

2,022

 

 

10,785

Net increase (decrease) in cash

 

$

327

 

$

(1,140)

 

Operating Cash Flows 

During the three months ended March 31, 2020, net cash used in operating activities totaled $1,025, compared to net cash used in operating activities of $11,349 for the three months ended March 31,  2019.  This decrease in net cash used was primarily due to improved operating performance, a lower working capital build in the current year period, largely as a result of the timing of new orders that included deposit provisions.

Investing Cash Flows 

During the three months ended March 31, 2020, net cash used in investing activities totaled $670, compared to net cash used in investing activities of $576 during the three months ended March 31,  2019.  The increase in net cash used in investing activities as compared to the prior-year period was due to an increase in net purchases of property and equipment.

Financing Cash Flows 

During the three months ended March 31, 2020, net cash provided by financing activities totaled $2,022, compared to net cash provided by financing activities of $10,785 for the three months ended March 31, 2019.  The decrease versus the prior-year period was primarily due to lower usage of our Credit Facility in the current year.

Other

In 2016, we entered into a $570 loan agreement with the Development Corporation of Abilene which is included in the “Long-term debt, less current maturities” line item of our condensed consolidated financial statements as of March 31, 2020 and December 31, 2019.  The loan is forgivable upon the Company meeting and maintaining specific employment thresholds. During each of the years 2019 and 2018, $114 of the loan was forgiven. As of March 31, 2020, the loan balance was $342.  In addition, we have outstanding notes payable for capital expenditures in the amount of $2,363 and $1,563 as of March 31, 2020 and December 31, 2019, respectively, with $2,350 and $1,400 included in the “Line of Credit and other notes payable” line item of our condensed consolidated financial statements as of March 31, 2020 and December 31, 2019, respectively. The notes payable have monthly payments that range from $1 to $36 and an interest rate of approximately 5%. The equipment purchased is utilized as collateral for the notes payable. The outstanding notes payable have maturity dates that range from April 2020 to August 2022.

In April 2020, we received loans totaling $9,530 as part of the 2020 Coronavirus Aid, Relief and Economic Stability Act.  Please refer to Note 16, “Subsequent Events” in the notes to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more details.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 

The preceding discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2019. Portions of this Quarterly Report on Form 10-Q, including the discussion and analysis in this Part I, Item 2, contain “forward looking statements”, as defined in Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Forward looking statements include any statement that does not directly relate to a current or historical fact. Our forward-looking statements may include or relate to our beliefs, expectations, plans and/or assumptions with respect to the following, many of which are, and will be, amplified by the COVID-19 pandemic: (i) the impact of global health concerns, including the impact of the current COVID-19 pandemic on the economies and financial markets and the demand for our products; (ii) state, local and federal regulatory frameworks affecting the industries in which we compete, including the wind energy industry, and the related extension, continuation or renewal of federal tax incentives and grants and state renewable portfolio standards as well as new or continuing tariffs on steel or other products imported into the United States; (iii) our customer relationships and our substantial dependency on a few significant customers and our efforts to diversify our customer base and sector focus and leverage relationships across business units; (iv) the economic and operational stability of our significant customers and suppliers, including their respective supply chains, and the ability to source alternative suppliers as necessary, in light of the COVID-19 pandemic; (v) our ability to continue to grow our business organically and through acquisitions, and the impairment thereto by the impact of the COVID-19 pandemic; (vi) the production, sales, collections, customer deposits and revenues generated by new customer orders and our ability to realize the resulting cash flows; (vii) information technology failures, network disruptions, cybersecurity attacks or breaches in data security, including with respect to any remote work arrangements implemented in response to the COVID-19 pandemic; (viii) the sufficiency of our liquidity and alternate sources of funding, if necessary; (ix) our ability to realize revenue from customer orders and backlog; (x) our ability to operate our business efficiently, comply with our debt obligations, manage capital expenditures and costs effectively, and generate cash flow; (xi) the economy, including its stability in light of the COVID-19 pandemic, and the potential impact it may have on our business, including our customers; (xii) the state of the wind energy market and other energy and industrial markets generally and the impact of competition and economic volatility in those markets; (xiii) the effects of market disruptions and regular market volatility, including fluctuations in the price of oil, gas and other commodities; (xiv) competition from new or existing industry participants including, in particular, increased competition from foreign tower manufacturers; (xv) the effects of the change of administrations in the U.S. federal government; (xvi) our ability to successfully integrate and operate acquired companies and to identify, negotiate and execute future acquisitions; (xvii) the potential loss of tax benefits if we experience an “ownership change” under Section 382 of the Internal Revenue Code of 1986, as amended; (xviii) our ability to utilize various relief options enabled by the Coronavirus Aid, Relief and Economic Security Act; (xix) the limited trading market for our securities and the volatility of market price for our securities; and (xx) the impact of future sales of our common stock or securities convertible into our common stock on our stock price. These statements are based on information currently available to us and are subject to various risks, uncertainties and other factors that could cause our actual growth, results of operations, financial condition, cash flows, performance, business prospects and opportunities to differ materially from those expressed in, or implied by, these statements including, but not limited to, those set forth under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019, as supplemented by our Current Report on Form 8-K filed April 17, 2020 . We are under no duty to update any of these statements. You should not consider any list of such factors to be an exhaustive statement of all of the risks, uncertainties or other factors that could cause our current beliefs, expectations, plans and/or assumptions to change. Accordingly, forward-looking statements should not be relied upon as a predictor of actual results.

 

Item 3.Quantitative and Qualitative Disclosures About Market Risk 

We are a smaller reporting company as defined by Item 10(f)(1) of Regulation S-K under the Securities Act and as such are not required to provide information under this Item pursuant to Item 305(e) of Regulation S-K. 

Item 4.Controls and Procedures 

Evaluation of Disclosure Controls and Procedures 

We seek to maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. This information is also accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. Our management, under the

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supervision and with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the most recent fiscal quarter reported on herein. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, 2020.  

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II.   OTHER INFORMATION 

Item 1.Legal Proceedings 

The information required by this item is incorporated herein by reference to Note 12, “Legal Proceedings” of the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. 

Item 1A.Risk Factors

There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2019 except as supplemented by the risk factor set forth on our Current Report on Form 8-K filed April 17, 2020.

 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

None. 

Item 3.Defaults Upon Senior Securities 

None. 

Item 4.Mine Safety Disclosures 

Not Applicable. 

Item 5.Other Information 

Not Applicable.  

Item 6.Exhibits 

The exhibits listed on the Exhibit Index are filed as part of this Quarterly Report on Form 10-Q.

 

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EXHIBIT INDEX

BROADWIND, INC.

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2020

 

 

 

Exhibit

Number

 

Exhibit

3.1

Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10Q for the quarterly period ended June 30, 2008

3.2

Certificate of Amendment to the Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8K filed August 23, 2012)

3.3

Certificate of Amendment to the Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8K filed May 6, 2020) 

3.4

Third Amended and Restated Bylaws of the Company, adopted as of May 4, 2020 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8K filed May 6, 2020) 

10.1

Note dated April 5, 2020 by and between Brad Foote Gear Works, Inc. and CIBC Bank USA*

10.2

Note dated April 5, 2020 by and between Broadwind Heavy Fabricators, Inc. and CIBC Bank USA*

10.3

Note dated April 5, 2020 by and between Broadwind Industrial Services, Inc. and CIBC Bank USA*

10.4

Note dated April 8, 2020 by and between Broadwind Energy, Inc. n/k/a Broadwind, Inc. and CIBC Bank USA*

31.1

Rule 13a-14(a) Certification of Chief Executive Officer*

31.2

Rule 13a-14(a) Certification of Chief Financial Officer*

32.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Executive Officer*

32.2

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Financial Officer*

101

The following financial information from this Form 10-Q of Broadwind, Inc. for the quarter ended March 31, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text.

________________________

 

 

*Filed herewith.

 

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SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

BROADWIND, INC.

 

 

 

 

May 8, 2020

By:

/s/ Eric B.  Blashford

 

 

Eric B. Blashford

 

 

President, Chief Executive Officer

 

 

 

 

(Principal Executive Officer) 

May 8, 2020

By:

/s/ Jason L. Bonfigt

 

 

Jason L. Bonfigt

 

 

Vice President, Chief Financial Officer

(Principal Financial Officer)

 

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