Broadwind(BWEN) - 2020 Q4 - Annual Report

Part I Business Broadwind, Inc. manufactures structures and components for clean tech and industrial applications, strategically diversifying beyond wind energy - The company rebranded from Broadwind Energy, Inc. to Broadwind, Inc. in 2020 to reflect its strategic diversification beyond wind energy[11] - Broadwind's business strategy focuses on diversifying its customer and product base, improving manufacturing capacity utilization, pursuing opportunistic acquisitions, and streamlining operational processes[17][19][20][21] Sales Concentration | Metric | 2020 | 2016 | | :--- | :--- | :--- | | Top 5 Customers % of Sales | 78% | 91% | | Wind Energy % of Sales | 70% | 92% | Backlog Information | Date | Backlog Amount | YoY Change | | :--- | :--- | :--- | | Dec 31, 2020 | ~$93 million | -35% | | Dec 31, 2019 | Not Stated | N/A | Business Segments The company operates three segments: Heavy Fabrications (wind towers), Gearing (custom gears), and Industrial Solutions (supply chain services) Segment Offerings and Markets | Segment | Key Markets Served | Products | | :--- | :--- | :--- | | Heavy Fabrications | Wind Power, Mining, Construction, Oil & Gas | Wind Towers, Industrial Fabrications, Mining Components | | Gearing | Oil & Gas, Mining, Wind Power, Steel | Custom Gearboxes, Loose Gearing, Heat Treat Services | | Industrial Solutions | Natural Gas Power, Solar Power | Supply Chain Solutions, Kitting and Assembly | - The Heavy Fabrications segment has two facilities in Wisconsin and Texas with a combined annual capacity of approximately 550 wind towers[12] Customers and Competition Broadwind faces high customer concentration and competition from domestic and international players, with trade tariffs impacting import competition - In 2020, sales to Siemens Gamesa Renewable Energy (SGRE) and Nordex USA Inc. each exceeded 10% of consolidated revenues[24] - The U.S. wind turbine market is highly concentrated, with the top four manufacturers comprising about 95% of the market in 2020[24] - The U.S. Department of Commerce has issued antidumping and countervailing duty orders on wind towers from several countries, including China, Vietnam, Canada, Indonesia, and South Korea, which has impacted competition from imports[27] Regulation Government regulations and tax incentives, including the extended PTC and new offshore wind ITC, significantly influence the company's wind energy business - The Production Tax Credit (PTC) was extended by the Consolidated Appropriations Act of 2021, providing a 60% credit for wind projects starting construction by the end of 2021[33] - A new 30% Investment Tax Credit (ITC) was created for offshore wind projects that start construction by the end of 2025[34] Risk Factors The company faces substantial risks from high customer concentration, market dependency, COVID-19 impacts, operational challenges, and limitations on utilizing NOLs - The company is substantially dependent on a few significant customers. In 2020, the five largest customers accounted for 78% of consolidated revenues[61] - The COVID-19 pandemic has caused adverse impacts, including declines in order activity, manufacturing inefficiencies from supply chain disruptions, and employee staffing constraints[77] - The company's ability to use its significant Net Operating Loss (NOL) carryforwards (over $260 million as of Dec 31, 2020) is subject to limitations under Section 382 of the IRC, which could be triggered by changes in stock ownership[20][98] - Changes in U.S. government policies, particularly regarding tax incentives like the PTC and trade tariffs, could significantly impact the wind energy industry and, consequently, the company's financial performance[63][108] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[123] Properties Broadwind operates its corporate headquarters and manufacturing facilities across multiple states, deeming them adequate for current needs Key Operating Facilities (as of Dec 31, 2020) | Segment | Location | Owned/Leased | Approx. Sq. Footage | | :--- | :--- | :--- | :--- | | Heavy Fabrications | Manitowoc, WI | Leased | 316,000 | | | Abilene, TX | Owned | 175,000 | | Gearing & Corporate | Cicero, IL | Leased | 301,000 | | | Neville Island, PA | Owned | 52,000 | | Industrial Solutions | Sanford, NC | Leased | 105,000 | Legal Proceedings Management anticipates no material adverse effect from ordinary course legal proceedings on the company's financial condition or operations - Management believes that the final outcome of ordinary course legal proceedings will not have a material adverse effect on the company[127] Mine Safety Disclosures This item is not applicable to the company - Not Applicable[128] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Broadwind's common stock trades on NASDAQ under 'BWEN', with no history or current plans for cash dividends or equity repurchases Common Stock Price Range (NASDAQ: BWEN) | Period | 2020 High | 2020 Low | 2019 High | 2019 Low | | :--- | :--- | :--- | :--- | :--- | | Q1 | $2.35 | $1.19 | $1.75 | $1.30 | | Q2 | $4.00 | $1.31 | $2.35 | $1.60 | | Q3 | $5.68 | $2.77 | $2.36 | $1.62 | | Q4 | $8.75 | $2.73 | $1.85 | $1.45 | - The company has never paid cash dividends on its common stock and its current policy is to reinvest cash to promote future growth[133] Selected Financial Data As a smaller reporting company, Broadwind is not required to provide information for this item - The company is a smaller reporting company and is not required to provide information under this item[138] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2020, revenue increased and net loss improved, despite a 35% backlog decline and COVID-19 impacts on orders and efficiency Key Financial Performance (2020 vs 2019) | Metric | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Net Revenues | $198,496 | $178,220 | | Net Loss | $(1,487) | $(4,523) | | Adjusted EBITDA | $7,985 | $7,226 | | Total Orders | $148,882 | $221,549 | | Backlog (Year-End) | $92,854 | $142,302 | - The improvement in net loss was primarily due to higher capacity utilization in the Heavy Fabrications segment and better performance in Industrial Solutions, partially offset by weaker results in the Gearing segment[142] - The COVID-19 pandemic led to a decline in order activity for Gearing and Heavy Fabrications, manufacturing inefficiencies from supply chain disruptions, and employee staffing constraints[146] Results of Operations Consolidated revenue increased 11.4% in 2020, driven by Heavy Fabrications, while Gearing declined and Industrial Solutions improved to a profit Segment Operating Results (2020 vs 2019) | Segment | 2020 Revenue (in thousands) | 2019 Revenue (in thousands) | 2020 Operating Income (Loss) (in thousands) | 2019 Operating Income (Loss) (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Heavy Fabrications | $155,198 | $128,686 | $10,385 | $1,861 | | Gearing | $25,136 | $34,877 | $(3,883) | $3,237 | | Industrial Solutions | $18,299 | $14,664 | $881 | $(1,059) | - The Heavy Fabrications segment sold 1,150 tower sections in 2020, a 23% increase from 934 sections in 2019[167] - The Gearing segment's performance declined due to lower sales, an unfavorable sales mix, and manufacturing inefficiencies from lower activity levels, largely driven by reduced demand in the oil & gas market[171] Summary of Critical Accounting Policies Critical accounting policies involve significant judgment in revenue recognition, warranty liability, inventory valuation, and long-lived asset impairment testing - Revenue for certain wind towers is recognized under 'bill and hold' arrangements upon manufacture and customer acceptance, prior to shipment[180] - In 2020, the company began recognizing some revenue over time for products with no alternative use, using labor hours as the measure of progress[181] - Due to recent operating losses in the Gearing segment, an impairment test was performed on its long-lived assets in October 2020; however, no impairment was recorded as forecast undiscounted cash flows exceeded the carrying value[186] Liquidity, Financial Position and Capital Resources As of December 31, 2020, the company had $3.4 million cash, $20.7 million credit availability, and a $9.5 million PPP loan, ensuring sufficient liquidity Liquidity Position (as of Dec 31, 2020) | Item | Amount (in thousands) | | :--- | :--- | | Cash | $3,372 | | Total Debt & Finance Leases | $14,210 | | Availability under Credit Facility | $20,678 | - The company received a $9.53 million PPP loan in April 2020 and plans to apply for forgiveness in Q1 2021[194] Cash Flow Summary (2020 vs 2019) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Operating | $5,191 | $4,521 | | Investing | $(1,547) | $(1,843) | | Financing | $(2,688) | $(1,444) | Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Broadwind is not required to provide information for this item - The company is a smaller reporting company and is not required to provide information under this item[202] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2020 and 2019, including balance sheets, income statements, and cash flow statements - The independent auditor's report identified the impairment assessment of the Gearing segment's long-lived assets as a critical audit matter due to the high degree of judgment involved in management's cash flow forecasts[243] Consolidated Balance Sheet Highlights (as of Dec 31) | Account | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Total Assets | $119,682 | $122,866 | | Total Liabilities | $79,021 | $82,106 | | Total Stockholders' Equity | $40,661 | $40,760 | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | Account | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Revenues | $198,496 | $178,220 | | Gross Profit | $18,001 | $15,412 | | Operating Income (Loss) | $422 | $(2,357) | | Net Loss | $(1,487) | $(4,523) | | Net Loss Per Share | $(0.09) | $(0.28) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[206] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[207] - Management determined that the company's internal control over financial reporting was effective as of December 31, 2020, based on the COSO framework (2013)[210] Other Information On February 23, 2021, the company amended its loan agreement, waiving fixed charge coverage for Q1-Q2 2021 and adding new liquidity and EBITDA covenants - On February 23, 2021, the company amended its loan agreement, waiving the fixed charge coverage covenant for Q1 and Q2 2021 and adding new liquidity and EBITDA covenants[212] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement - The required information is incorporated by reference from the Registrant's Proxy Statement for the 2021 Annual Meeting of Stockholders[216] Executive Compensation Information regarding director and executive compensation is incorporated by reference from the 2021 Proxy Statement - The required information is incorporated by reference from the 2021 Proxy Statement[218] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the 2021 Proxy Statement, detailing outstanding equity awards and available securities Equity Compensation Plan Information (as of Dec 31, 2020) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by stockholders | 1,332,884 | $1.86 | 132,304 | Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the 2021 Proxy Statement - The required information is incorporated by reference from the 2021 Proxy Statement[223] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the 2021 Proxy Statement - The required information is incorporated by reference from the 2021 Proxy Statement[224] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements and exhibits filed as part of the Annual Report, with schedules omitted if not applicable - The financial statements are filed as part of this Annual Report, and exhibits are listed on the Index to Exhibits[227][229] Form 10-K Summary No Form 10-K summary is provided - None[230]