Broadwind(BWEN) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company's financial statements for the period ended September 30, 2021, show decreased assets and revenues, an operating loss, but a net income increase driven by PPP loan forgiveness Condensed Consolidated Balance Sheets As of September 30, 2021, total assets decreased to $114.5 million, liabilities fell to $57.3 million due to PPP loan forgiveness, and stockholders' equity rose to $57.2 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $47,556 | $50,595 | | Total Assets | $114,478 | $119,682 | | Total Current Liabilities | $34,556 | $47,971 | | Total Liabilities | $57,326 | $79,021 | | Total Stockholders' Equity | $57,152 | $40,661 | Condensed Consolidated Statements of Operations For Q3 2021, revenues decreased to $40.4 million resulting in a net loss, while nine-month revenues fell to $119.6 million, but net income reached $6.9 million due to PPP loan forgiveness Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $40,389 | $54,614 | $119,608 | $158,174 | | Gross Profit | $2,074 | $3,738 | $4,554 | $15,327 | | Operating (Loss) Income | $(1,997) | $(475) | $(8,619) | $2,240 | | Net (Loss) Income | $(2,105) | $(1,003) | $6,937 | $480 | | Diluted EPS | $(0.11) | $(0.06) | $0.36 | $0.03 | - A significant contributor to the nine-month net income was the forgiveness of a $9,151 thousand Paycheck Protection Program loan, recorded as other income[14] Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased from $40.7 million to $57.2 million as of September 30, 2021, driven by net income and common stock sales Changes in Stockholders' Equity (in thousands) | Description | Amount | | :--- | :--- | | Balance, December 31, 2020 | $40,661 | | Sale of common stock, net | $9,329 | | Net income (loss) for the period | $6,937 | | Share-based compensation | $857 | | Balance, September 30, 2021 | $57,152 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, net cash used in operating activities increased to $10.8 million, while financing activities provided $11.1 million, resulting in a net cash decrease of $1.0 million Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(10,823) | $(2,475) | | Net cash used in investing activities | $(1,336) | $(1,597) | | Net cash provided by financing activities | $11,122 | $4,197 | | Net (decrease) increase in cash | $(1,037) | $125 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, revenue recognition, debt, and segment performance, highlighting the $9.15 million PPP loan forgiveness, $6.97 million in ERC benefits, and a post-quarter credit facility amendment - The company is a precision manufacturer for clean technology, with the U.S. wind energy industry accounting for 66% of revenue in the first nine months of 2021[26] - All Paycheck Protection Program (PPP) loans totaling $9.15 million were forgiven by the SBA during Q2 2021, recognized as other income[29][61] - The company received Employee Retention Credit (ERC) benefits of $3.37 million in Q1 and $3.59 million in Q2 2021, but did not qualify in Q3 2021[32] Revenue by Segment (Nine Months Ended Sep 30, in thousands) | Segment | 2021 | 2020 | | :--- | :--- | :--- | | Heavy Fabrications | $87,282 | $125,424 | | Gearing | $20,315 | $20,273 | | Industrial Solutions | $12,357 | $12,516 | | Consolidated | $119,608 | $158,174 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q3 2021 revenue decline to decreased wind tower sales and COVID-19 impacts, while nine-month net income rose due to PPP loan forgiveness and ERC benefits, with a post-quarter credit facility amendment Key Financial Metrics (in thousands) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $40,389 | $54,614 | $119,608 | $158,174 | | Net (Loss) Income | $(2,105) | $(1,003) | $6,937 | $480 | | Adjusted EBITDA | $401 | $1,297 | $14,418 | $7,766 | | Total Orders | $42,597 | $39,555 | $103,252 | $112,922 | | Backlog | $76,531 | $97,146 | $76,531 | $97,146 | - The company's facilities, operating as essential businesses during COVID-19, experienced adverse impacts from declining orders, supply chain disruptions, and staffing constraints[114] - On November 8, 2021, the company amended its loan agreement to waive a fixed charge coverage ratio default for Q3 2021 and suspend covenant testing through September 30, 2022[147][172] Results of Operations Q3 2021 consolidated revenues fell 26% to $40.4 million with gross margin contraction, while nine-month revenues decreased 24% to $119.6 million, impacted by declines in Heavy Fabrications and mixed performance in other segments Q3 2021 vs Q3 2020 Performance (in thousands) | Metric | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $40,389 | $54,614 | (26.0)% | | Gross Profit | $2,074 | $3,738 | (44.5)% | | Operating Loss | $(1,997) | $(475) | (320.4)% | | Net Loss | $(2,105) | $(1,003) | (109.9)% | Nine Months 2021 vs 2020 Performance (in thousands) | Metric | Nine Months 2021 | Nine Months 2020 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $119,608 | $158,174 | (24.4)% | | Gross Profit | $4,554 | $15,327 | (70.3)% | | Operating (Loss) Income | $(8,619) | $2,240 | (484.8)% | | Net Income | $6,937 | $480 | 1345.2% | - The Heavy Fabrications segment's Q3 revenue decreased by $14.8 million due to a 37% drop in tower sections sold, leading to a $2.5 million decline in operating income year-over-year[122][124] - The Gearing segment's Q3 orders increased 258% year-over-year, driven by O&G and mining demand, narrowing its operating loss to $0.2 million from $1.0 million[125][126] Liquidity, Financial Position and Capital Resources As of September 30, 2021, the company had $2.3 million in cash, $10.3 million in debt, $18.7 million credit facility availability, and raised $9.7 million from equity sales, anticipating sufficient liquidity for the next twelve months - As of September 30, 2021, cash totaled $2,335 thousand, with an additional $18,743 thousand available under its Credit Facility[145] - In the first half of 2021, the company issued 1,897,697 shares of common stock, generating approximately $9.7 million in net proceeds via an Equity Distribution Agreement[146] Summary of Cash Flows (Nine Months Ended Sep 30, in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Operating activities | $(10,823) | $(2,475) | | Investing activities | $(1,336) | $(1,597) | | Financing activities | $11,122 | $4,197 | Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, Broadwind, Inc. is not required to provide quantitative and qualitative disclosures about market risk[162] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting during Q3 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[163] - No material changes in internal control over financial reporting occurred during Q3 2021[164] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings arising in the normal course of business, which are not expected to have a material adverse effect on its financial condition or operations - The company is party to legal proceedings arising in the normal course of business, which are not expected to have a material adverse effect[83][167] Risk Factors The significant risk factors previously identified in the Annual Report on Form 10-K for the year ended December 31, 2020, remain unchanged - No material modifications or amendments have been made to the significant risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020[168] Other Information On November 8, 2021, the company executed the Third Amendment to its Loan Agreement, waiving a fixed charge coverage ratio default for Q3 2021 and suspending covenant testing through September 30, 2022 - On November 8, 2021, the company amended its loan agreement to waive a fixed charge coverage ratio default for Q3 2021 and suspend the covenant test until Q3 2022[172] - The amendment also added a minimum EBITDA covenant for future periods and a $5 million reserve to the Revolving Loan Availability through December 31, 2022[172] Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including the Third Amendment to the Loan Agreement, CEO and CFO certifications, and iXBRL financial data - The exhibits filed with this report include the Third Amendment to the Amended and Restated Loan and Security Agreement, CEO certifications under Sarbanes-Oxley, and financial statements in iXBRL format[174][176]