Broadwind(BWEN) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements of Broadwind, Inc. and its subsidiaries for the period ended September 30, 2022, including balance sheets, statements of operations, stockholders' equity, cash flows, and comprehensive notes detailing accounting policies, revenue recognition, debt, leases, and segment information Condensed Consolidated Balance Sheets | Metric | Sep 30, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :--------------------------- | :-------------------------- | :-------------------------- | | ASSETS | | | | Total Current Assets | $59,674 | $52,325 | | Total Assets | $126,064 | $118,047 | | LIABILITIES & EQUITY | | | | Total Current Liabilities | $48,876 | $42,683 | | Total Long-Term Liabilities | $28,574 | $21,230 | | Total Stockholders' Equity | $48,614 | $54,134 | | Total Liabilities & Equity | $126,064 | $118,047 | Condensed Consolidated Statements of Operations | Metric (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenues | $44,843 | $40,389 | $136,699 | $119,608 | | Cost of sales | $41,095 | $38,315 | $128,545 | $115,054 | | Gross profit | $3,748 | $2,074 | $8,154 | $4,554 | | Operating loss | $(520) | $(1,997) | $(4,505) | $(8,619) | | Net (loss) income | $(1,772) | $(2,105) | $(6,879) | $6,937 | | Net (loss) income per share-Basic | $(0.09) | $(0.11) | $(0.34) | $0.38 | | Net (loss) income per share-Diluted | $(0.09) | $(0.11) | $(0.34) | $0.36 | Condensed Consolidated Statements of Stockholders' Equity | Metric (in thousands) | Dec 31, 2021 | Sep 30, 2022 | | :---------------------------- | :----------- | :----------- | | Common Stock, Issued Amount | $20 | $21 | | Treasury Stock | $(1,842) | $(1,842) | | Additional Paid-in Capital | $395,372 | $396,730 | | Accumulated Deficit | $(339,416) | $(346,295) | | Total Stockholders' Equity | $54,134 | $48,614 | - Total stockholders' equity decreased from $54,134 thousand at December 31, 2021, to $48,614 thousand at September 30, 2022, primarily due to net losses incurred during the period[15] Condensed Consolidated Statements of Cash Flows | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(10,271) | $(10,823) | | Net cash used in investing activities | $(2,757) | $(1,336) | | Net cash provided by financing activities | $13,685 | $11,122 | | Net increase (decrease) in cash | $657 | $(1,037) | | Cash at end of period | $1,509 | $2,335 | Notes to Condensed Consolidated Financial Statements These notes provide detailed disclosures supporting the condensed consolidated financial statements, covering the basis of presentation, significant accounting policies, revenue recognition by segment, earnings per share calculations, inventory and intangible asset breakdowns, accrued liabilities, debt and credit agreements, lease information, fair value measurements, income taxes, share-based compensation, legal proceedings, recent accounting pronouncements, and segment reporting NOTE 1 — BASIS OF PRESENTATION This note outlines the basis for preparing the unaudited condensed consolidated financial statements, including the consolidation of subsidiaries, adherence to GAAP for interim reporting, and management's use of estimates, also providing a company description, liquidity management details, and COVID-19 impact - Broadwind, Inc. is a precision manufacturer of structures, equipment, and components for clean technology and other specialized applications, primarily serving energy, mining, and infrastructure sectors in the U.S.[26] - Wind energy industry accounted for 51% of the Company's revenue during the first nine months of 2022, down from 66% in 2021, indicating diversification efforts[26] - The Company's liquidity is managed through cash from operations, available cash balances, credit facilities (2016 and 2022 Credit Facilities), equipment financing, and access to public/private debt/equity markets[27] | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :-------------------- | :----------- | :----------- | | Total Debt & Finance Lease Obligations | $28,966 | N/A | | Current Outstanding Debt & Finance Leases | $17,596 | N/A | - The Company utilizes supply chain financing arrangements to accelerate receivable collections and manage cash flow, selling accounts receivable without recourse[35] | Supply Chain Financing (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Accounts Receivable Sold | $30,662 | $23,998 | $77,099 | $78,661 | | Discount Fees Applied | $615 | $47 | $1,110 | $183 | - The COVID-19 pandemic has adversely impacted business, operations, and financial results due to declining order activity, manufacturing inefficiencies associated with supply chain disruptions, and employee staffing constraints[124] NOTE 2 — REVENUES This note details the Company's revenue recognition policies, which generally involve recognizing revenue when promised goods or services are transferred to customers, also providing a breakdown of revenues by segment and explaining specific recognition methods | Segment (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Heavy Fabrications | $30,640 | $28,675 | $93,486 | $87,282 | | Gearing | $10,190 | $7,562 | $30,890 | $20,315 | | Industrial Solutions | $4,020 | $4,213 | $13,142 | $12,357 | | Eliminations | $(7) | $(61) | $(819) | $(346) | | Consolidated | $44,843 | $40,389 | $136,699 | $119,608 | - Revenue for Gearing and Industrial Solutions segments, and industrial fabrication products, is generally recognized at a point in time upon physical transfer of goods/services[43] - For many tower sales in Heavy Fabrications, revenue is recognized under bill-and-hold arrangements when specific criteria are met, such as goods being identified, ready for transfer, and customer accepted[44] | Revenue Recognized Over Time (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :---------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Heavy Fabrications | $5,927 | $1,791 | $13,336 | $4,220 | | Gearing (ceased Q4 2021) | — | $499 | — | $2,444 | NOTE 3 — EARNINGS PER SHARE This note provides a reconciliation of basic and diluted earnings per share, detailing the net loss and weighted average common shares outstanding for both basic and diluted calculations, also clarifying the exclusion of restricted stock units from diluted EPS due to their anti-dilutive effect | EPS Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net (loss) income | $(1,772) | $(2,105) | $(6,879) | $6,937 | | Basic Net (Loss) Income Per Share | $(0.09) | $(0.11) | $(0.34) | $0.38 | | Diluted Net (Loss) Income Per Share | $(0.09) | $(0.11) | $(0.34) | $0.36 | | Weighted Average Common Shares Outstanding (Basic) | 20,505,884 | 19,417,675 | 20,155,548 | 18,460,444 | | Weighted Average Common Shares Outstanding (Diluted) | 20,505,884 | 19,417,675 | 20,155,548 | 19,218,420 | - Restricted stock units (811,342 as of Sep 30, 2022) were excluded from diluted EPS calculation due to their anti-dilutive effect resulting from the Company's net loss[48] NOTE 4 — INVENTORIES This note provides a breakdown of the Company's inventory components, including raw materials, work-in-process, and finished goods, along with the reserve for excess and obsolete inventory | Inventory Component (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :--------------------------------- | :----------- | :----------- | | Raw materials | $21,512 | $16,148 | | Work-in-process | $10,634 | $13,639 | | Finished goods | $4,252 | $6,575 | | Total | $36,398 | $36,362 | | Less: Reserve for excess and obsolete inventory | $(2,496) | $(2,985) | | Net inventories | $33,902 | $33,377 | NOTE 5 — INTANGIBLE ASSETS This note details the Company's intangible assets, which include trade names and customer relationships from past acquisitions, amortized on a straight-line basis, providing their cost basis, accumulated amortization, net book value, and remaining amortization periods - Intangible assets primarily consist of trade names and customer relationships from the acquisitions of Brad Foote GearWorks, Inc. (2007) and Red Wolf Company, LLC (2017)[51] - Intangible assets are amortized on a straight-line basis over estimated useful lives ranging from 0 to 5 years[51] | Intangible Asset (in thousands) | Sep 30, 2022 Net Book Value | Dec 31, 2021 Net Book Value | Sep 30, 2022 Remaining Weighted Average Amortization Period (years) | Dec 31, 2021 Remaining Weighted Average Amortization Period (years) | | :------------------------------ | :-------------------------- | :-------------------------- | :---------------------------------------------------------------- | :---------------------------------------------------------------- | | Noncompete agreements | $9 | $31 | 0.3 | 1.1 | | Customer relationships | $874 | $1,103 | 3.3 | 4.0 | | Trade names | $2,019 | $2,319 | 5.0 | 5.8 | | Total Intangible Assets | $2,902 | $3,453 | 4.5 | 5.2 | NOTE 6 — ACCRUED LIABILITIES This note details the components of accrued liabilities, including payroll and benefits, property taxes, income taxes payable, professional fees, warranty liability, workers' compensation reserve, and other accrued amounts | Accrued Liability (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------------------------- | :----------- | :----------- | | Accrued payroll and benefits | $3,355 | $2,992 | | Fair value of interest rate swap | — | $27 | | Accrued property taxes | $546 | — | | Income taxes payable | $39 | $1 | | Accrued professional fees | $109 | $129 | | Accrued warranty liability | $128 | $125 | | Self-insured workers compensation reserve | $31 | $166 | | Accrued other | $689 | $214 | | Total Accrued Liabilities | $4,897 | $3,654 | NOTE 7 — DEBT AND CREDIT AGREEMENTS This note provides a comprehensive overview of the Company's debt structure, including the transition from the 2016 Credit Facility to the new 2022 Credit Facility with Wells Fargo, detailing the terms, covenants, collateral, and outstanding balances of the credit facilities and other notes payable | Debt Component (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :---------------------------- | :----------- | :----------- | | Line of credit | $14,406 | $6,350 | | Current portion of term loan | $1,083 | — | | Other notes payable | $2,198 | $274 | | Long-term debt | $6,431 | $203 | | Less: Current portion | $(15,629) | $(6,650) | | Long-term debt, net of current maturities | $8,489 | $177 | - On August 4, 2022, the Company entered into a new $35,000 thousand senior secured revolving credit facility and a $7,578 thousand senior secured term loan (2022 Credit Facility) with Wells Fargo, replacing the 2016 Credit Facility[61] - The 2022 Credit Facility matures on August 4, 2027, and includes financial covenants such as a Fixed Charge Coverage Ratio and minimum EBITDA requirements[62][63] - As of September 30, 2022, $21,893 thousand was outstanding under the 2022 Credit Facility, with an additional $13,315 thousand available for borrowing, and the Company was in compliance with all financial covenants[69] - The Company has a $570 thousand loan agreement with the Development Corporation of Abilene, with $114 thousand forgiven annually, leaving a balance of $114 thousand as of September 30, 2022[71] NOTE 8 — LEASES This note outlines the Company's accounting for leases under Topic 842, including the application of practical expedients and the short-term lease exception, providing quantitative information on lease costs, cash flows, weighted-average lease terms, and discount rates for both finance and operating leases, along with future minimum lease payments - The Company applies ASC 842 for leases and uses a short-term lease exception to all leases of one year or less[72][73] | Lease Cost Component (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :---------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total finance lease costs | $375 | $360 | $1,128 | $974 | | Total operating lease costs | $1,057 | $1,080 | $3,128 | $3,307 | | Total lease cost | $1,432 | $1,440 | $4,256 | $4,281 | | Lease Metric | Sep 30, 2022 | Sep 30, 2021 | | :------------------------------------------ | :----------- | :----------- | | Weighted-average remaining lease term-finance leases (years) | 2.5 | 2.0 | | Weighted-average remaining lease term-operating leases (years) | 8.3 | 9.1 | | Weighted-average discount rate-finance leases | 6.0% | 6.4% | | Weighted-average discount rate-operating leases | 8.7% | 8.6% | | Future Minimum Lease Payments (in thousands) | Finance Leases | Operating Leases | Total | | :----------------------------------------- | :------------- | :--------------- | :---- | | Total lease payments | $5,444 | $27,507 | $32,951 | | Present value of lease obligations | $4,848 | $19,051 | $23,899 | | Long-term portion of lease obligations | $2,881 | $17,180 | $20,061 | NOTE 9 — FAIR VALUE MEASUREMENTS This note discusses the fair value of the Company's financial instruments, noting that carrying amounts approximate fair values for short-term instruments and long-term debt, also detailing the fair value measurement of an interest rate swap, which expired in February 2022, and categorizes financial assets and liabilities within the fair value hierarchy - The carrying amounts of cash, accounts receivable, accounts payable, and customer deposits approximate their fair values due to their short-term nature[78] - The interest rate swap, used to mitigate LIBOR variability, expired in February 2022; its fair value was previously reported in "Accrued liabilities" and changes in "Interest expense, net"[80] | Liabilities Measured on a Recurring Basis (in thousands) | Sep 30, 2022 Total | Dec 31, 2021 Total | | :----------------------------------------------------- | :----------------- | :----------------- | | Interest rate swap | $0 | $27 | | Total liabilities at fair value | $0 | $27 | NOTE 10 — INCOME TAXES This note explains the Company's income tax provisions, including the impact of valuation allowances and net operating loss (NOL) carryforwards, detailing the Section 382 limitation on NOL usage and the Stockholder Rights Plan designed to preserve these tax assets - The Company has a full valuation allowance against deferred tax assets as of September 30, 2022[84] | Income Tax Provision (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :---------------------------------- | :----------------------------- | :----------------------------- | | Provision for income taxes | $36 | $101 | - As of December 31, 2021, the Company had federal and unapportioned state NOL carryforwards of $277,310 thousand, with $227,781 thousand beginning to expire in 2026[85] - A Section 382 ownership change in 2010 limits annual NOL usage to $14,284 thousand; the Stockholder Rights Plan is in place to deter further ownership changes that could trigger additional limitations[86][88] NOTE 11 — SHARE-BASED COMPENSATION This note details the Company's share-based compensation activities, including restricted stock units and performance awards, summarizing the activity for the nine months ended September 30, 2022, and the associated compensation expense recognized in the statements of operations - No stock option activity occurred, and no stock options were outstanding during the nine months ended September 30, 2022[91] - The Company recorded $425 thousand in share-based compensation expense for liability awards to be settled in shares in 2023[91] | Restricted Stock Unit & Performance Award Activity | Number of Shares | Weighted Average Grant-Date Fair Value Per Share | | :----------------------------------------------- | :--------------- | :----------------------------------------------- | | Unvested as of December 31, 2021 | 918,448 | $2.72 | | Granted | 734,077 | $1.75 | | Vested | (815,734) | $2.23 | | Forfeited | (25,449) | $2.60 | | Unvested as of September 30, 2022 | 811,342 | $2.39 | | Share-Based Compensation Expense (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :---------------------------------------------- | :----------------------------- | :----------------------------- | | Cost of sales | $106 | $103 | | Selling, general and administrative | $1,079 | $754 | | Net effect on net income | $1,185 | $857 | NOTE 12 — LEGAL PROCEEDINGS This note states that the Company is involved in various legal proceedings in the normal course of business, with management believing the outcomes will not have a material adverse effect on financial results, though acknowledging the inherent uncertainty of litigation - The Company is party to various legal proceedings arising in the normal course of business[94] - Management believes the final outcome of these proceedings will not have a material adverse effect on the Company's results of operations, financial condition, or cash flows[94] NOTE 13 — RECENT ACCOUNTING PRONOUNCEMENTS This note indicates that the Company reviews new accounting standards as issued and believes that none of the new standards effective in the current fiscal year have a significant impact on its condensed consolidated financial statements - The Company reviews new accounting standards and believes none of the recently issued or effective standards have a significant impact on its condensed consolidated financial statements[95] NOTE 14 — SEGMENT REPORTING This note provides financial information by the Company's three reportable segments: Heavy Fabrications, Gearing, and Industrial Solutions, along with Corporate and Eliminations, detailing their product and service offerings, and presenting segment-specific revenues, operating income/loss, depreciation, amortization, and capital expenditures for the three and nine months ended September 30, 2022 and 2021, as well as total assets Heavy Fabrications - Provides large, complex, and precision fabrications, primarily for the U.S. wind energy industry (51% of 9M 2022 revenue) but diversifying into mining, construction, material handling, and O&G[97] - Production facilities in Manitowoc, Wisconsin, and Abilene, Texas, have a combined annual tower production capacity of up to approximately 550 towers[97] Gearing - Provides gearing and gearboxes to diverse markets including O&G fracking/drilling, mining, wind energy, steel, and material handling[98] - Utilizes an integrated manufacturing process with machining and finishing in Cicero, Illinois, and heat treatment and gearbox repair in Neville Island, Pennsylvania[98] Industrial Solutions - Offers supply chain solutions, light fabrication, inventory management, kitting, and assembly services, primarily for the combined cycle natural gas turbine market, as well as other clean technology markets[99] Corporate - "Corporate" includes assets and selling, general, and administrative expenses of the Company's corporate office; "Eliminations" comprise adjustments to reconcile segment results to consolidated results[102] | Segment Financials (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Revenues | | | | | | Heavy Fabrications | $30,640 | $28,675 | $93,486 | $87,282 | | Gearing | $10,190 | $7,562 | $30,890 | $20,315 | | Industrial Solutions | $4,020 | $4,213 | $13,142 | $12,357 | | Corporate | — | — | — | — | | Eliminations | $(7) | $(61) | $(819) | $(346) | | Operating Income (Loss) | | | | | | Heavy Fabrications | $372 | $(445) | $(11) | $(1,873) | | Gearing | $624 | $(219) | $(73) | $(2,090) | | Industrial Solutions | $(191) | $(108) | $(368) | $(169) | | Corporate | $(1,322) | $(1,248) | $(4,050) | $(4,487) | | Eliminations | $(3) | $23 | $(3) | — | | Capital Expenditures | | | | | | Heavy Fabrications | $976 | $294 | $2,176 | $942 | | Gearing | $64 | $306 | $540 | $343 | | Industrial Solutions | $20 | — | $38 | $26 | | Corporate | — | $4 | $3 | $58 | | Segment Assets (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :---------------------------- | :----------- | :----------- | | Heavy Fabrications | $38,975 | $37,131 | | Gearing | $51,356 | $46,219 | | Industrial Solutions | $11,277 | $10,825 | | Corporate | $241,385 | $228,219 | | Eliminations | $(216,929) | $(204,347) | | Total | $126,064 | $118,047 | NOTE 15 — COMMITMENTS AND CONTINGENCIES This note addresses the Company's environmental compliance and remediation liabilities, allowance for doubtful accounts, collateral pledges, and potential liquidated damages, highlighting the ongoing monitoring of environmental regulations and the methodology for estimating allowances - The Company's operations are subject to environmental laws and regulations, with potential liabilities for cleanup costs and third-party claims[106] - An allowance for doubtful accounts is established based on factors like individual customer circumstances, payment history, and aging of receivables[107] | Accounts Receivable Allowance Liability (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--------------------------------------------------- | :----------------------------- | :----------------------------- | | Balance at beginning of period | $47 | $473 | | Write-offs | $(8) | $(432) | | Other adjustments | $(10) | $(2) | | Balance at end of period | $29 | $39 | - The Company has pledged specific inventory and machinery and equipment assets to serve as collateral on related payable or financing obligations[109] - Liquidated damages in customer contracts for delivery or production delays are typically limited, and the Company does not expect a material adverse effect from this potential exposure[110] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance and condition, discussing key metrics, operational results by segment for the three and nine months ended September 30, 2022, compared to 2021, and an analysis of liquidity, financial position, and capital resources, also including a cautionary note on forward-looking statements Key Metrics Used by Management to Measure Performance - Management uses non-GAAP financial measures like adjusted EBITDA and free cash flow to evaluate performance, growth trends, operational efficiencies, and liquidity[113] | Key Financial Measures (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net revenues | $44,843 | $40,389 | $136,699 | $119,608 | | Net (loss) income | $(1,772) | $(2,105) | $(6,879) | $6,937 | | Adjusted EBITDA | $1,897 | $401 | $2,259 | $14,418 | | Capital expenditures | $1,060 | $604 | $2,757 | $1,369 | | Free cash flow | $223 | $(3,251) | $(8,169) | $(1,913) | | Operating working capital | $26,306 | $19,554 | $26,306 | $19,554 | | Total debt | $24,118 | $5,673 | $24,118 | $5,673 | | Total orders | $84,457 | $42,597 | $163,196 | $103,252 | | Backlog at end of period | $132,213 | $76,531 | $132,213 | $76,531 | | Book-to-bill | 1.9 | 1.1 | 1.2 | 0.9 | - Adjusted EBITDA is defined as 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[114] - Free cash flow is defined as adjusted EBITDA plus or minus changes in operating working capital less capital expenditures net of any proceeds from disposals of property and equipment[115] Our Business This section provides an overview of the Company's business performance during the third quarter of 2022, highlighting significant increases in new orders across segments, revenue growth, and a reduced net loss, also addressing the ongoing impact of the COVID-19 pandemic on operations Third Quarter Overview - New orders in Q3 2022 significantly increased to $84,457 thousand, up from $42,597 thousand in Q3 2021[121] - Heavy Fabrications segment saw a 223% increase in wind tower orders, while industrial fabrication orders decreased by 41%[121] - Gearing segment orders increased 34% due to higher demand from O&G, industrial, and mining customers; Industrial Solutions segment orders also increased 34% due to new gas turbine orders[121] - Revenue increased 11% to $44,843 thousand in Q3 2022, driven by a 95% increase in industrial fabrications revenue and a 35% increase in Gearing segment revenue, partially offset by a 26% decrease in tower sections sold[122] - Net loss decreased to $1,772 thousand ($0.09 per share) in Q3 2022 from $2,105 thousand ($0.11 per share) in Q3 2021, primarily due to higher sales, partially offset by increased material costs and interest expense[123] COVID-19 Pandemic - The COVID-19 pandemic has adversely impacted business, operations, and financial results due to declining order activity, manufacturing inefficiencies associated with supply chain disruptions, and employee staffing constraints[124] - The Company continues to monitor financial health and liquidity, serving customers while implementing health and safety measures based on CDC guidance[125] Results of Operations This section provides a detailed comparison of the Company's consolidated and segment-specific financial performance for the three and nine months ended September 30, 2022, against the corresponding periods in 2021, highlighting key revenue drivers, gross profit changes, operating expenses, and net income/loss Three months ended September 30, 2022, Compared to Three months ended September 30, 2021 This sub-section analyzes the Company's consolidated and segment-specific performance for the third quarter of 2022 compared to 2021, detailing revenue changes, gross profit improvements, and shifts in operating income/loss, primarily driven by increased sales volumes and higher material costs Consolidated (3 months) | Metric (in thousands) | 2022 | % of Total Revenue (2022) | 2021 | % of Total Revenue (2021) | $ Change | % Change | | :-------------------------------- | :---------- | :------------------------ | :---------- | :------------------------ | :------- | :------- | | Revenues | $44,843 | 100.0% | $40,389 | 100.0% | $4,454 | 11.0% | | Cost of sales | $41,095 | 91.6% | $38,315 | 94.9% | $2,780 | 7.3% | | Gross profit | $3,748 | 8.4% | $2,074 | 5.1% | $1,674 | 80.7% | | Operating expenses | $4,268 | 9.5% | $4,071 | 10.1% | $197 | 4.8% | | Operating loss | $(520) | (1.2)% | $(1,997) | (4.9)% | $1,477 | 74.0% | | Total other (expense) income, net | $(1,238) | (2.8)% | $(84) | (0.2)% | $(1,154) | (1373.8)% | | Net loss | $(1,772) | (4.0)% | $(2,105) | (5.2)% | $333 | 15.8% | - Revenues increased by $4,454 thousand (11.0%) YoY, primarily due to a 95% increase in industrial fabrications revenue and a 35% increase in Gearing segment revenue, partially offset by a 26% decrease in tower sections sold[129] - Gross profit increased by $1,674 thousand (80.7%) YoY, driven by higher sales volumes in Gearing and Heavy Fabrications, partially offset by higher material costs[130] - Operating expenses as a percentage of sales decreased to 9.5% from 10.1% due to higher revenue levels[130] Heavy Fabrications Segment (3 months) | Metric (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :-------------------- | :------------------------------ | :------------------------------ | | Orders | $62,873 | $26,539 | | Tower sections sold | 145 | 197 | | Revenues | $30,640 | $28,675 | | Operating income | $372 | $(445) | | Operating margin | 1.2% | (1.6)% | - Wind tower orders increased 223% YoY as customers secured production capacity for 2022 and 2023; Industrial fabrications orders decreased 41% due to lower mining demand[132] - Revenues increased 7% YoY, driven by a 95% increase in industrial fabrication revenues, partially offset by a 26% decrease in tower sections sold[132] - Operating income improved by $817 thousand YoY, with operating margin increasing to 1.2% from (1.6)%, due to higher sales volumes and labor efficiencies, partially offset by higher material costs[134] Gearing Segment (3 months) | Metric (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :-------------------- | :------------------------------ | :------------------------------ | | Orders | $15,523 | $11,546 | | Revenues | $10,190 | $7,562 | | Operating income (loss) | $624 | $(219) | | Operating margin | 6.1% | (2.9)% | - Orders increased 34% YoY due to higher demand from industrial, mining, and O&G customers[135] - Revenue increased 35% YoY, primarily from higher order intake from O&G customers, partially offset by decreased aftermarket wind revenue[135] - Operating income improved by $843 thousand YoY, with operating margin increasing to 6.1% from (2.9)%, mainly due to higher sales[136] Industrial Solutions Segment (3 months) | Metric (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :-------------------- | :------------------------------ | :------------------------------ | | Orders | $6,061 | $4,512 | | Revenues | $4,020 | $4,213 | | Operating loss | $(191) | $(108) | | Operating margin | (4.8)% | (2.6)% | - Orders increased 34% YoY due to timing of new gas turbine orders[139] - Revenue decreased 5% YoY, primarily due to global logistics delays[139] - Operating loss increased YoY due to lower sales and higher freight and packaging costs[139] Corporate and Other (3 months) - Corporate and Other expenses increased YoY primarily due to higher compensation-related expenses[140] Nine months ended September 30, 2022, Compared to Nine months ended September 30, 2021 This sub-section analyzes the Company's consolidated and segment-specific performance for the first nine months of 2022 compared to 2021, detailing significant revenue growth, improved gross profit and operating loss, and the impact of the absence of prior-year government benefits Consolidated (9 months) | Metric (in thousands) | 2022 | % of Total Revenue (2022) | 2021 | % of Total Revenue (2021) | $ Change | % Change | | :-------------------------------- | :---------- | :------------------------ | :---------- | :------------------------ | :---------- | :-------- | | Revenues | $136,699 | 100.0% | $119,608 | 100.0% | $17,091 | 14.3% | | Cost of sales | $128,545 | 94.0% | $115,054 | 96.2% | $13,491 | 11.7% | | Gross profit | $8,154 | 6.0% | $4,554 | 3.8% | $3,600 | 79.1% | | Operating expenses | $12,659 | 9.3% | $13,173 | 11.0% | $(514) | (3.9)% | | Operating loss | $(4,505) | (3.3)% | $(8,619) | (7.2)% | $4,114 | 47.7% | | Total other (expense) income, net | $(2,338) | (1.7)% | $15,657 | 13.1% | $(17,995) | (114.9)% | | Net (loss) income | $(6,879) | (5.0)% | $6,937 | 5.8% | $(13,816) | (199.2)% | - Revenues increased by $17,091 thousand (14.3%) YoY, driven by a 52% increase in Gearing segment revenue and a 7% increase in Heavy Fabrications revenue (101% increase in industrial fabrications)[143] - Gross profit increased by $3,600 thousand (79.1%) YoY, with gross margin improving to 6.0% from 3.8%, due to higher sales volumes in Gearing and Heavy Fabrications, partially offset by higher material and ramp-up costs[144] - Net loss of $6,879 thousand in 9M 2022 compared to net income of $6,937 thousand in 9M 2021, primarily due to the absence of $6,965 thousand ERC benefit and $9,151 thousand PPP loan forgiveness recognized in the prior year[146] Heavy Fabrications Segment (9 months) | Metric (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------- | :----------------------------- | :----------------------------- | | Orders | $110,022 | $62,096 | | Tower sections sold | 668 | 940 | | Revenues | $93,486 | $87,282 | | Operating loss | $(11) | $(1,873) | | Operating margin | (0.0)% | (2.1)% | - Wind tower orders increased 106% YoY, securing 2022 and 2023 production capacity; Industrial fabrications orders increased 10% due to demand for PRS units and industrial products[148] - Revenues increased 7% YoY, driven by a 101% increase in industrial fabrication revenue, partially offset by a 29% decrease in tower sections sold[148] - Operating loss improved by $1,862 thousand YoY, with operating margin improving to 0.0% from (2.1)%, due to higher sales and the absence of prior-year one-time events (weather, project delay), partially offset by higher material costs and workforce transition costs[150] Gearing Segment (9 months) | Metric (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------- | :----------------------------- | :----------------------------- | | Orders | $38,526 | $29,325 | | Revenues | $30,890 | $20,315 | | Operating loss | $(73) | $(2,090) | | Operating margin | (0.2)% | (10.3)% | - Orders increased 31% YoY due to increased demand from O&G, mining, and industrial customers[151] - Revenue increased 52% YoY, primarily from higher order intake from O&G, industrial, and mining customers, partially offset by decreased aftermarket wind revenue[151] - Operating loss improved by $2,017 thousand YoY, with operating margin improving to (0.2)% from (10.3)%, mainly due to higher sales, partially offset by higher material and ramp-up costs[152] Industrial Solutions Segment (9 months) | Metric (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------- | :----------------------------- | :----------------------------- | | Orders | $14,648 | $11,831 | | Revenues | $13,142 | $12,357 | | Operating loss | $(368) | $(169) | | Operating margin | (2.8)% | (1.4)% | - Orders increased 24% YoY due to timing of aftermarket projects[154] - Revenue increased 6% YoY, primarily from aftermarket projects[154] - Operating loss increased YoY due to higher variable expenses, including freight costs[154] Corporate and Other (9 months) - Corporate and Other expenses decreased YoY primarily due to lower salaries and benefits[155] Liquidity, Financial Position and Capital Resources This section discusses the Company's cash position, debt obligations, and access to capital, including the new 2022 Credit Facility and equity sales agreements, also analyzing cash flows from operating, investing, and financing activities and addressing potential liquidity challenges related to production, sales, and the COVID-19 pandemic - Cash totaled $1,509 thousand as of September 30, 2022, an increase of $657 thousand from December 31, 2021[156] - Total debt and finance lease obligations were $28,966 thousand as of September 30, 2022, with an additional $13,315 thousand available under the 2022 Credit Facility[156] - The Company entered into a Sales Agreement on September 12, 2022, to sell up to $12,000 thousand of common stock through agents, with $11,667 thousand remaining available as of September 30, 2022[158] - The 2022 Credit Facility with Wells Fargo, providing a $35,000 thousand revolving credit facility and a $7,578 thousand term loan, replaced the 2016 Credit Facility on August 5, 2022[159] - Management anticipates current cash, available credit, cash from operations, equipment financing, and proceeds from equity sales will be adequate to meet liquidity needs for at least the next twelve months[160] - Potential cash flow and liquidity issues could arise if production, sales, customer collections, or new orders are materially inconsistent with expectations, especially given the COVID-19 pandemic[161] Sources and Uses of Cash | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Operating activities | $(10,271) | $(10,823) | | Investing activities | $(2,757) | $(1,336) | | Financing activities | $13,685 | $11,122 | | Net increase (decrease) in cash | $657 | $(1,037) | Operating Cash Flows - Net cash used in operating activities decreased to $10,271 thousand in 9M 2022 from $10,823 thousand in 9M 2021, primarily due to improved operating performance and less working capital build, partially offset by the absence of prior-year ERC and PPP loan forgiveness benefits[164] Investing Cash Flows - Net cash used in investing activities increased to $2,757 thousand in 9M 2022 from $1,336 thousand in 9M 2021, primarily due to an increase in net purchases of property and equipment[165] Financing Cash Flows - Net cash provided by financing activities increased to $13,685 thousand in 9M 2022 from $11,122 thousand in 9M 2021, primarily due to increased net borrowings under the 2022 Credit Facility, partially offset by prior-year proceeds from the Equity Distribution Agreement[166] - The Company collected the remaining $497 thousand Employee Retention Credit (ERC) benefit in January 2022, which was recorded as "Other income (expense), net" in 2021[168] Critical Accounting Estimates - There have been no material changes in critical accounting estimates during the three months ended September 30, 2022, compared to those described in the Annual Report on Form 10-K for the year ended December 31, 2021[170] Cautionary Note Regarding Forward-Looking Statements - This section contains forward-looking statements based on current expectations, subject to risks and uncertainties, many of which are amplified by the COVID-19 pandemic[172] - Key risks include the impact of global health concerns (COVID-19), regulatory frameworks, customer dependencies, economic stability of customers/suppliers, ability to grow, IT failures, liquidity sufficiency, and market volatility[172] Item 3. 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 under Item 305I of Regulation S-K - As a smaller reporting company, Broadwind, Inc. is exempt from providing quantitative and qualitative disclosures about market risk[174] Item 4. Controls and Procedures This section details the evaluation of the Company's disclosure controls and procedures, concluding their effectiveness as of September 30, 2022, and reports no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures - Management, under the supervision of the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of September 30, 2022[175] - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of September 30, 2022[175] Changes in Internal Control over Financial Reporting - There were no changes in internal control over financial reporting during the three months ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[176] PART II. OTHER INFORMATION Item 1. Legal Proceedings This item incorporates by reference the information on legal proceedings from Note 12 of the condensed consolidated financial statements, stating that the Company is involved in various legal matters but does not expect a material adverse effect on its financial condition - Information on legal proceedings is incorporated by reference from Note 12, "Legal Proceedings" of the condensed consolidated financial statements[179] Item 1A. Risk Factors This item states that the risk factors identified in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, remain the most significant risks to its future results and financial condition, without further modification - The risk factors from the Annual Report on Form 10-K for the year ended December 31, 2021, continue to be the most significant risks to the Company's future results of operations and financial conditions[180] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item reports that there were no unregistered sales of equity securities or use of proceeds to disclose for the period - No unregistered sales of equity securities or use of proceeds to report[182] Item 3. Defaults Upon Senior Securities This item indicates that there were no defaults upon senior securities to report for the period - No defaults upon senior securities to report[183] Item 4. Mine Safety Disclosures This item states that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[184] Item 5. Other Information This item reports that there is no other information to disclose for the period - No other information to report[185] Item 6. Exhibits This item lists the exhibits filed as part of this Quarterly Report on Form 10-Q, including corporate documents, credit agreements, severance agreements, sales agreements, certifications, and XBRL financial information - The exhibits include corporate organizational documents, credit agreements (e.g., 2022 Credit Agreement with Wells Fargo), severance agreements, sales agreements (e.g., with Roth Capital Partners), CEO/CFO certifications, and XBRL financial data[188] SIGNATURES - The report is signed by Eric B. Blashford, President and Chief Executive Officer, on November 8, 2022, in accordance with the requirements of the Securities Exchange Act of 1934[194]