Broadwind(BWEN) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Unaudited Financial Statements The company presents its unaudited condensed consolidated financial statements for the three months ended March 31, 2024 and 2023 Condensed Consolidated Balance Sheets Total assets and liabilities decreased from year-end 2023, while total stockholders' equity increased | Metric | March 31, 2024 ($ thousands) | December 31, 2023 ($ thousands) | | :--- | :--- | :--- | | Total Assets | 123,071 | 135,156 | | Total Current Assets | 58,281 | 69,746 | | Cash | 1,073 | 1,099 | | Accounts Receivable, net | 14,601 | 19,231 | | AMP Credit Receivable | 1,732 | 7,051 | | Total Liabilities | 65,030 | 79,137 | | Total Current Liabilities | 39,654 | 53,612 | | Line of credit & current maturities of long-term debt | 1,428 | 5,903 | | Customer Deposits | 11,403 | 16,500 | | Total Stockholders' Equity | 58,041 | 56,019 | Condensed Consolidated Statements of Operations Net income significantly increased despite lower total revenues, driven by a favorable product mix and reduced operating expenses | Metric | Three Months Ended March 31, 2024 ($ thousands) | Three Months Ended March 31, 2023 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | 37,616 | 48,873 | (11,257) | (23.0)% | | Cost of sales | 30,979 | 41,897 | (10,918) | (26.1)% | | Gross profit | 6,637 | 6,976 | (339) | (4.9)% | | Selling, general and administrative | 4,394 | 5,526 | (1,132) | (20.5)% | | Operating income | 2,078 | 1,282 | 796 | 62.1% | | Net income | 1,510 | 769 | 741 | 96.4% | | Basic net income per share | 0.07 | 0.04 | 0.03 | 75.0% | | Diluted net income per share | 0.07 | 0.04 | 0.03 | 75.0% | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased from year-end 2023, primarily due to net income and share-based compensation | Metric | March 31, 2024 ($ thousands) | December 31, 2023 ($ thousands) | | :--- | :--- | :--- | | Total Stockholders' Equity | 58,041 | 56,019 | | Common Shares Issued (March 31, 2024) | 21,947,606 | 21,840,301 | | Additional Paid-in Capital | 399,848 | 399,336 | | Accumulated Deficit | (339,987) | (341,497) | | Net Income | 1,510 | 769 | | Share-based Compensation | 225 | 178 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities improved significantly, while cash used in investing and financing activities increased | Cash Flow Activity | Three Months Ended March 31, 2024 ($ thousands) | Three Months Ended March 31, 2023 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | 5,857 | (25,984) | | Net cash used in investing activities | (1,744) | (1,065) | | Net cash (used in) provided by financing activities | (4,139) | 16,046 | | Net decrease in cash | (26) | (11,003) | | Cash at end of period | 1,073 | 1,729 | - The increase in net cash provided by operating activities was primarily attributable to a decrease in accounts receivable and proceeds from the sale of 2023 AMP credits[137] - The decrease in net cash provided by financing activities was primarily due to decreased net borrowings under the 2022 Credit Facility in the current year period[123] NOTE 1 — BASIS OF PRESENTATION The company is a precision manufacturer for clean technology and other specialized applications, primarily in the U.S - The Company 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[82] - The U.S. wind energy industry accounted for 39% of the Company's revenue during the first three months of 2024, down from 50% in the prior year[82] Liquidity Liquidity is supported by cash from operations, credit facilities, and potential access to capital markets - As of March 31, 2024, debt and finance lease obligations totaled $13,628 thousand, with $5,864 thousand outstanding from the senior secured term loan under the 2022 Credit Facility[83][201] - The Company had the ability to borrow an additional $21,326 thousand under the 2022 Credit Facility as of March 31, 2024[17][201] - The Company utilizes supply chain financing arrangements, selling accounts receivable to banking institutions without recourse, to accelerate collections and manage cash flow[86][188] - No shares of common stock were issued under the Sales Agreement during the three months ended March 31, 2024, with approximately $11,667 thousand remaining available for issuance[63][160] - The company faces risks of cash flow and liquidity issues if assumptions regarding production, sales, customer collections, and finalization of supply agreements are materially inconsistent with expectations[88][135] Management's Use of Estimates Financial statement preparation requires management to make significant estimates and assumptions affecting reported amounts - Significant estimates include inventory reserves, warranty reserves, impairment of long-lived assets, allowance for doubtful accounts, health insurance reserves, and valuation allowances on deferred taxes[89] NOTE 2 — REVENUES Revenue decreased due to lower Heavy Fabrications sales, partially offset by growth in the Industrial Solutions segment | Revenue Source | Three Months Ended March 31, 2024 ($ thousands) | Three Months Ended March 31, 2023 ($ thousands) | | :--- | :--- | :--- | | Heavy Fabrications | 22,016 | 31,593 | | Gearing | 8,337 | 11,965 | | Industrial Solutions | 7,994 | 5,423 | | Eliminations | (731) | (108) | | Consolidated | 37,616 | 48,873 | - Heavy Fabrications segment revenue decreased by 30% due to a 40% decrease in wind tower revenue, resulting from a 44% decrease in tower sections sold as a global wind turbine manufacturer shifted orders from 2024 to 2025[197] - Industrial Solutions segment revenue increased by 47% primarily due to the timing of shipments of new and aftermarket gas turbine content[157][195] - Gearing segment revenue decreased by 30% due to reduced shipments for industrial, mining, and O&G customers[157][195] NOTE 3 — EARNINGS PER SHARE Basic and diluted earnings per share increased in Q1 2024 compared to the prior year, reflecting higher net income | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net income | $1,510 | $769 | | Basic net income per share | $0.07 | $0.04 | | Diluted net income per share | $0.07 | $0.04 | | Weighted average common shares outstanding (Basic) | 21,594,664 | 20,869,035 | | Weighted average common shares outstanding (Diluted) | 21,806,782 | 21,387,014 | NOTE 4 — INVENTORIES Net inventories remained stable, with a decrease in raw materials offset by an increase in work-in-process | Inventory Component | March 31, 2024 ($ thousands) | December 31, 2023 ($ thousands) | | :--- | :--- | :--- | | Raw materials | 21,381 | 24,651 | | Work-in-process | 14,138 | 10,390 | | Finished goods | 4,109 | 4,595 | | Less: Reserve | (2,242) | (2,231) | | Net inventories | 37,386 | 37,405 | NOTE 5 — AMP CREDITS The company recognized Advanced Manufacturing Production (AMP) credits, which reduced its cost of sales - Gross AMP credits recognized in Q1 2024 totaled $1,872 thousand, with a 6.5% discount ($122 thousand) and administrative costs ($33 thousand) recognized in cost of sales[106] - AMP credits are introduced by the IRA for manufacturers of eligible wind components, qualifying for $0.03 per watt for each wind tower produced and sold in the U.S. from 2023 through 2032[97] - The remaining 2023 AMP credit receivable of $7,541 thousand (after a $490 thousand loss on sale) was collected during the first quarter of 2024[74] NOTE 6 — INTANGIBLE ASSETS Intangible assets, primarily customer relationships and trade names, decreased slightly due to ongoing amortization | Intangible Asset | March 31, 2024 Net Book Value ($ thousands) | December 31, 2023 Net Book Value ($ thousands) | | :--- | :--- | :--- | | Customer relationships | 480 | 545 | | Trade names | 1,419 | 1,519 | | Total Intangible Assets | 1,899 | 2,064 | | Remaining Weighted Average Amortization Period | 3.1 years | 3.3 years | - Intangible assets are amortized on a straight-line basis over their estimated useful lives, with a remaining life range from 2 to 4 years[107] NOTE 7 — ACCRUED LIABILITIES Total accrued liabilities decreased slightly, with notable changes in professional fees, warranty, and payroll accruals | Accrued Liability | March 31, 2024 ($ thousands) | December 31, 2023 ($ thousands) | | :--- | :--- | :--- | | Accrued payroll and benefits | 5,180 | 5,051 | | Accrued property taxes | 20 | — | | Income taxes payable | 30 | 254 | | Accrued professional fees | 9 | 140 | | Accrued warranty liability | 25 | 322 | | Self-insured workers compensation reserve | 5 | 21 | | Accrued sales tax | 10 | 310 | | Accrued other | 20 | 379 | | Total accrued liabilities | 6,406 | 6,477 | NOTE 8 — DEBT AND CREDIT AGREEMENTS Total debt decreased significantly due to a reduction in the line of credit, and the company complied with all covenants | Debt Component | March 31, 2024 ($ thousands) | December 31, 2023 ($ thousands) | | :--- | :--- | :--- | | Line of credit | — | 4,657 | | Other notes payable | 1,826 | 1,361 | | Long-term debt | 5,864 | 6,135 | | Total debt | 7,690 | 12,153 | | Less: current maturities | (1,428) | (5,903) | | Long-term debt, net of current maturities | 6,262 | 6,250 | - As of March 31, 2024, $5,864 thousand was outstanding under the 2022 Credit Facility, with an additional $21,326 thousand available for borrowing[17] - The effective interest rate for the senior secured revolving credit facility was 7.32% and for the senior secured term loan was 7.82% as of March 31, 2024[17] - The company was in compliance with all financial covenants under the 2022 Credit Facility as of March 31, 2024[17] NOTE 9 — LEASES The company's future minimum lease payments for finance and operating leases total $30,222 thousand | Lease Type | Finance Leases ($ thousands) | Operating Leases ($ thousands) | Total ($ thousands) | | :--- | :--- | :--- | :--- | | Total lease payments | 6,718 | 23,504 | 30,222 | | Present value of lease obligations | 5,938 | 17,288 | 23,226 | | Current portion of lease obligations | (2,205) | (1,914) | (4,119) | | Long-term portion of lease obligations | 3,733 | 15,374 | 19,107 | - The weighted average remaining lease term for operating leases was 6.9 years and for finance leases was 2.9 years as of March 31, 2024[20] - The weighted average discount rate for operating leases was 8.9% and for finance leases was 8.0% as of March 31, 2024[20] NOTE 10 — FAIR VALUE MEASUREMENTS The carrying amounts of the company's financial instruments approximate their fair values due to their short-term nature - Financial instruments are categorized into a three-level fair value hierarchy based on the observability of inputs used in valuation, with Level 1 being the most reliable and Level 3 requiring significant management judgment[24] NOTE 11 — INCOME TAXES The company maintains a full valuation allowance against deferred tax assets and has significant NOL carryforwards - Provision for income taxes was $39 thousand for Q1 2024, compared to $23 thousand for Q1 2023[25] - As of March 31, 2024, the company had a full valuation allowance recorded against deferred tax assets and no unrecognized tax benefits[9][25] - The company had federal and unapportioned state NOL carryforwards of $290,233 thousand as of December 31, 2023, with $227,781 thousand generally expiring starting in 2026[26] - An annual limitation of $14,284 thousand on NOL usage is imposed under Section 382 of the IRC due to prior ownership changes[27] - A Stockholder Rights Plan is designed to deter beneficial ownership of 4.9% or more of common stock to preserve NOL carryforwards under Section 382[28][29] NOTE 12 — SHARE-BASED COMPENSATION Share-based compensation expense increased in Q1 2024, with no stock option activity during the period | Share-based Compensation Expense | Three Months Ended March 31, 2024 ($ thousands) | Three Months Ended March 31, 2023 ($ thousands) | | :--- | :--- | :--- | | Cost of sales | 29 | 23 | | Selling, general and administrative | 196 | 155 | | Net effect on net income | 225 | 178 | | Basic earnings per share reduction | 0.01 | 0.01 | | Diluted earnings per share reduction | 0.01 | 0.01 | | Restricted Stock Unit Activity | Number of Shares (March 31, 2024) | | :--- | :--- | | Unvested as of December 31, 2023 | 687,206 | | Vested | (1,398) | | Unvested as of March 31, 2024 | 685,808 | NOTE 13 — LEGAL PROCEEDINGS AND OTHER MATTERS Management believes the outcome of current legal proceedings will not materially affect the company's financial condition - Management believes that the final outcome of legal proceedings will not have a material adverse effect on the Company's results of operations, financial condition, or cash flows[12] NOTE 14 — RECENT ACCOUNTING PRONOUNCEMENTS Recent accounting pronouncements are not expected to have a material impact on the company's financial statements - ASU 2023-09 (Income Tax Disclosures) will be effective for annual periods beginning December 31, 2025, and ASU 2023-07 (Segment Reporting Disclosures) will be effective for annual periods beginning December 31, 2024[141][161] NOTE 15— SEGMENT REPORTING The company operates through three reportable segments: Heavy Fabrications, Gearing, and Industrial Solutions - Heavy Fabrications provides steel towers and adapters for the U.S. wind energy industry (39% of Q1 2024 revenue) and has diversified into mining, construction, and other infrastructure markets[82][142] - Gearing manufactures loose gearing, gearboxes, and systems, and provides heat treat services for aftermarket and OEM applications in mining, wind energy, steel, and oil and gas[143] - Industrial Solutions provides supply chain solutions, light fabrication, inventory management, and kitting and assembly services, primarily for combined cycle natural gas turbines and expanding into U.S. wind power generation[144] | Segment | Q1 2024 Net Revenues ($ thousands) | Q1 2023 Net Revenues ($ thousands) | | :--- | :--- | :--- | | Heavy Fabrications | 22,016 | 31,593 | | Gearing | 8,337 | 11,965 | | Industrial Solutions | 7,994 | 5,423 | | Consolidated | 37,616 | 48,873 | | Segment | Q1 2024 Operating Income (Loss) ($ thousands) | Q1 2023 Operating Income (Loss) ($ thousands) | | :--- | :--- | :--- | | Heavy Fabrications | 2,046 | 2,790 | | Gearing | 25 | 581 | | Industrial Solutions | 1,767 | 622 | | Corporate | (1,760) | (2,711) | | Consolidated | 2,078 | 1,282 | NOTE 16 — COMMITMENTS AND CONTINGENCIES The company is subject to environmental regulations and maintains reserves for credit losses and liquidated damages - The company's operations are subject to environmental laws and regulations governing air emissions, wastewater discharges, hazardous materials, and contamination[168] - An allowance for credit losses is assessed using the CECL model, with activity in the accounts receivable allowance liability showing a balance of $97 thousand at March 31, 2024, compared to $31 thousand at March 31, 2023[149][169][170] - A reserve for liquidated damages of $84 thousand was maintained at March 31, 2024, and December 31, 2023, for potential delivery or production delays[150] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting increased net income despite lower revenues KEY METRICS USED BY MANAGEMENT TO MEASURE PERFORMANCE Management uses GAAP and non-GAAP measures like Adjusted EBITDA to evaluate performance and manage liquidity | Metric | March 31, 2024 ($ thousands) | March 31, 2023 ($ thousands) | | :--- | :--- | :--- | | Net revenues | 37,616 | 48,873 | | Net income | 1,510 | 769 | | Adjusted EBITDA | 4,170 | 4,098 | | Capital expenditures | 1,744 | 1,065 | | Free cash flow | (2,452) | (23,335) | | Operating working capital | 24,286 | 26,843 | | Total debt | 7,690 | 24,952 | | Total orders | 28,996 | 39,602 | | Backlog at end of period | 159,912 | 287,808 | - Adjusted EBITDA increased to $4,170 thousand in Q1 2024 from $4,098 thousand in Q1 2023[174] - New orders decreased to $28,996 thousand in Q1 2024 from $39,602 thousand in Q1 2023, primarily due to timing of wind tower orders[177] - Backlog decreased to $159,912 thousand at March 31, 2024, from $287,808 thousand at March 31, 2023[174] OUR BUSINESS Net income increased significantly in Q1 2024, driven by a more profitable product mix and lower operating expenses - Net income increased by 96.4% to $1,510 thousand in Q1 2024, compared to $769 thousand in Q1 2023[194][195] - The increase in net income was primarily due to a more profitable product mix, the absence of proxy-contest related expenses, and higher sales in the Industrial Solutions segment[194] RESULTS OF OPERATIONS Consolidated revenues decreased by 23%, but operating income grew significantly due to reduced operating expenses | Metric | Q1 2024 ($ thousands) | Q1 2023 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | 37,616 | 48,873 | (11,257) | (23.0)% | | Gross profit | 6,637 | 6,976 | (339) | (4.9)% | | Operating expenses | 4,559 | 5,694 | (1,135) | (19.9)% | | Operating income | 2,078 | 1,282 | 796 | 62.1% | | Net income | 1,510 | 769 | 741 | 96.4% | - Gross profit decreased by $339 thousand, primarily due to lower sales, partially offset by a more profitable product mix[159] - Operating expenses decreased due to the absence of proxy-contest related expenses recognized in the prior year[159] Heavy Fabrications Segment The segment's revenues decreased due to shifted wind tower orders, but operating margin improved from a better product mix | Metric | Q1 2024 ($ thousands) | Q1 2023 ($ thousands) | | :--- | :--- | :--- | | Orders | 11,221 | 20,236 | | Tower sections sold | 78 | 140 | | Revenues | 22,016 | 31,593 | | Operating income | 2,046 | 2,790 | | Operating margin | 9.3% | 8.8% | - Wind tower orders decreased significantly due to timing, but industrial fabrication orders increased by 18% from mining customers[197] - Segment revenues decreased by 30%, with wind tower revenue down 40% due to a 44% decrease in tower sections sold[197] Gearing Segment The segment's orders and revenues declined, driven by reduced demand from oil and gas customers | Metric | Q1 2024 ($ thousands) | Q1 2023 ($ thousands) | | :--- | :--- | :--- | | Orders | 10,446 | 12,393 | | Revenues | 8,337 | 11,965 | | Operating income | 25 | 581 | | Operating margin | 0.3% | 4.9% | - Orders decreased by 16% due to reduced demand from O&G customers, partially offset by increased demand from mining and aftermarket wind customers[184] - Operating income decreased by $556 thousand, primarily attributable to lower sales[198] Industrial Solutions Segment The segment's orders, revenues, and operating income all increased, driven by new gas turbine projects | Metric | Q1 2024 ($ thousands) | Q1 2023 ($ thousands) | | :--- | :--- | :--- | | Orders | 7,329 | 6,973 | | Revenues | 7,994 | 5,423 | | Operating income | 1,767 | 622 | | Operating margin | 22.1% | 11.5% | - Orders increased primarily due to new gas turbine projects, partially offset by reduced aftermarket projects[186] - Operating income increased significantly due to higher sales and a more profitable product mix[186] Corporate and Other Corporate expenses decreased due to the absence of prior-year proxy contest fees and lower medical costs - Corporate and Other expenses decreased due to the absence of professional fees from a contested proxy election in the prior year and lower medical costs[200] LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES The company's liquidity improved with strong operating cash flow, and management believes resources are adequate - Cash totaled $1,073 thousand as of March 31, 2024, a decrease of $26 thousand from December 31, 2023[201] - Net cash provided by operating activities was $5,857 thousand in Q1 2024, a significant improvement from net cash used of $25,984 thousand in Q1 2023[125][137] - Net cash used in investing activities increased to $1,744 thousand in Q1 2024, primarily due to higher purchases of property and equipment[122][125] - Net cash used in financing activities was $4,139 thousand in Q1 2024, compared to net cash provided of $16,046 thousand in Q1 2023, mainly due to decreased net borrowings under the 2022 Credit Facility[123][125] - The company anticipates current cash, the 2022 Credit Facility, operational cash generation, and potential equity/debt sales will meet liquidity needs for the next twelve months[203] CRITICAL ACCOUNTING ESTIMATES There were no material changes to the company's critical accounting estimates during the first quarter of 2024 - No material changes in critical accounting estimates during Q1 2024[124] CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This report contains forward-looking statements that are subject to various risks and uncertainties - Forward-looking statements reflect current expectations regarding future growth, results of operations, financial condition, cash flows, performance, business prospects, and opportunities[127] - These statements are subject to various risks, uncertainties, and other factors that could cause actual results to differ materially, including those set forth under 'Risk Factors' in the Annual Report on Form 10-K[127] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, these disclosures are not required - The company is a smaller reporting company and is not required to provide market risk disclosures[129] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2024 - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2024[130] - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2024[131] PART II. OTHER INFORMATION Item 1. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 13 of the financial statements - Legal proceedings information is incorporated by reference from Note 13[133] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K - Risk Factors identified in the Annual Report on Form 10-K for the year ended December 31, 2023, continue to represent the most significant risks[110] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period - None to report[111] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the period - None to report[112] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not Applicable[113] Item 5. Other Information No Rule 10b5-1 trading arrangements were adopted, terminated, or modified by directors or officers in Q1 2024 - No Rule 10b5-1 trading arrangements were adopted, terminated, or modified by directors or officers during Q1 2024[114] Item 6. Exhibits This section lists all exhibits filed as part of the report, including certifications and iXBRL financial data - The exhibit index includes corporate governance documents, certifications (Rule 13a-14(a), 18 U.S.C. Section 1350), and financial information in iXBRL format[116] SIGNATURES The report is duly signed on behalf of the company by its President and Chief Executive Officer - The report was signed by Eric B. Blashford, President and Chief Executive Officer, on May 14, 2024[121]