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 |
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20192020
OR
◻ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐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, ENERGY, INC.
(Exact name of registrant as specified in its charter)
Delaware | | 88-0409160 |
(State or other jurisdiction | | (I.R.S. Employer |
3240 S. Central Avenue, Cicero, IL 60804
(Address of principal executive offices)
(708) 780-4800
(Registrant’s telephone number, including area code)
Not applicable
(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 October 25, 2019: 16,361,572.July 31, 2020: 16,839,679.
BROADWIND, ENERGY, INC. AND SUBSIDIARIES
| | Page No. |
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| 1 | |
| 2 | |
| 3 | |
| 4 | |
| 5 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | |
27 | ||
27 | ||
28 | ||
28 | ||
29 | ||
29 | ||
29 | ||
29 | ||
29 | ||
| 31 |
Item 1.Financial StatementPART I. FINANCIAL INFORMATIONs
BROADWIND, ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETSSHEETS
(UNAUDITED)
(in thousands, except share and per share data)
|
|
|
|
|
|
|
|
| ||||||||
|
| September 30, |
| December 31, |
|
| ||||||||||
|
| 2019 |
| 2018 |
|
| ||||||||||
|
|
|
|
|
|
| ||||||||||
| | | | | | | | | ||||||||
| | June 30, | | December 31, | | | ||||||||||
|
| 2020 |
| 2019 | | | ||||||||||
| | | | | | | ||||||||||
ASSETS |
|
|
|
|
|
|
|
| | | | | | | | |
CURRENT ASSETS: |
|
|
|
|
|
|
|
| | | | | | | | |
Cash and cash equivalents |
| $ | 15 |
| $ | 1,177 |
|
| ||||||||
Cash | | $ | 2,119 | | $ | 2,416 | | | ||||||||
Accounts receivable, net |
|
| 22,862 |
|
| 17,455 |
|
| |
| 26,119 | |
| 18,310 | | |
Inventories, net |
|
| 31,250 |
|
| 22,670 |
|
| |
| 37,611 | |
| 31,863 | | |
Prepaid expenses and other current assets |
|
| 2,387 |
|
| 1,776 |
|
| |
| 1,739 | |
| 2,124 | | |
Total current assets |
|
| 56,514 |
|
| 43,078 |
|
| |
| 67,588 | |
| 54,713 | | |
LONG-TERM ASSETS: |
|
|
|
|
|
|
|
| | | | | | | | |
Property and equipment, net |
|
| 47,017 |
|
| 49,087 |
|
| |
| 46,382 | |
| 46,940 | | |
Operating lease right-of-use assets |
|
| 16,150 |
|
| — |
|
| | | 19,490 | | | 15,980 | | |
Other intangible assets, net |
|
| 5,993 |
|
| 6,602 |
|
| ||||||||
Intangible assets, net | |
| 4,553 | |
| 4,919 | | | ||||||||
Other assets |
|
| 328 |
|
| 398 |
|
| | | 439 | | | 314 | | |
TOTAL ASSETS |
| $ | 126,002 |
| $ | 99,165 |
|
| | $ | 138,452 | | $ | 122,866 | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
| | | | | | | | |
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
| | | | | | | | |
Line of credit and other notes payable |
| $ | 9,592 |
| $ | 11,930 |
|
| | $ | 13,046 | | $ | 12,917 | | |
Current portion of finance lease obligations |
|
| 632 |
|
| 967 |
|
| |
| 1,032 | |
| 546 | | |
Current portion of operating lease obligations |
|
| 1,468 |
|
| — |
|
| | | 1,582 | | | 1,326 | | |
Accounts payable |
|
| 17,864 |
|
| 11,618 |
|
| |
| 21,901 | |
| 21,876 | | |
Accrued liabilities |
|
| 5,488 |
|
| 3,806 |
|
| |
| 5,096 | |
| 4,911 | | |
Customer deposits |
|
| 31,064 |
|
| 23,507 |
|
| |
| 21,716 | |
| 22,717 | | |
Current liabilities held for sale |
|
| 25 |
|
| 27 |
|
| ||||||||
Total current liabilities |
|
| 66,133 |
|
| 51,855 |
|
| |
| 64,373 | |
| 64,293 | | |
LONG-TERM LIABILITIES: |
|
|
|
|
|
|
|
| | | | | | | | |
Long-term debt, net of current maturities |
|
| 802 |
|
| 1,408 |
|
| |
| 9,500 | |
| 505 | | |
Long-term finance lease obligations, net of current portion |
|
| 479 |
|
| 571 |
|
| |
| 1,769 | |
| 673 | | |
Long-term operating lease obligations, net of current portion |
|
| 16,686 |
|
| — |
|
| | | 19,931 | | | 16,591 | | |
Other |
|
| 64 |
|
| 1,969 |
|
| | | 80 | | | 44 | | |
Total long-term liabilities |
|
| 18,031 |
|
| 3,948 |
|
| |
| 31,280 | |
| 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; 16,626,489 and 15,982,622 shares issued as of September 30, 2019, and December 31, 2018, respectively |
|
| 16 |
|
| 16 |
|
| ||||||||
Treasury stock, at cost, 273,937 shares as of September 30, 2019 and December 31, 2018 |
|
| (1,842) |
|
| (1,842) |
|
| ||||||||
Common stock, $0.001 par value; 30,000,000 shares authorized; 17,113,616 and 16,830,930 shares issued as of June 30, 2020, and December 31, 2019, respectively | | | 17 | | | 17 | | | ||||||||
Treasury stock, at cost, 273,937 shares as of June 30, 2020 and December 31, 2019 | |
| (1,842) | |
| (1,842) | | | ||||||||
Additional paid-in capital |
|
| 382,875 |
|
| 381,441 |
|
| |
| 383,917 | |
| 383,361 | | |
Accumulated deficit |
|
| (339,211) |
|
| (336,253) |
|
| |
| (339,293) | |
| (340,776) | | |
Total stockholders’ equity |
|
| 41,838 |
|
| 43,362 |
|
| |
| 42,799 | |
| 40,760 | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
| $ | 126,002 |
| $ | 99,165 |
|
| | $ | 138,452 | | $ | 122,866 | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
BROADWIND, ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSOPERATIONS
(UNAUDITED)
(in thousands, except per share data)
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|
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|
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| ||||||||||||||||||||
|
| Three Months Ended September 30, |
|
|
| Nine Months Ended September 30, |
| |||||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
| 2019 |
| 2018 |
| ||||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||||||||
| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | |||||||||||||||||||||||||
| | 2020 | |
| 2019 | | 2020 |
| 2019 | | ||||||||||||||||||||||
Revenues |
| $ | 46,138 |
|
| $ | 31,445 |
|
| $ | 128,967 |
| $ | 98,193 |
| | $ | 54,926 | | | $ | 41,169 | | | $ | 103,560 | | $ | 82,829 | | ||
Cost of sales |
|
| 42,144 |
|
|
| 29,802 |
|
|
| 117,532 |
|
| 94,228 |
| |
| 49,509 | | |
| 37,277 | | |
| 91,971 | |
| 75,388 | | ||
Restructuring |
|
| — |
|
|
| 157 |
|
|
| 12 |
|
| 388 |
| |
| — | | |
| — | | |
| — | |
| 12 | | ||
Gross profit |
|
| 3,994 |
|
|
| 1,486 |
|
|
| 11,423 |
|
| 3,577 |
| |
| 5,417 | | |
| 3,892 | | |
| 11,589 | |
| 7,429 | | ||
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | |||||||
Selling, general and administrative |
|
| 4,049 |
|
|
| 3,627 |
|
|
| 11,772 |
|
| 10,020 |
| |
| 4,198 | | | | 3,895 | | | | 8,507 | | | 7,723 | | ||
Impairment charges |
|
| — |
|
|
| — |
|
|
| — |
|
| 4,993 |
| |||||||||||||||||
Intangible amortization |
|
| 203 |
|
|
| 471 |
|
|
| 609 |
|
| 1,413 |
| |
| 184 | | | | 203 | | | | 367 | | | 406 | | ||
Restructuring |
|
| — |
|
|
| — |
|
|
| — |
|
| 36 |
| |||||||||||||||||
Total operating expenses |
|
| 4,252 |
|
|
| 4,098 |
|
|
| 12,381 |
|
| 16,462 |
| |
| 4,382 | | |
| 4,098 | | |
| 8,874 | |
| 8,129 | | ||
Operating loss |
|
| (258) |
|
|
| (2,612) |
|
|
| (958) |
|
| (12,885) |
| |||||||||||||||||
Operating income (loss) | |
| 1,035 | | |
| (206) | | |
| 2,715 | |
| (700) | | |||||||||||||||||
OTHER EXPENSE, net: |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | |||||||
Interest expense, net |
|
| (610) |
|
|
| (372) |
|
|
| (1,919) |
|
| (1,022) |
| |
| (474) | | | | (773) | | | | (1,147) | | | (1,309) | | ||
Other, net |
|
| (2) |
|
|
| 2,247 |
|
|
| (20) |
|
| 2,243 |
| |
| (1) | | | | (16) | | | | (3) | | | (17) | | ||
Total other expense, net |
|
| (612) |
|
|
| 1,875 |
|
|
| (1,939) |
|
| 1,221 |
| |
| (475) | | |
| (789) | | |
| (1,150) | |
| (1,326) | | ||
Net loss before provision (benefit) for income taxes |
|
| (870) |
|
|
| (737) |
|
|
| (2,897) |
|
| (11,664) |
| |||||||||||||||||
Provision (benefit) for income taxes |
|
| 28 |
|
|
| 13 |
|
|
| 62 |
|
| (20) |
| |||||||||||||||||
LOSS FROM CONTINUING OPERATIONS |
|
| (898) |
|
|
| (750) |
|
|
| (2,959) |
|
| (11,644) |
| |||||||||||||||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS |
|
| — |
|
|
| (33) |
|
|
| 1 |
|
| (93) |
| |||||||||||||||||
NET LOSS |
| $ | (898) |
|
| $ | (783) |
|
| $ | (2,958) |
| $ | (11,737) |
| |||||||||||||||||
NET LOSS PER COMMON SHARE—BASIC: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Loss from continuing operations |
| $ | (0.06) |
|
| $ | (0.05) |
|
| $ | (0.18) |
| $ | (0.76) |
| |||||||||||||||||
Income (loss) from discontinued operations |
|
| 0.00 |
|
|
| 0.00 |
|
|
| 0.00 |
|
| 0.00 |
| |||||||||||||||||
Net loss |
| $ | (0.06) |
|
| $ | (0.05) |
|
| $ | (0.18) |
| $ | (0.76) |
| |||||||||||||||||
Net income (loss) before provision for income taxes | |
| 560 | | |
| (995) | | |
| 1,565 | |
| (2,026) | | |||||||||||||||||
Provision for income taxes | |
| 31 | | | | 23 | | | | 83 | | | 34 | | |||||||||||||||||
NET INCOME (LOSS) | | $ | 529 | | | $ | (1,018) | | | $ | 1,482 | | $ | (2,060) | | |||||||||||||||||
NET INCOME (LOSS) PER COMMON SHARE—BASIC: | | | | | | | | | | | | | | |||||||||||||||||||
Net income (loss) | | $ | 0.03 | | | $ | (0.06) | | | $ | 0.09 | | $ | (0.13) | | |||||||||||||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—BASIC |
|
| 16,236 |
|
|
| 15,541 |
|
|
| 16,024 |
|
| 15,390 |
| |
| 16,761 | | |
| 16,046 | | |
| 16,678 | |
| 15,917 | | ||
NET LOSS PER COMMON SHARE—DILUTED: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Loss from continuing operations |
| $ | (0.06) |
|
| $ | (0.05) |
|
| $ | (0.18) |
| $ | (0.76) |
|
| ||||||||||||||||
Income (loss) from discontinued operations |
|
| 0.00 |
|
|
| 0.00 |
|
|
| 0.00 |
|
| 0.00 |
|
| ||||||||||||||||
Net loss |
| $ | (0.06) |
|
| $ | (0.05) |
|
| $ | (0.18) |
| $ | (0.76) |
|
| ||||||||||||||||
NET INCOME (LOSS) PER COMMON SHARE—DILUTED: | | | | | | | | | | | | | | | ||||||||||||||||||
Net income (loss) | | $ | 0.03 | | | $ | (0.06) | | | $ | 0.09 | | $ | (0.13) | | | ||||||||||||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—DILUTED |
|
| 16,236 |
|
|
| 15,541 |
|
|
| 16,024 |
|
| 15,390 |
|
| |
| 17,125 | | |
| 16,046 | | |
| 16,934 | |
| 15,917 | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
BROADWIND, ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYEQUITY
(UNAUDITED)
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
|
| Common Stock |
| Treasury Stock |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
|
|
| Shares |
| Issued |
|
|
| Issued |
| Additional |
| Accumulated |
|
|
|
| ||||||||||||||||||||||||
|
|
| Issued |
| Amount |
| Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Total |
| |||||||||||||||||||||||||
BALANCE, December 31, 2017 |
|
| 15,480,299 |
| $ | 15 |
| (273,937) |
| $ | (1,842) |
| $ | 380,005 |
| $ | (312,107) |
| $ | 66,071 |
| ||||||||||||||||||||
Stock issued for restricted stock |
|
| 96,534 |
|
| 1 |
| — |
|
| — |
|
| — |
|
| — |
|
| 1 |
| ||||||||||||||||||||
Stock issued under defined contribution 401(k) retirement savings plan |
|
| 74,123 |
|
| — |
| — |
|
| — |
|
| 167 |
|
| — |
|
| 167 |
| ||||||||||||||||||||
Share-based compensation |
|
| — |
|
| — |
| — |
|
| — |
|
| 262 |
|
| — |
|
| 262 |
| ||||||||||||||||||||
Net loss |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (4,838) |
|
| (4,838) |
| ||||||||||||||||||||
BALANCE, March 31, 2018 |
|
| 15,650,956 |
| $ | 16 |
| (273,937) |
| $ | (1,842) |
| $ | 380,434 |
| $ | (316,945) |
| $ | 61,663 |
| ||||||||||||||||||||
Stock issued for restricted stock |
|
| 18,869 |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||||||||||||
Stock issued under defined contribution 401(k) retirement savings plan |
|
| 74,820 |
|
| — |
| — |
|
| — |
|
| 171 |
|
| — |
|
| 171 |
| ||||||||||||||||||||
Share-based compensation |
|
| — |
|
| — |
| — |
|
| — |
|
| 227 |
|
| — |
|
| 227 |
| ||||||||||||||||||||
Net loss |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (6,116) |
|
| (6,116) |
| ||||||||||||||||||||
BALANCE, June 30, 2018 |
|
| 15,744,645 |
| $ | 16 |
| (273,937) |
| $ | (1,842) |
| $ | 380,832 |
| $ | (323,061) | $ |
| 55,945 |
| ||||||||||||||||||||
Stock issued for restricted stock |
|
| 38,151 |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||||||||||||
Stock issued under defined contribution 401(k) retirement savings plan |
|
| 92,697 |
|
| — |
| — |
|
| — |
|
| 199 |
|
| — |
|
| 199 |
| ||||||||||||||||||||
Share-based compensation |
|
| — |
|
| — |
| — |
|
| — |
|
| 196 |
|
| — |
|
| 196 |
| ||||||||||||||||||||
Sale of common stock, net |
|
| 15,112 |
|
| — |
| — |
|
| — |
|
| (52) |
|
| — |
|
| (52) |
| ||||||||||||||||||||
Net loss |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (783) |
|
| (783) |
| ||||||||||||||||||||
BALANCE, September 30, 2018 |
|
| 15,890,605 |
| $ | 16 |
| (273,937) |
| $ | (1,842) |
| $ | 381,175 |
| $ | (323,844) |
| $ | 55,505 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| | 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 |
|
| 15,982,622 | | $ | 16 | | (273,937) | | $ | (1,842) | | $ | 381,441 | | $ | (336,253) | | $ | 43,362 |
|
Stock issued for restricted stock |
|
| 141,384 |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 141,384 | |
| — | | — | | | — | |
| — | |
| — | |
| — | |
Stock issued under defined contribution 401(k) retirement savings plan |
|
| 135,636 |
|
| — |
| — |
|
| — |
|
| 187 |
|
| — |
|
| 187 |
|
| 135,636 | |
| — | | — | | | — | |
| 187 | |
| — | |
| 187 | |
Share-based compensation |
|
| — |
|
| — |
| — |
|
| — |
|
| 255 |
|
| — |
|
| 255 |
|
| — | |
| — | | — | | | — | |
| 255 | |
| — | |
| 255 | |
Net loss |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (1,042) |
|
| (1,042) |
|
| — | |
| — | | — | | | — | |
| — | |
| (1,042) | |
| (1,042) | |
BALANCE, March 31, 2019 |
|
| 16,259,642 |
| $ | 16 |
| (273,937) |
| $ | (1,842) |
| $ | 381,883 |
| $ | (337,295) |
| $ | 42,762 |
| | 16,259,642 | | $ | 16 | | (273,937) | | $ | (1,842) | | $ | 381,883 | | $ | (337,295) | | $ | 42,762 | |
Stock issued for restricted stock |
|
| 53,740 |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| | 53,740 | | | — | | — | | | — | | | — | | | — | | | — | |
Stock issued under defined contribution 401(k) retirement savings plan |
|
| 123,727 |
|
| — |
| — |
|
| — |
|
| 205 |
|
| — |
|
| 205 |
| | 123,727 | | | — | | — | | | — | | | 205 | | | — | | | 205 | |
Share-based compensation |
|
| — |
|
| — |
| — |
|
| — |
|
| 255 |
|
| — |
|
| 255 |
| | — | | | — | | — | | | — | | | 255 | | | — | | | 255 | |
Net loss |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (1,018) |
|
| (1,018) |
| | — | | | — | | — | | | — | | | — | | | (1,018) | | | (1,018) | |
BALANCE, June 30, 2019 |
|
| 16,437,109 |
| $ | 16 |
| (273,937) |
| $ | (1,842) |
| $ | 382,343 |
| $ | (338,313) |
| $ | 42,204 |
| | 16,437,109 | | $ | 16 | | (273,937) | | $ | (1,842) | | $ | 382,343 | | $ | (338,313) | | $ | 42,204 | |
| | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
BALANCE, December 31, 2019 |
| 16,830,930 | | $ | 17 | | (273,937) | | $ | (1,842) | | $ | 383,361 | | $ | (340,776) | | $ | 40,760 | | |||||||||||||||||||||
Stock issued for restricted stock |
|
| 19,436 |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 83,050 | | | — | | — | | | — | | | — | | | — | | | — | |
Stock issued under defined contribution 401(k) retirement savings plan |
|
| 169,944 |
|
| — |
| — |
|
| — |
|
| 277 |
|
| — |
|
| 277 |
| ||||||||||||||||||||
Share-based compensation |
|
| — |
|
| — |
| — |
|
| — |
|
| 255 |
|
| — |
|
| 255 |
|
| — | | | — | | — | | | — | | | 308 | | | — | | | 308 | |
Net loss |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (898) |
|
| (898) |
| ||||||||||||||||||||
BALANCE, September 30, 2019 |
|
| 16,626,489 |
| $ | 16 |
| (273,937) |
| $ | (1,842) |
| $ | 382,875 |
| $ | (339,211) |
| $ | 41,838 |
| ||||||||||||||||||||
Net income |
| — | | | — | | — | | | — | | | — | | | 954 | | | 954 | | |||||||||||||||||||||
BALANCE, March 31, 2020 |
| 16,913,980 | | $ | 17 | | (273,937) | | $ | (1,842) | | $ | 383,669 | | $ | (339,822) | | $ | 42,022 | | |||||||||||||||||||||
Stock issued for restricted stock | | 199,636 | | | — | | — | | | — | | | — | | | — | | | — | | |||||||||||||||||||||
Share-based compensation | | — | | | — | | — | | | — | | | 248 | | | — | | | 248 | | |||||||||||||||||||||
Net income | | — | | | — | | — | | | — | | | — | | | 529 | | | 529 | | |||||||||||||||||||||
BALANCE, June 30, 2020 | | 17,113,616 | | $ | 17 | | (273,937) | | $ | (1,842) | | $ | 383,917 | | $ | (339,293) | | $ | 42,799 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
BROADWIND, ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFLOWS
(UNAUDITED)
(in thousands)
|
|
|
|
|
|
|
| |||||||||
|
| Nine Months Ended September 30, |
|
| ||||||||||||
|
| 2019 |
| 2018 |
|
| ||||||||||
| | | | | | | | | ||||||||
| | Six Months Ended June 30, | | | ||||||||||||
|
| 2020 |
| 2019 |
| | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
| | | | | | | | | |
Net loss |
| $ | (2,958) |
| $ | (11,737) |
|
| ||||||||
Income (loss) from discontinued operations |
|
| 1 |
|
| (93) |
|
| ||||||||
Loss from continuing operations |
|
| (2,959) |
|
| (11,644) |
|
| ||||||||
Net income (loss) | | $ | 1,482 | | $ | (2,060) | | | ||||||||
Adjustments to reconcile net cash used in operating activities: |
|
|
|
|
|
|
| | | | | | | | | |
Depreciation and amortization expense |
|
| 5,006 |
|
| 6,990 |
|
| | | 3,194 | | | 3,390 | | |
Deferred income taxes |
|
| (11) |
|
| (45) |
|
| | | 21 | | | (5) | | |
Impairment charges |
|
| — |
|
| 4,993 |
|
| ||||||||
Remeasurement of contingent consideration |
|
| — |
|
| (1,140) |
|
| ||||||||
Change in fair value of interest rate swap agreements |
|
| 50 |
|
| — |
|
| | | 157 | | | 26 | | |
Stock-based compensation |
|
| 765 |
|
| 685 |
|
| | | 556 | | | 510 | | |
Extinguishment of New Markets Tax Credits obligation |
|
| — |
|
| (2,249) |
|
| ||||||||
Allowance for doubtful accounts |
|
| (30) |
|
| (48) |
|
| | | 34 | | | (12) | | |
Common stock issued under defined contribution 401(k) plan |
|
| 669 |
|
| 537 |
|
| | | — | | | 392 | | |
Gain on disposal of assets |
|
| (1) |
|
| (23) |
|
| | | — | | | (1) | | |
Changes in operating assets and liabilities, net of acquisition: |
|
|
|
|
|
|
| | | | | | | | | |
Accounts receivable |
|
| (5,377) |
|
| (3,035) |
|
| | | (7,843) | | | (2,806) | | |
Inventories |
|
| (8,580) |
|
| (3,814) |
|
| | | (5,748) | | | (13,088) | | |
Prepaid expenses and other current assets |
|
| (737) |
|
| (19) |
|
| | | 385 | | | 16 | | |
Accounts payable |
|
| 6,046 |
|
| 3,576 |
|
| | | 520 | | | 3,306 | | |
Accrued liabilities |
|
| 1,632 |
|
| 1,567 |
|
| | | 28 | | | 540 | | |
Customer deposits |
|
| 7,557 |
|
| (2,018) |
|
| | | (1,001) | | | (4,946) | | |
Other non-current assets and liabilities |
|
| 303 |
|
| (1,546) |
|
| | | (23) | | | 127 | | |
Net cash provided by (used in) operating activities of continuing operations |
|
| 4,333 |
|
| (7,233) |
|
| ||||||||
Net cash used in operating activities | | | (8,238) | |
| (14,611) | | | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
| | | | | | | | | |
Purchases of property and equipment |
|
| (1,776) |
|
| (2,018) |
|
| | | (929) | | | (1,183) | | |
Proceeds from disposals of property and equipment |
|
| 1 |
|
| 583 |
|
| | | — | | | 1 | | |
Net cash used in investing activities of continuing operations |
|
| (1,775) |
|
| (1,435) |
|
| ||||||||
Net cash used in investing activities | | | (929) | |
| (1,182) | | | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
| | | | | | | | | |
Proceeds from line of credit |
|
| 131,865 |
|
| 103,406 |
|
| | | 93,358 | | | 91,007 | | |
Payments on line of credit |
|
| (134,136) |
|
| (95,493) |
|
| | | (92,768) | | | (75,370) | | |
Proceeds from long-term debt |
|
| — |
|
| 2,060 |
|
| | | 9,530 | | | — | | |
Payments on long-term debt |
|
| (698) |
|
| (536) |
|
| | | (822) | | | (462) | | |
Principal payments on finance leases |
|
| (752) |
|
| (581) |
|
| | | (428) | | | (485) | | |
Proceeds from sale of common stock, net |
|
| — |
|
| (52) |
|
| ||||||||
Net cash (used in) provided by financing activities of continuing operations |
|
| (3,721) |
|
| 8,804 |
|
| ||||||||
DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
| |||||||||
Operating cash flows |
|
| 1 |
|
| (72) |
|
| ||||||||
Net cash provided by (used in) discontinued operations |
|
| 1 |
|
| (72) |
|
| ||||||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
|
| (1,162) |
|
| 64 |
|
| ||||||||
CASH AND CASH EQUIVALENTS beginning of the period |
|
| 1,177 |
|
| 78 |
|
| ||||||||
CASH AND CASH EQUIVALENTS end of the period |
| $ | 15 |
| $ | 142 |
|
| ||||||||
Supplemental cash flow information: |
|
|
|
|
|
|
| |||||||||
Interest paid |
| $ | 1,372 |
| $ | 822 |
|
| ||||||||
Income taxes paid |
| $ | 49 |
| $ | 94 |
|
| ||||||||
Non-cash activities: |
|
|
|
|
|
|
| |||||||||
Issuance of restricted stock grants |
| $ | 765 |
| $ | 685 |
|
| ||||||||
Non-cash purchases of property and equipment |
| $ | 325 |
| $ | — |
|
| ||||||||
Net cash provided by financing activities | | | 8,870 | |
| 14,690 | | | ||||||||
NET DECREASE IN CASH | | | (297) | |
| (1,103) | | | ||||||||
CASH beginning of the period | | | 2,416 | | | 1,177 | | | ||||||||
CASH end of the period | | $ | 2,119 | | $ | 74 | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
BROADWIND, ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSSTATEMENTS
(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, Energy, Inc. (the “Company”) and its wholly-owned subsidiaries Broadwind Towers,Heavy Fabrications, Inc. (“Broadwind Towers”Heavy Fabrications”), Brad Foote Gear Works, Inc. (“Brad Foote”), and Red Wolf Company,Broadwind Industrial Solutions, LLC (“Red Wolf”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 and ninesix months ended SeptemberJune 30, 20192020 are not necessarily indicative of the results that may be expected for the twelve months ending December 31, 2019. 2020, or any other interim period, which may differ materially due to, among other things, the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2019, as supplemented by the risk factor set forth on our Current Report on Form 8-K filed April 17, 2020 and the risk factors set forth in Part II, Item 1A, “Risk Factors,” of this Quarterly Report, particularly in light of the novel coronavirus (COVID-19) pandemic and its effects on domestic and global economies. To limit the spread of COVID-19, governments have imposed, and may continue to impose, among other things, travel and business operation restrictions and stay-at-home orders and social distancing guidelines, causing some businesses to adjust, reduce or suspend operating activities. These disruptions and restrictions have, and may continue in the future to, adversely affect our operating results due to, among other things, reduced demand as a result of our customers having to adjust, reduce or suspend operating activities. For more information, refer to the statements included in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this Quarterly Report under the caption “COVID-19 Pandemic.”
The December 31, 20182019 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, 2018.
During the first quarter of 2019, the Company assessed its segment reporting by evaluating various qualitative and quantitative measures for each business and product line. Following the execution of the Company’s 2018 restructuring plan and the resulting exit of the leased Abilene facility at the end of 2018, the Company revised its segment presentation by moving its Abilene compressed natural gas (“CNG”) and heavy fabrication business from the Process Systems segment to the Towers and Heavy Fabrications segment. The Company made this determination because, post-restructuring, the residual heavy fabrications business activities previously carried out in the now vacated space were transferred to the nearby tower plant under the supervision of Towers and Heavy Fabrications segment management. The Company has restated prior periods presented to reflect this change. See Note 14, “Segment Reporting” of these condensed consolidated financial statements for further discussion of reportable segments.2019.
There have been no material changes in the Company’s significant accounting policies during the ninesix months ended SeptemberJune 30, 20192020 as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, other than the adoption of Accounting Standards Updates (“ASU”) 2016-02 described in Note 8 “Leases” of these condensed consolidated financial statements.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-valuehigh value products to customers with complex systems and stringent quality standards that operate in energy, mining and infrastructure sector customers,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 65%72% of the Company’s revenue during the first ninesix months of 2019.2020.
The Company has increasingly diversified its operations to provide precision gearing and gearboxes, heavy fabrications, kitting and assemblies of industrial systems to a broad range of industrial customers for oil and gas (“O&G”), mining, steel, and other industrial applications.
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 SeptemberJune 30, 20192020 totaled $11,505,$25,347, which includes current outstanding debt and finance leases totaling $10,224.$14,078. The current outstanding debt includes $8,729$12,107 outstanding under the Company’s revolving line of credit.
5
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,
5
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. The Form S-3 will expire on October 10, 2020.
On July 31, 2018, the Company entered into an At Market Issuance Sales Agreement (the "ATM Agreement"“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. During the year ended December 31, 2018, the Company issued 15,112 shares of the Company’s common stock under the ATM Agreement and the net proceeds (before upfront costs) to the Company from the sale of the Company’s common stock were approximately $33 after deducting commissions paid of approximately $1. As of SeptemberJune 30, 2019,2020, 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 2019.2019 or 2020.
In April 2020, the Company received $9,530 in funds under the U.S. Paycheck Protection Program (“PPP”) and made repayments of $379 on May 13, 2020. Refer to Note 7, “Debt and Credit Agreements,” of these condensed consolidated financial statements for more information.
The Company anticipates that current cash resources (which includes proceeds from the PPP Loans), amounts available under the Credit Facility, 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.
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, particularly in light of the COVID-19 pandemic and its effects on domestic and global economies, 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 tax rates, future cash flows, inventory reserves, warranty reserves, impairment of long-lived assets, allowance for doubtful accounts workers’ compensation reserves, 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.estimates, particularly in light of the COVID-19 pandemic.
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 and ninesix months ended SeptemberJune 30, 20192020 and 2018:2019:
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
Towers and Heavy Fabrications | $ | 33,834 | $ | 18,810 | $ | 91,098 | $ | 62,557 |
Gearing |
| 7,989 |
| 10,056 |
| 27,282 |
| 27,494 |
Process Systems |
| 4,317 |
| 2,676 |
| 10,589 |
| 8,262 |
Eliminations |
| (2) |
| (97) |
| (2) |
| (120) |
Consolidated | $ | 46,138 | $ | 31,445 | $ | 128,967 | $ | 98,193 |
| | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||
| | 2020 | | 2019 | | 2020 | | 2019 |
Heavy Fabrications | $ | 43,614 | $ | 28,970 | $ | 81,983 | $ | 57,264 |
Gearing | | 6,922 | | 9,266 | | 13,149 | | 19,293 |
Industrial Solutions | | 4,397 | | 2,933 | | 8,435 | | 6,272 |
6
Eliminations | | (7) | | - | | (7) | | - |
Consolidated | $ | 54,926 | $ | 41,169 | $ | 103,560 | $ | 82,829 |
Revenue within the Company’s Gearing and Process SystemsIndustrial Solutions segments, as well as heavyindustrial fabrication revenues within the Towers and 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
6
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 Towers and 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 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 and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Three Months Ended |
| Nine Months Ended |
| |||||||||||||||||||||||||
|
| September 30, |
| September 30, |
| |||||||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| |||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||||||
| | Three Months Ended | | Six Months Ended | | |||||||||||||||||||||||||
| | June 30, | | June 30, | | |||||||||||||||||||||||||
|
| 2020 |
| 2019 | | 2020 |
| 2019 | | |||||||||||||||||||||
Basic earnings per share calculation: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | ||||
Net loss |
| $ | (898) |
| $ | (783) |
| $ | (2,958) |
| $ | (11,737) |
| |||||||||||||||||
Net income (loss) | | $ | 529 | | $ | (1,018) | | $ | 1,482 | | $ | (2,060) | | |||||||||||||||||
Weighted average number of common shares outstanding |
|
| 16,235,961 |
|
| 15,541,289 |
|
| 16,024,217 |
|
| 15,390,090 |
| |
| 16,760,702 | |
| 16,045,790 | |
| 16,678,469 | |
| 15,916,590 | | ||||
Basic net loss per share |
| $ | (0.06) |
| $ | (0.05) |
| $ | (0.18) |
| $ | (0.76) |
| |||||||||||||||||
Basic net income (loss) per share | | $ | 0.03 | | $ | (0.06) | | $ | 0.09 | | $ | (0.13) | | |||||||||||||||||
Diluted earnings per share calculation: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | ||||
Net loss |
| $ | (898) |
| $ | (783) |
| $ | (2,958) |
| $ | (11,737) |
| |||||||||||||||||
Net income (loss) | | $ | 529 | | $ | (1,018) | | $ | 1,482 | | $ | (2,060) | | |||||||||||||||||
Weighted average number of common shares outstanding |
|
| 16,235,961 |
|
| 15,541,289 |
|
| 16,024,217 |
|
| 15,390,090 |
| |
| 16,760,702 | |
| 16,045,790 | |
| 16,678,469 | |
| 15,916,590 | | ||||
Common stock equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | ||||
Stock options and non-vested stock awards (1) |
|
| — |
|
| — |
|
| — |
|
| — |
| |||||||||||||||||
Non-vested stock awards (1) | |
| 363,917 | |
| — | |
| 255,336 | |
| — | | |||||||||||||||||
Weighted average number of common shares outstanding |
|
| 16,235,961 |
|
| 15,541,289 |
|
| 16,024,217 |
|
| 15,390,090 |
| |
| 17,124,619 | |
| 16,045,790 | |
| 16,933,805 | |
| 15,916,590 | | ||||
Diluted net loss per share |
| $ | (0.06) |
| $ | (0.05) |
| $ | (0.18) |
| $ | (0.76) |
| |||||||||||||||||
Diluted net income (loss) per share | | $ | 0.03 | | $ | (0.06) | | $ | 0.09 | | $ | (0.13) | |
(1) | Stock options and restricted stock units granted and outstanding of |
7
NOTE 4 — INVENTORIES
The components of inventories as of SeptemberJune 30, 20192020 and December 31, 20182019 are summarized as follows:
|
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| |||||||||
|
| September 30, |
| December 31, |
| |||||||||
|
| 2019 |
| 2018 |
| |||||||||
| | | | | | |||||||||
| | June 30, | | December 31, | | |||||||||
|
| 2020 |
| 2019 | | |||||||||
Raw materials |
| $ | 20,428 |
| $ | 16,394 |
| | $ | 24,001 | | $ | 22,759 | |
Work-in-process |
|
| 10,024 |
|
| 5,426 |
| |
| 9,956 | |
| 8,366 | |
Finished goods |
|
| 2,225 |
|
| 2,958 |
| |
| 5,666 | |
| 2,915 | |
|
|
| 32,677 |
|
| 24,778 |
| |||||||
| |
| 39,623 | |
| 34,040 | | |||||||
Less: Reserve for excess and obsolete inventory |
|
| (1,427) |
|
| (2,108) |
| |
| (2,012) | |
| (2,177) | |
Net inventories |
| $ | 31,250 |
| $ | 22,670 |
| | $ | 37,611 | | $ | 31,863 | |
NOTE 5 — GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price over the fair value of assets acquired, including identifiable intangibles and liabilities. Goodwill is not amortized but is tested at least annually for impairment or more frequently whenever events or circumstances occur indicating that those assets might be impaired.
Other intangibleIntangible 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,
7
trade names and customer relationships that were part of the Company’s acquisition of Red Wolf in 2017. Other intangibleCompany, LLC. Intangible assets are amortized on a straight-line basis over their estimated useful lives, with a remaining life range from 3 to 97 years. The Company tests other intangible assets for impairment when events or circumstances indicate that the carrying value of these assets may not be recoverable.
The Company added $4,993 of goodwill and $13,270 of other intangible assets, as a result of the Red Wolf acquisition, which was included in the Process Systems segment. See Note 14, “Segment Reporting,” of these condensed consolidated financial statements for further discussion of the Company’s segments.
During the second quarter of 2018, the Company determined that the carrying amount of the Red Wolf reporting unit exceeded the fair value and recorded a $4,993 goodwill impairment charge. In addition, during the fourth quarter of 2018, the Company determined that its customer relationship intangible asset was impaired, and recorded a corresponding $7,592 impairment charge.
During the third quarter of 2019, the Company also identified a further triggering event associated with Red Wolf’s recent operating losses. The Company relied upon an undiscounted cash flow analysis performed in a prior quarter and determined that no significant changes to the previously used inputs or assumptions were needed. As a result, the Company concluded that no impairment to this asset group was indicated as of September 30, 2019.
As of SeptemberJune 30, 20192020 and December 31, 2018,2019, the cost basis, accumulated amortization and net book value of intangible assets were as follows:
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| September 30, 2019 |
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| December 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Remaining |
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| Remaining | |||||||||||||||||||||||||||||
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| Weighted |
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| Weighted | |||||||||||||||||||||||||||||
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| Accumulated |
| Net |
| Average |
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| Accumulated |
| Net |
| Average | |||||||||||||||||||||||||||||||||
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| Cost |
| Accumulated |
|
| Impairment |
| Book |
| Amortization |
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| Accumulated |
| Impairment |
| Book |
| Amortization | ||||||||||||||||||||||||||||||||||||
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| Basis |
| Amortization |
|
| Charges |
| Value |
| Period |
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| Cost |
| Amortization |
| Charges |
| Value |
| Period | |||||||||||||||||||||||||||||||||||||
Other intangible assets: |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||
| | June 30, 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 |
| $ | (75) |
|
| $ | — |
| $ | 95 |
| 3.3 |
|
|
|
| $ | 170 |
| $ | (54) |
| $ | — |
| $ | 116 |
| 4.1 | | $ | 170 | | $ | (97) | | $ | — | | $ | 73 | | 2.6 | | $ | 170 | | $ | (83) | | $ | — | | $ | 87 | | 3.1 | |
Customer relationships |
|
| 15,979 |
|
| (6,598) |
|
|
| (7,592) |
|
| 1,789 |
| 6.1 |
|
|
|
|
| 15,979 |
|
| (6,369) |
|
| (7,592) |
|
| 2,018 |
| 6.8 | | | 15,979 | | | (6,826) | | | (7,592) | | | 1,561 |
| 5.4 | | | 15,979 | | | (6,674) | | | (7,592) | | | 1,713 |
| 5.8 | |
Trade names |
|
| 9,099 |
|
| (4,990) |
|
|
| — |
|
| 4,109 |
| 8.8 |
|
|
|
|
| 9,099 |
|
| (4,631) |
|
| — |
|
| 4,468 |
| 9.5 | |
| 9,099 | | | (6,180) | | | — | | | 2,919 |
| 7.3 | |
| 9,099 | | | (5,980) | | | — | |
| 3,119 |
| 7.8 | |
Other intangible assets |
| $ | 25,248 |
| $ | (11,663) |
|
| $ | (7,592) |
| $ | 5,993 |
| 5.9 |
|
|
|
| $ | 25,248 |
| $ | (11,054) |
| $ | (7,592) |
| $ | 6,602 |
| 6.5 | |||||||||||||||||||||||||||||
Intangible assets | | $ | 25,248 | | $ | (13,103) | | $ | (7,592) | | $ | 4,553 |
| 6.0 | | $ | 25,248 | | $ | (12,737) | | $ | (7,592) | | $ | 4,919 |
| 6.5 |
As of SeptemberJune 30, 2019,2020, estimated future amortization expense is as follows:
| | | |
2020 |
| $ | 367 |
2021 | | | 733 |
2022 | |
| 725 |
2023 | |
| 664 |
2024 | |
| 661 |
2025 and thereafter | |
| 1,403 |
Total | | $ | 4,553 |
NOTE 6 — ACCRUED LIABILITIES
Accrued liabilities as of June 30, 2020 and December 31, 2019 consisted of the following:
|
|
|
|
|
2019 |
| $ | 203 |
|
2020 |
|
| 812 |
|
2021 |
|
| 812 |
|
2022 |
|
| 812 |
|
2023 |
|
| 786 |
|
2024 and thereafter |
|
| 2,568 |
|
Total |
| $ | 5,993 |
|
| | | | | | | |
| | June 30, | | December 31, | | ||
|
| 2020 |
| 2019 | | ||
Accrued payroll and benefits | | $ | 3,563 | | $ | 3,870 | |
Fair value of interest rate swap | | | 209 | | | 78 | |
Accrued property taxes | |
| 348 | |
| — | |
Income taxes payable | |
| 101 | |
| 61 | |
Accrued professional fees | |
| 297 | |
| 136 | |
Accrued warranty liability | |
| 62 | |
| 163 | |
Self-insured workers compensation reserve | |
| 145 | |
| 115 | |
Accrued other | |
| 371 | |
| 488 | |
Total accrued liabilities | | $ | 5,096 | | $ | 4,911 | |
8
NOTE 6 — ACCRUED LIABILITIES
Accrued liabilities as of September 30, 2019 and December 31, 2018 consisted of the following:
|
|
|
|
|
|
|
|
|
| September 30, |
| December 31, |
| ||
|
| 2019 |
| 2018 |
| ||
Accrued payroll and benefits |
| $ | 3,923 |
| $ | 2,126 |
|
Accrued property taxes |
|
| 457 |
|
| — |
|
Income taxes payable |
|
| 90 |
|
| 66 |
|
Accrued professional fees |
|
| 88 |
|
| 101 |
|
Accrued warranty liability |
|
| 183 |
|
| 226 |
|
Accrued self-insurance reserve |
|
| 118 |
|
| 374 |
|
Accrued other |
|
| 629 |
|
| 913 |
|
Total accrued liabilities |
| $ | 5,488 |
| $ | 3,806 |
|
NOTE 7 — DEBT AND CREDIT AGREEMENTS
The Company’s outstanding debt balances as of SeptemberJune 30, 20192020 and December 31, 20182019 consisted of the following:
|
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|
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| |||||||||
|
| September 30, |
| December 31, |
| |||||||||
|
| 2019 |
| 2018 |
| |||||||||
| | | | | | |||||||||
| | June 30, | | December 31, | | |||||||||
|
| 2020 |
| 2019 | | |||||||||
Line of credit |
| $ | 8,729 |
| $ | 11,000 |
|
| $ | 12,107 |
| $ | 11,517 | |
PPP Loans |
| | 9,151 |
| | — | | |||||||
Other notes payable |
| 1,209 |
| 1,882 |
| | 946 | | 1,563 | | ||||
Long-term debt |
| 456 |
| 456 |
| | 342 | | 342 | | ||||
Less: Current portion |
|
| (9,592) |
|
| (11,930) |
|
| | (13,046) |
| | (12,917) | |
Long-term debt, net of current maturities |
| $ | 802 |
| $ | 1,408 |
| | $ | 9,500 | | $ | 505 | |
Credit Facility
On October 26, 2016, the Company established a $20,000 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.
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 theits 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 theits subsidiaries. It also contains a requirement that the Company, on a consolidated basis, maintain minimum quarterly earnings before interest, taxes, depreciation, amortization, share-based payments, restructuring costs, and intangible impairments (“EBITDA���) levels through September 30, 2019 and a minimum quarterly fixed charge coverage ratio thereafter,
9
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 SeptemberJune 30, 2019.2020.
In June 2019, in conjunction with the Amended and Restated Loan Agreement, during 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 June 30, 2020 and December 31, 2019.
As of SeptemberJune 30, 2019,2020, there was $8,729$12,107 of outstanding indebtedness under the Credit Facility, with the ability to borrow an additional $19,234,$19,826, under the Credit Facility.
9
Other
In 2016, the Company entered into a $570 loan agreement with the Development Corporation of Abilene which is included in long-termthe “Long-term debt, less current maturities.maturities” line item of our condensed consolidated financial statements as of June 30, 2020 and December 31, 2019. The loan is forgivable upon the Company meeting and maintaining specific employment thresholds. During each of the fourth quarter ofyears 2019 and 2018, $114 of the loan was forgiven. As of SeptemberJune 30, 2019,2020, the loan balance was $456.$342. In addition, the Company has outstanding notes payable for capital expenditures in the amount of $1,209$946 and $1,882$1,563 as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively, with $863$940 and $930$1,400 included in the “Line of credit and other notes payable” line item of the Company’s condensed consolidated financial statements as of SeptemberJune 30, 20192020 and December 31, 2018,2019, 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 2020February 2021 to August 2022.
On April 15, 2020, the Company received funds under notes and related documents (“PPP Loans”) with CIBC Bank, USA under the Paycheck Protection Program (the “PPP”) which was established under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) enacted on March 27, 2020 in response to the COVID-19 pandemic and is administered by the U.S. Small Business Administration (the “SBA”). The Company received total proceeds of $9,530 from the PPP loans and made repayments of $379 on May 13, 2020. Under the terms of the CARES Act, as amended by the Paycheck Protection Program Flexibility Act of 2020 enacted on June 5, 2020 (the “Flexibility Act”), the PPP Loans, and accrued interest and fees may be forgiven following a period of twenty-four weeks after PPP Loan proceeds are received (the “covered period”) if they are used for qualifying expenses as described in the CARES Act including payroll costs and benefits (which must equal or exceed 60% of the amount requested to be forgiven), rent, mortgage interest, and utilities, which are subject to certain reductions based on the number of full time equivalent employees and the level of compensation for employees during such covered period. The amount of loan forgiveness will be reduced if the borrower terminates employees or significantly reduces salaries during such period, subject to certain exceptions. Subject to the terms and conditions applicable to loans administered by the SBA under the PPP, as amended by the Flexibility Act, the unforgiven portion of a PPP Loan is payable over a two year period at an interest rate of 1.00%, with a deferral of payments of principal, interest and fees until the date on which the SBA remits the loan forgiveness amount to the lender (or notifies the lender that no loan forgiveness is allowed), provided that the borrower applies for forgiveness within 10 months after the last day of the covered period (and if not, payment of principal and interest shall commence 10 months after the last day of the covered period). The Company used at least 60% of the amount of the PPP Loans proceeds to pay for payroll costs and the balance on other eligible qualifying expenses that the Company believes to be consistent with the terms of the PPP and plans to submit its forgiveness applications to CIBC Bank, USA by September 2020. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the PPP Loans, the Company cannot provide assurance that it has not taken and will not take actions that could cause the Company to be ineligible for forgiveness of the PPP Loans, in whole or in part.
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 standard requires companies to recognize operating lease assets and liabilities on the balance sheet and to disclose key information regarding leasing arrangements. Results for reporting periods beginning after January 1, 2019 are presented under Topic 842 while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historical accounting under legacy accounting. ASU 2018-11 also allows an exception so that companies do not have to make the new required lease disclosures for periods before the effective date. The Company has elected to apply the short-term lease exception to all leases of one year or less.
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 adoption of ASCTopic 842 and was offset against the ROU asset balance during the adoption. As of September 30, 2019, the ROU asset had a balance of $16,150 which is included in the “Operating lease right-of-use assets” line item of these condensed consolidated financial statements and current and non-current lease liabilities relating to the ROU asset of $1,468 and $16,686, respectively, and are included in the “Current portion of operating lease obligations” and “Long-term operating lease obligations, net of current portion” line items of these condensed consolidated financial statements. 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 six months ended June 30, 2020, the Company had an additional operating lease that resulted in right-of-use assets obtained in exchange for lease obligations of $4,380. Additionally, during the six months ended June 30, 2020, the Company had additional finance leases that resulted in property, plant, and equipment obtained in exchange for lease obligations of $1,918.
Some of the Company’s facility leases include options to renew. The exercise of the renewal options is typically at the Company’s discretion. Therefore the majority of renewals to extend the lease terms are not included in ROU assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options and includes them in the lease term when the Company is reasonably certain to exercise them.
10
Quantitative information regarding the Company’s leases is as follows:
|
|
|
| ||||||||
| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30, 2019 |
| September 30, 2019 | ||||||||
| | | | | | | | | |||
| | Three Months Ended June 30, | | Six Months Ended June 30, | |||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | |||
Components of lease cost |
|
|
| | | | | | | | |
Finance lease cost components: |
|
|
| | | | | | | | |
Amortization of finance lease assets | $ 139 |
| $ 411 | | $ 156 | | $ 136 | | $ 285 | | $ 272 |
Interest on finance lease liabilities | 27 |
| 81 | | 48 | | 25 | | 74 | | 54 |
Total finance lease costs | 166 |
| 492 | | 204 | | 161 | | 359 | | 326 |
Operating lease cost components: |
|
|
| | | | | | | | |
Operating lease cost | 724 |
| 2,265 | | 811 | | 755 | | 1,576 | | 1,541 |
Short-term lease cost | 166 |
| 470 | | 155 | | 158 | | 287 | | 304 |
Variable lease cost (1) | 185 |
| 570 | | 193 | | 207 | | 388 | | 385 |
Sublease income | (32) |
| (120) | | (45) | | (44) | | (90) | | (88) |
Total operating lease costs | 1,043 |
| 3,185 | | 1,114 | | 1,076 | | 2,161 | | 2,142 |
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| ||||||||
| | | | | | | | | |||
Total lease cost | $ 1,209 |
| $ 3,677 | | $ 1,318 | | $ 1,237 | | $ 2,520 | | $ 2,468 |
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| ||||||||
| | | | | | | | | |||
Supplemental cash flow information related to our operating leases is |
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| | | | | | | | |
as follows for the nine months ended September 30, 2019: |
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| ||||||||
as follows for the six months ended June 30, 2020 and 2019: | | | | | | | | | |||
Cash paid for amounts included in the measurement of lease liabilities: |
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|
| | | | | | | | |
Operating cash flows from finance leases | | | | | | | | | |||
Operating cash outflow from operating leases |
|
| $ 2,626 | | | | | | $ 1,764 | | $ 1,750 |
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|
| ||||||||
|
|
|
| ||||||||
Weighted-average remaining lease term-finance leases at 9/30/19 (in years) |
|
| 1.1 | ||||||||
Weighted-average remaining lease term-operating leases at 9/30/19 (in years) |
|
| 10.8 | ||||||||
Weighted-average discount rate-finance leases at 9/30/19 |
|
| 8.7% | ||||||||
Weighted-average discount rate-operating leases at 9/30/19 |
|
| 9.0% | ||||||||
| | | | | | | | | |||
Weighted-average remaining lease term-finance leases at end of period (in years) | | | | | | 1.8 | | 1.4 | |||
Weighted-average remaining lease term-operating leases at end of period (in years) | | | | | | 10.4 | | 10.8 | |||
Weighted-average discount rate-finance leases at end of period | | | | | | 9.0% | | 8.6% | |||
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 SeptemberJune 30, 2019,2020, future minimum lease payments under finance leases and operating leases were as follows:
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| ||||||||||
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| Finance |
| Operating |
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| ||||||||||||
|
| Leases |
| Leases |
| Total |
| |||||||||||||
2019 |
| $ | 295 |
| $ | 879 |
| $ | 1,174 |
| ||||||||||
| | | | | | | | | ||||||||||||
|
| Finance |
| Operating |
| | |
| ||||||||||||
| | Leases | | Leases | | Total |
| |||||||||||||
2020 |
|
| 500 |
|
| 2,900 |
|
| 3,400 |
| | $ | 619 | | $ | 1,751 | | $ | 2,370 | |
2021 |
|
| 376 |
|
| 2,766 |
|
| 3,142 |
| |
| 1,250 | | | 3,387 | |
| 4,637 | |
2022 |
|
| 51 |
|
| 2,503 |
|
| 2,554 |
| |
| 926 | | | 2,902 | |
| 3,828 | |
2023 |
|
| — |
|
| 2,355 |
|
| 2,355 |
| |
| 309 | | | 2,884 | |
| 3,193 | |
2024 and thereafter |
|
| — |
|
| 18,116 |
|
| 18,116 |
| ||||||||||
2024 | |
| 31 | | | 2,906 | |
| 2,937 | | ||||||||||
2025 and thereafter | |
| 4 | | | 20,118 | |
| 20,122 | | ||||||||||
Total lease payments |
| $ | 1,222 |
| $ | 29,519 |
| $ | 30,741 |
| | | 3,139 | | 33,948 | | 37,087 | | ||
Less—portion representing interest |
|
| (111) |
|
| (11,365) |
|
| (11,476) |
| |
| (338) | | | (12,435) | | | (12,773) | |
Present value of lease obligations |
|
| 1,111 |
|
| 18,154 |
|
| 19,265 |
| |
| 2,801 | | | 21,513 | | | 24,314 | |
Less—current portion of lease obligations |
|
| (632) |
|
| (1,468) |
|
| (2,100) |
| |
| (1,032) | | | (1,582) | | | (2,614) | |
Long-term portion of lease obligations |
| $ | 479 |
| $ | 16,686 |
| $ | 17,165 |
| | $ | 1,769 | | $ | 19,931 | | $ | 21,700 | |
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.
11
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
11
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 Company used market negotiations to value the Gearing segments’ assets.
The following table representstables represent the fair values of the Company’s financial liabilities as of SeptemberJune 30, 2020 and December 31, 2019:
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| September 30, 2019 |
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| Level 1 |
| Level 2 |
| Level 3 |
| Total |
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| | | | | | | | | | | | | | |||||||||||||
| | June 30, 2020 |
| |||||||||||||||||||||||
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| Level 1 |
| Level 2 |
| Level 3 |
| Total |
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Liabilities measured on a recurring basis: |
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|
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|
|
|
| | | | | | | | | | | | | |
Interest rate swap |
| $ | — |
| $ | 100 |
| $ | — |
| $ | 100 |
| | $ | — | | $ | 209 | | $ | — | | $ | 209 | |
Total liabilities at fair value |
| $ | — |
| $ | 100 |
| $ | — |
| $ | 100 |
| | $ | — | | $ | 209 | | $ | — | | $ | 209 | |
| | | | | | | | | | | | | |
| | 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 SeptemberJune 30, 2019,2020, the Company has a full valuation allowance recorded against deferred tax assets. During the ninesix months ended SeptemberJune 30, 2019,2020, the Company recorded a provision for income taxes of $62,$83, compared to a benefitprovision for income taxes of $20$34 during the ninesix months ended SeptemberJune 30, 2018.2019.
The Company files income tax returns in U.S. federal and state jurisdictions. As of SeptemberJune 30, 2019,2020, 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, 2018,2019, the Company had federal and unapportioned state net operating loss (“NOL”) carryforwards of $248,717$258,834 of which $228,787$227,781 will generally begin to expire in 2022.2026. 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
12
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 ourthe Company’s stockholders at ourthe Company’s 2019 Annual Meeting of Stockholders and has a term of three years.
12
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‑taxablenon-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‑thousandthone-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 SeptemberJune 30, 2019,2020, 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 SeptemberJune 30, 2019.2020.
NOTE 11 — SHARE-BASED COMPENSATION
Overview of Share-Based Compensation Plans
The Company has granted incentive stock options and other equity awards pursuant to previously Board approved Equity Incentive Plans (“2007 and 2012 EIPs”). Most recently, the Company has granted equity awards pursuant to the Broadwind Energy, Inc. 2015 Equity Incentive Plan, which was approved by the Board in February 2015 and by the Company’s stockholders in April 2015. On February 19, 2019, the Board approved an Amended and Restated 2015 Equity Incentive Plan (as amended, the “2015 EIP,” and together with the 2007 and 2012 EIPs, the “Equity Incentive Plans”), which, among other things, increased the number of shares of our common stock authorized for issuance under the 2015 EIP from 1,100,000 to 2,200,000. The amendment and restatement of the 2015 EIP was approved by the Company’s stockholders at the 2019 Annual Meeting of Stockholders.
The purposes of the Equity Incentive Plans are to (a) align the interests of the Company’s stockholders and recipients of awards by increasing the proprietary interest of such recipients in the Company’s growth and success; (b) advance the interests of the Company by attracting and retaining officers, other employees, non-employee directors and independent contractors; and (c) motivate such persons to act in the long-term best interests of the Company and its stockholders. Under the 2015 EIP, the Company may grant (i) non-qualified stock options; (ii) “incentive stock options” (within the meaning of IRC Section 422); (iii) stock appreciation rights; (iv) restricted stock and restricted stock units (“RSUs”); and (v) performance awards (“PSUs”).
Stock Options. The exercise price of stock options granted under the Equity Incentive Plans is equal to the closing price of the Company’s common stock on the date of grant. Stock options generally become exercisable on the anniversary of the grant date, with vesting terms that may range from one to five years from the date of grant. Additionally, stock options expire ten years after the date of grant. The fair value of stock options granted is expensed ratably over their vesting term.
Restricted Stock Units (RSUs). The granting of RSUs is provided for under the Equity Incentive Plans. RSUs generally contain a vesting period of one to five years from the date of grant. The fair value of each RSU granted is equal to the closing price of the Company’s common stock on the date of grant and is generally expensed ratably over the vesting term of the RSU award.
Performance Awards (PSUs). The granting of PSUs is provided for under the Equity Incentive Plans. Vesting of PSUs is conditioned upon the Company meeting applicable performance measures over the performance period. The fair value of each PSU granted is equal to the closing price of the Company’s common stock on the date of grant and is generally expensed ratably over the term of the PSU award plan.
The Equity Incentive Plans reserve shares of the Company’s common stock for grants to officers, directors, employees, consultants and advisors upon whose efforts the success of the Company and its affiliates depends to a large degree. The 2007 and 2012 EIPs reserved 1,891,051 shares of the Company’s common stock. As of September 30, 2019, 888,748 shares of common stock reserved for issuance pursuant to stock options and RSU awards granted under the 2007 and 2012 EIPs had been issued in the form of common stock, and 54,362 shares of common stock remained reserved for issuance upon the exercise of stock options outstanding under the 2007 and 2012 EIPs. The 2015 EIP reserves 2,200,000 shares of the Company’s common stock. As of September 30, 2019, 557,989 shares of common stock reserved for issuance pursuant to stock options and RSU awards granted under the 2015 EIP had been issued in the form of common stock and 1,447,834 shares of common stock remained reserved for issuance upon the exercise of stock options outstanding under the 2015 EIP.
13
The following table summarizes stock option activity during the ninesix months ended SeptemberJune 30, 2019 under the Equity Incentive Plans, as follows:2020:
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| Weighted Average |
| |
|
| Options |
| Exercise Price |
| |
Outstanding as of December 31, 2018 |
| 56,862 |
| $ | 15.06 |
|
Granted |
| — |
| $ | — |
|
Expired |
| (2,500) |
| $ | 99.90 |
|
Outstanding as of September 30, 2019 |
| 54,362 |
| $ | 11.16 |
|
Exercisable as of September 30, 2019 |
| 54,362 |
| $ | 11.16 |
|
| | | | | | |
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| |
| | |
|
| | | | Weighted Average | | |
|
| Options |
| Exercise Price | | |
Outstanding as of December 31, 2019 |
| 54,362 | | $ | 11.16 | |
Forfeited |
| (54,362) | | $ | 11.16 | |
Outstanding as of June 30, 2020 |
| — | | $ | — |
|
Exercisable as of June 30, 2020 |
| — | | $ | — |
|
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. The determination of the fair value of each stock option is affected by the Company’s stock price on the date of grant, as well as assumptions regarding a number of highly complex and sometimes subjective variables. These variables include, but are not limited to, the expected volatility of the price of the Company’s stock over the expected life of the awards and actual and projected stock option exercise behavior. No stock options were granted during the nine months ended September 30, 2019 and 2018.
The following table summarizes RSU’sthe Company’s restricted stock unit and PSU’sperformance award activity during the ninesix months ended SeptemberJune 30, 2019 under the Equity Incentive Plans, as follows:2020:
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| Weighted Average |
| |||||||
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|
|
| Grant-Date Fair Value |
| |||||||
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|
| Number of Shares |
| Per Share |
| |||||||
Unvested as of December 31, 2018 |
| 805,844 |
| $ | 3.16 |
| |||||||
| | | | | | ||||||||
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| |
| Weighted Average |
| ||||||||
| | Number of | | Grant-Date Fair Value |
| ||||||||
| | Shares | | Per Share |
| ||||||||
Unvested as of December 31, 2019 |
| 1,356,915 | | $ | 2.39 | | |||||||
Granted |
| 905,321 |
| $ | 1.92 |
|
| 507,513 | | $ | 1.63 | | |
Vested |
| (263,331) |
| $ | 3.09 |
|
| (350,778) | | $ | 2.43 | | |
Unvested as of September 30, 2019 |
| 1,447,834 |
| $ | 2.40 |
| |||||||
Forfeited |
| (161,447) | | $ | 4.39 | | |||||||
Unvested as of June 30, 2020 |
| 1,352,203 | | $ | 1.90 | |
RSUs and PSUs are generally subject to ratable vesting over a three year period. Compensation expense related to these service-based awards is recognized on a straight-line basis over the vesting period. The Company utilized a forfeiture rate of 25% during the nine months ended September 30, 2019 and 2018 for estimating the forfeitures of equity compensation granted.
The following table summarizes share-based compensation expense included in the Company’s condensed consolidated statements of operations for the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, as follows:
| | | | | | | |
| | | | | | | |
| | Six Months Ended June 30, | | ||||
|
| 2020 |
| 2019 | | ||
Share-based compensation expense: | | | | | | | |
Cost of sales | | $ | 54 | | $ | 60 | |
Selling, general and administrative | |
| 502 | |
| 450 | |
13
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| Nine Months Ended September 30, |
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| 2019 |
| 2018 |
| ||
Share-based compensation expense: |
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Cost of sales |
| $ | 91 |
| $ | 79 |
|
Selling, general and administrative |
|
| 674 |
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| 606 |
|
Net effect of share-based compensation expense on net income |
| $ | 765 |
| $ | 685 |
|
Reduction in earnings per share: |
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|
Basic earnings per share |
| $ | 0.05 |
| $ | 0.04 |
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Diluted earnings per share |
| $ | 0.05 |
| $ | 0.04 |
|
Net effect of share-based compensation expense on net income | | $ | 556 | | $ | 510 | |
Reduction in earnings per share: | | | | | | | |
Basic earnings per share | | $ | 0.03 | | $ | 0.03 | |
Diluted earnings per share | | $ | 0.03 | | $ | 0.03 | |
As of September 30, 2019, the Company estimates that pre-tax compensation expense for all unvested share-based RSUs and PSUs in the amount of approximately $1,763 will be recognized through 2021. The Company expects to satisfy the exercise of stock options and future distribution of shares of restricted stock by issuing new shares of common stock.
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
14
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, except as discussed below. The Company is currently evaluating the impact of the new standards on its condensed consolidated financial statements.
The Company adopted the amendments to certain disclosure requirements in Securities Act of 1933, as amended, (the “Securities Act”), Release No. 33-10532, “Disclosure Update and Simplification” on November 5, 2018, the effective date of the release. Among the amendments is a requirement to present the changes in shareholders’ equity in the interim financial statements (either in a separate statement or footnote) in quarterly reports on Form 10-Q. Refer to the condensed consolidated statements of stockholders’ equity for more information.
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. During the first quarter of 2019, the Company revised its segment presentation by moving its Abilene compressed natural gas and heavy fabrication business from the Process Systems segment to the Towers and Heavy Fabrications segment. The Company believes that this change more appropriately aligns its businesses in terms of the nature of its products and services, as well as its production processes and customers. The Company has restated prior periods presented to reflect this change.
The Company’s segments and their product and service offerings are summarized below:
Towers and Heavy Fabrications
The Company manufactures towers forprovides 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 turbines, specifically the large and heavier wind towers that are designed for multiple megawatt (“MW”) wind turbines, as well as heavy fabrications for mining andenergy industry, although it has diversified into other industrial customers.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 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 MWmegawatts 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 engineers, buildsprovides gearing and remanufactures precision gearsgearboxes to a broad set of customers in diverse markets including; onshore and gearing systems foroffshore O&G fracking and drilling, surface and underground mining, defense, wind mining,energy, steel, material handling and other industrial applications.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 processes in Neville Island, Pennsylvania.
Process SystemsIndustrial Solutions
This segmentThe Company provides contract manufacturing services that include build-to-print,supply chain solutions, inventory management, kitting and inventory management for customers throughoutassembly services, primarily serving the U.S. and in foreign countries, primarily supporting thecombined cycle natural gas electrical generationturbine market.
Corporate
14
“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.
15
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 and ninesix months ended SeptemberJune 30, 20192020 and 20182019 is as follows:
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For the Three Months Ended September 30, 2019 |
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| | Heavy Fabrications | | Gearing | | Industrial Solutions | | Corporate | | Eliminations | | Consolidated |
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For the Three Months Ended June 30, 2020 | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
Revenues from external customers |
| $ | 33,834 |
| $ | 7,989 |
|
| $ | 4,315 |
|
| $ | — |
| $ | — |
| $ | 46,138 |
| | $ | 43,614 | | | 6,915 | | | 4,397 | | | — | | | — | | $ | 54,926 | |
Intersegment revenues |
|
| — |
|
| — |
|
| 2 |
|
|
| — |
|
| (2) |
|
| — |
| |
| — | | | 7 | | | — | | | — | | | (7) | |
| — | | |
Net revenues |
|
| 33,834 |
|
| 7,989 |
|
| 4,317 |
|
|
| — |
|
| (2) |
|
| 46,138 |
| | | 43,614 | | | 6,922 | | | 4,397 | | | — | | | (7) | | | 54,926 | | |
Operating profit (loss) |
|
| 693 |
|
| 496 |
|
| 141 |
|
|
| (1,588) |
|
| — |
|
| (258) |
| |
| 3,199 | | | (651) | | | 217 | | | (1,730) | | | — | |
| 1,035 | | |
Depreciation and amortization |
|
| 951 |
|
| 508 |
|
| 123 |
|
|
| 34 |
|
| — |
|
| 1,616 |
| |
| 939 | | | 503 | | | 106 | | | 34 | | | — | |
| 1,582 | | |
Capital expenditures |
|
| 346 |
|
| 235 |
|
| 8 |
|
|
| 4 |
|
| — |
|
| 593 |
| |
| 217 | | | 1 | | | 7 | | | 34 | | | — | |
| 259 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Towers and |
|
|
|
| Process |
|
|
|
|
|
|
|
|
|
| ||
|
| Heavy Fabrications |
| Gearing |
| Systems |
| Corporate |
| Eliminations |
| Consolidated |
| ||||||
For the Three Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
| $ | 18,799 |
| $ | 10,056 |
| $ | 2,590 |
| $ | — |
| $ | — |
| $ | 31,445 |
|
Intersegment revenues |
|
| 11 |
|
| — |
|
| 86 |
|
| — |
|
| (97) |
|
| — |
|
Net revenues |
|
| 18,810 |
|
| 10,056 |
|
| 2,676 |
|
| — |
|
| (97) |
|
| 31,445 |
|
Operating (loss) profit |
|
| (885) |
|
| 346 |
|
| (787) |
|
| (1,286) |
|
| — |
|
| (2,612) |
|
Depreciation and amortization |
|
| 1,280 |
|
| 566 |
|
| 386 |
|
| 52 |
|
| — |
|
| 2,284 |
|
Capital expenditures |
|
| 148 |
|
| 76 |
|
| — |
|
| 118 |
|
| — |
|
| 342 |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
|
| |
| | |
| |
| | |
| | |
| | |
| ||
|
| Heavy Fabrications | | Gearing | | Industrial Solutions | | Corporate | | Eliminations | | Consolidated |
| ||||||
For the Three Months Ended June 30, 2019 | | | | | | | | | | | | | | | | | | | |
Revenues from external customers | | $ | 28,970 | | | 9,266 | | | 2,933 | | | — | | | — | | $ | 41,169 | |
Operating profit (loss) | |
| 318 | | | 913 | | | 28 | | | (1,465) | | | — | |
| (206) | |
Depreciation and amortization | |
| 978 | | | 483 | | | 122 | | | 45 | | | — | |
| 1,628 | |
Capital expenditures | |
| 308 | | | 273 | | | 14 | | | 11 | | | — | |
| 606 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
| Towers and |
|
|
|
| Process |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
| Heavy Fabrications |
| Gearing |
| Systems |
| Corporate |
| Eliminations |
| Consolidated | ||||||||||||||||||||||||
For the Nine Months Ended September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
|
| |
| | |
| |
| | | |
| |
| | | ||||||||||||||||||||
| | Heavy Fabrications | | Gearing | | Industrial Solutions | | Corporate | | Eliminations | | Consolidated | ||||||||||||||||||||||||
For the Six Ended June 30, 2020 | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Revenues from external customers |
| $ | 91,098 |
| $ | 27,282 |
| $ | 10,587 |
| $ | — |
| $ | — |
| $ | 128,967 | | $ | 81,983 | | | 13,142 | | | 8,435 | | | — | | | — | | $ | 103,560 |
Intersegment revenues |
|
| — |
|
| — |
|
| 2 |
|
| — |
|
| (2) |
|
| — | |
| — | | | 7 | | | — | | | — | | | (7) | |
| — |
Net revenues |
|
| 91,098 |
|
| 27,282 |
|
| 10,589 |
|
| — |
|
| (2) |
|
| 128,967 | | | 81,983 | | | 13,149 | | | 8,435 | | | — | | | (7) | | | 103,560 |
Operating profit (loss) |
|
| 789 |
|
| 2,797 |
|
| (116) |
|
| (4,428) |
|
| — |
|
| (958) | |
| 6,740 | | | (912) | | | 410 | | | (3,523) | | | — | |
| 2,715 |
Depreciation and amortization |
|
| 3,024 |
|
| 1,472 |
|
| 368 |
|
| 142 |
|
| — |
|
| 5,006 | |
| 1,903 | | | 1,015 | | | 210 | | | 66 | | | — | |
| 3,194 |
Capital expenditures |
|
| 855 |
|
| 875 |
|
| 22 |
|
| 24 |
|
| — |
|
| 1,776 | |
| 598 | | | 169 | | | 127 | | | 35 | | | — | |
| 929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Towers and |
|
|
|
| Process |
|
|
|
|
|
|
|
|
| ||
|
| Heavy Fabrications |
| Gearing |
| Systems |
| Corporate |
| Eliminations |
| Consolidated | ||||||
For the Nine Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
| $ | 62,523 |
| $ | 27,494 |
| $ | 8,176 |
| $ | — |
| $ | — |
| $ | 98,193 |
Intersegment revenues |
|
| 34 |
|
| — |
|
| 86 |
|
| — |
|
| (120) |
|
| — |
Net revenues |
|
| 62,557 |
|
| 27,494 |
|
| 8,262 |
|
| — |
|
| (120) |
|
| 98,193 |
Operating loss |
|
| (2,441) |
|
| (941) |
|
| (6,675) |
|
| (2,828) |
|
| — |
|
| (12,885) |
Depreciation and amortization |
|
| 3,917 |
|
| 1,742 |
|
| 1,160 |
|
| 171 |
|
| — |
|
| 6,990 |
Capital expenditures |
|
| 1,346 |
|
| 543 |
|
| — |
|
| 129 |
|
| — |
|
| 2,018 |
| | | | | | | | | | | | | | | | | | |
|
| |
| | |
| |
| | |
| | |
| | | ||
| | Heavy Fabrications | | Gearing | | Industrial Solutions | | Corporate | | Eliminations | | Consolidated | ||||||
For the Six Months Ended June 30, 2019 | | | | | | | | | | | | | | | | | | |
Revenues from external customers | | $ | 57,264 | | $ | 19,293 | | $ | 6,272 | | $ | — | | $ | — | | $ | 82,829 |
Operating profit (loss) | |
| 96 | | | 2,300 | | | (256) | | | (2,840) | | | — | | | (700) |
Depreciation and amortization | |
| 2,073 | | | 964 | | | 245 | | | 108 | | | — | | | 3,390 |
Capital expenditures | |
| 509 | | | 640 | | | 14 | | | 20 | | | — | | | 1,183 |
1615
|
|
|
|
|
|
|
| |||||||
|
| Total Assets as of |
| |||||||||||
|
| September 30, |
| December 31, |
| |||||||||
| | | | | | | | |||||||
| | Total Assets as of |
| |||||||||||
| | June 30, | | December 31, |
| |||||||||
Segments: |
| 2019 |
| 2018 |
| | 2020 | | 2019 |
| ||||
Towers and Heavy Fabrications |
| $ | 44,893 |
| $ | 34,839 |
| |||||||
Heavy Fabrications |
| $ | 58,651 |
| $ | 41,432 | | |||||||
Gearing |
|
| 48,452 |
|
| 37,028 |
| |
| 46,307 | |
| 47,022 | |
Process Systems |
|
| 11,039 |
|
| 11,758 |
| |||||||
Industrial Solutions | | | 9,295 | | | 8,893 | | |||||||
Corporate |
|
| 237,792 |
|
| 243,867 |
| |
| 236,137 | |
| 239,629 | |
Eliminations |
|
| (216,174) |
|
| (228,327) |
| |
| (211,938) | |
| (214,110) | |
|
| $ | 126,002 |
| $ | 99,165 |
| |||||||
| | $ | 138,452 | | $ | 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 SeptemberJune 30, 20192020 and 2018,2019, estimated product warranty liability was $183$62 and $523,$214, 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 ninesix months ended SeptemberJune 30, 20192020 and 20182019 were as follows:
|
|
|
|
|
| |||||||||
|
| For the Nine Months Ended September 30, |
| |||||||||||
|
| 2019 |
| 2018 |
| |||||||||
| | | | | | |||||||||
| | For the Six Months Ended June 30, | | |||||||||||
|
| 2020 |
| 2019 | | |||||||||
Balance, beginning of period |
| $ | 226 |
| $ | 581 |
| | $ | 163 | | $ | 226 | |
Reduction of warranty reserve |
|
| (11) |
|
| (58) |
| |
| (82) | |
| (4) | |
Warranty claims |
|
| (22) |
|
| — |
| |
| — | |
| (19) | |
Other adjustments |
|
| (10) |
|
| - |
| | | (19) | |
| 11 | |
Balance, end of period |
| $ | 183 |
| $ | 523 |
| | $ | 62 | | $ | 214 | |
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.
1716
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 ninesix months ended SeptemberJune 30, 20192020 and 20182019 consisted of the following:
|
|
|
|
|
| |||||||||
|
|
|
|
|
| |||||||||
|
| For the Nine Months Ended September 30, |
| |||||||||||
|
| 2019 |
| 2018 |
| |||||||||
| | | | | | |||||||||
| | | | | | |||||||||
| | For the Six Months Ended June 30, | | |||||||||||
|
| 2020 |
| 2019 | | |||||||||
Balance at beginning of period |
| $ | 190 |
| $ | 225 |
| | $ | 127 | | $ | 190 | |
Bad debt expense |
|
| (30) |
|
| (47) |
| |
| 114 | |
| 2 | |
Write-offs |
|
| — |
|
| (1) |
| |
| (47) | |
| (14) | |
Other adjustments | |
| (33) | |
| — | | |||||||
Balance at end of period |
| $ | 160 |
| $ | 177 |
| | $ | 161 | | $ | 178 | |
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 SeptemberJune 30, 20192020 or December 31, 2018. 2019.
NOTE 16 — RESTRUCTURING
During the first quarter of 2018, the Company conducted a review of its business strategies and product plans given the outlook for the industries it serves and its business environment. As a result, the Company began to execute a restructuring plan to rationalize its facility capacity and management structure, and to consolidate and increase the efficiencies of its Abilene facility operations. The Company exited the CNG and Fabrication Manufacturing location in Abilene, TX in 2018 and consolidated these manufacturing activities into other locations. All remaining costs associated with this facility were recorded as restructuring expenses.
The Company expects that any additional costs related to the 2018 restructuring initiative will be immaterial. The Company projected annual cost savings going forward of approximately $575 in facility expenses related to the restructuring.
The Company’s total net restructuring charges for the three and nine months ended September 30, 2019 and 2018 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Facility costs |
| $ | — |
| $ | 69 |
| $ | 2 |
| $ | 215 |
Moving and remediation |
|
| — |
|
| — |
|
| 10 |
|
| 1 |
Salary and severance |
|
| — |
|
| — |
|
| — |
|
| 17 |
Depreciation |
|
| — |
|
| 88 |
|
| — |
|
| 155 |
Total cost of sales |
|
| — |
|
| 157 |
|
| 12 |
|
| 388 |
Selling, general, and administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Salary and severance |
|
| — |
|
| — |
|
| — |
|
| 36 |
Total selling, general, and administrative expenses |
|
| — |
|
| — |
|
| — |
|
| 36 |
Grand Total |
| $ | — |
| $ | 157 |
| $ | 12 |
| $ | 424 |
18
Item 2.Management’s2.Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations
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, 2018.2019. 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.uncertainties including those arising as a result of, or amplified by, the COVID-19 pandemic. As used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” and the “Company” refer to Broadwind, Energy, Inc., a Delaware corporation headquartered in Cicero, Illinois, and its subsidiaries.
(Dollars are presented in thousands except per share data or unless otherwise stated)
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 |
| Six Months Ended | ||||||||
| | June 30, |
| June 30, | ||||||||
| | 2020 | | 2019 |
| 2020 | | 2019 | ||||
Net revenues |
| $ | 54,926 |
| $ | 41,169 | | $ | 103,560 |
| $ | 82,829 |
17
Net income (loss) | | $ | 529 | | $ | (1,018) | | $ | 1,482 | | $ | (2,060) |
Adjusted EBITDA (1) | | $ | 2,863 | | $ | 1,899 | | $ | 6,468 | | $ | 3,614 |
Capital expenditures | | $ | 259 | | $ | 606 | | $ | 929 | | $ | 1,183 |
Free cash flow (2) | | $ | (8,665) | | $ | (3,086) | | $ | (8,994) | | $ | (14,554) |
Operating working capital (3) | | $ | 20,113 | | $ | 21,986 | | $ | 20,113 | | $ | 21,986 |
Total debt | | $ | 22,546 | | $ | 28,553 | | $ | 22,546 | | $ | 28,553 |
Total orders | | $ | 39,558 | | $ | 104,612 | | $ | 73,367 | | $ | 128,618 |
Backlog at end of period | | $ | 112,062 | | $ | 144,661 | | $ | 112,062 | | $ | 144,661 |
Book-to-bill (4) | | | 0.7 | | | 2.5 | | | 0.7 | | | 1.6 |
(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 | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
| | 2020 | | 2019 | | 2020 | | 2019 | ||||
Net income (loss) |
| $ | 529 |
| $ | (1,018) | | $ | 1,482 |
| $ | (2,060) |
Interest expense | |
| 474 | |
| 773 | |
| 1,147 | |
| 1,309 |
Income tax provision (benefit) | |
| 31 | |
| 23 | |
| 83 | |
| 34 |
Depreciation and amortization | | | 1,582 | | | 1,628 | | | 3,194 | | | 3,390 |
Share-based compensation and other stock payments | | | 247 | | | 493 | | | 562 | | | 929 |
Restructuring costs | | | — | | | — | | | — | | | 12 |
Adjusted EBITDA | | | 2,863 | | | 1,899 | | | 6,468 | | | 3,614 |
Changes in operating working capital | | | (11,269) | | | (4,379) | | | (14,533) | | | (16,986) |
Capital expenditures | | | (259) | | | (606) | | | (929) | | | (1,183) |
Proceeds from disposal of property and equipment | | | — | | | — | | | — | | | 1 |
Free Cash Flow | | $ | (8,665) | | $ | (3,086) | | $ | (8,994) | | $ | (14,554) |
OUR BUSINESS
ThirdSecond Quarter Overview
We booked $76,517$39,558 in new orders in the thirdsecond quarter of 2020, down from $104,612 in the second quarter of 2019 up nearly four-fold from $19,717 in the third quarter of 2018, driven primarily by an increasea $64,927 decrease in towerHeavy Fabrication orders as certain tower customers bookedsecured production slotscapacity in the prior year in advance of historical lead times due to support strong 2020 demand. Other heavysurging wind tower installation expectations in 2020. Industrial fabrication orders, increased $4,936 as a result of our strategy to leverage our competencies to expand into mining and other industrial markets. Gearing orders were down $5,653within the Heavy Fabrication segment, decreased quarter-over-quarter primarily due to weaknessweaker mining and construction demand as customers deferred or reduced inventory purchases due to economic uncertainty stemming from the COVID-19 pandemic. Gearing segment orders decreased 33% from the second quarter of 2019 primarily due to reduced demand for O&G customers. Our Process Systemsdriven by the negative demand effects caused by the COVID-19 pandemic and oil price declines resulting from the Saudi-Russian conflict in early 2020. Other markets within the Gearing segment realized lower new order demand in the second quarter of 2020 compared to the second quarter of 2019 as customers delayed or reduced capital purchases as the
18
COVID-19 pandemic led to economic uncertainty. These decreases were partially offset by a modest$1,714 quarter-over-quarter increase in our Industrial Solutions segment, primarily related to an increase in orders for new gas turbine content.
We recognized revenue of $46,138$54,926 in the thirdsecond quarter of 2020, up 33% compared to the second quarter of 2019, up 47% from revenue of $31,445 in the third quarter of 2018, primarily due to sales growth in the Towers and Heavy Fabrications segment as tower sections sold increased 84%surged 59% compared to the prior year quarter anddriven primarily by customer demand to support the expected increase of wind turbine tower installations. Within the Heavy Fabrications segment, industrial fabrication revenues also increased from the prior year quarter primarily due to a $2,242 increase in salesour diversification efforts and substantial backlog entering the second quarter of other heavy fabrications.2020. Gearing revenue was down $2,067 as weaker demand$2,344 from the second quarter of 2019, driven primarily by lower order intake in recent quarters, primarily in O&G and mining end markets. Additionally, Gearing customers was partially offset by higher salesdelayed scheduled purchases into future periods due to mining customers. Process Systemsthe prevailing market uncertainty in the O&G market. Industrial Solutions revenue was up $1,641, or 61%$1,464, representing a 50% increase compared to the prior year quarter, primarily due to higher near-term demand for new gas turbine content.
We reported net income of $529 or $0.03 per share in the second quarter of 2020, compared to a net loss of $898$1,018 or $0.06 per share in the thirdsecond quarter of 2019 comparedprimarily due to higher capacity utilization in towers, partially offset by decreased profitability in our Gearing segment due to decreased sales, a net losslower margin sales mix and manufacturing inefficiencies associated with lower activity levels.
COVID-19 Pandemic
In March 2020, the World Health Organization recognized a novel strain of $783coronavirus (COVID-19) as a pandemic. In response to this pandemic, the United States and various foreign, state and local governments have, among other actions, imposed travel and business restrictions and required or $0.05 per shareadvised communities in which we do business to adopt stay-at-home orders and social distancing guidelines, causing some businesses to adjust, reduce or suspend operating activities. The pandemic and the various governments’ response have caused significant and widespread uncertainty, volatility and disruptions in the third quarter of 2018, which included the $2,249 benefit from extinguishing the New Markets Tax Credit transaction.
As noted in Note 14, “Segment Reporting,”U.S. and global economies, including in the notesregions in which we operate.
Through June 30, 2020, we have experienced an adverse impact to our condensed consolidatedbusiness, operations and financial statements, during the first quarterresults as a result of 2019, we revised our segment presentation and moved our Abilene compressed natural gas and heavy fabrication business from the Process Systems segmentthis pandemic due in part to the Towerssignificant decline in order activity levels for Gearing and Heavy Fabrications, segment.and due to customers’ postponement of scheduled purchases and project timing delays. Our facilities have continued operations as essential businesses in light of the customers and markets served. In response to the pandemic, we are right-sizing our workforce and delaying certain capital expenditures. In future periods, we may experience weaker customer demand, requests for extended payment terms, customer bankruptcies, supply chain disruption, employee staffing constraints and difficulties, government restrictions or other factors that could negatively impact the Company and its business, operations and financial results. As we cannot predict the duration or scope of the pandemic or its impact on economic and financial markets, any negative impact to our results cannot be reasonably estimated, but it could be material.
We continue to monitor closely the Company’s financial health and liquidity and the impact of the pandemic on the Company. We have restated prior periods presentedbeen able to reflect this change.serve the needs of our customers while taking steps to protect the health and safety of our employees, customers, partners, and communities. Among these steps, we have followed the guidance provided by the U.S. Centers for Disease Control and Prevention to protect the continued safety and welfare of our employees.
RESULTS OF OPERATIONS
Three months ended SeptemberJune 30, 2019,2020, Compared to Three months ended SeptemberJune 30, 20182019
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 SeptemberJune 30, 2019,2020, compared to the three months ended SeptemberJune 30, 2018. 2019.
19
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| Three Months Ended September 30, |
| 2019 vs. 2018 |
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| 2019 |
| Revenue |
| 2018 |
| Revenue |
| $ Change |
| % Change |
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| | Three Months Ended June 30, | | 2020 vs. 2019 |
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| | | | | % of Total | | | | | % of Total | | | | | |
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| | 2020 | | Revenue | | 2019 | | Revenue | | $ Change | | % Change |
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Revenues |
| $ | 46,138 |
| 100.0 | % | $ | 31,445 |
| 100.0 | % | $ | 14,693 |
| 46.7 | % |
|
| $ | 54,926 |
| 100.0 | % | $ | 41,169 |
| 100.0 | % | $ | 13,757 |
| 33.4 | % | |
Cost of sales |
|
| 42,144 |
| 91.3 | % |
| 29,802 |
| 94.8 | % |
| 12,342 |
| 41.4 | % |
| |
| 49,509 |
| 90.1 | % |
| 37,277 |
| 90.5 | % |
| 12,232 |
| 32.8 | % | |
Restructuring |
|
| — |
| — | % |
| 157 |
| 0.5 | % |
| (157) |
| (100.0) | % |
| |||||||||||||||||
Gross profit |
|
| 3,994 |
| 8.7 | % |
| 1,486 |
| 4.7 | % |
| 2,508 |
| 168.8 | % |
| |
| 5,417 |
| 9.9 | % |
| 3,892 |
| 9.5 | % |
| 1,525 |
| 39.2 | % | |
Operating expenses |
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| | | | | | | | | | | | | | | | | |
Selling, general and administrative expenses |
|
| 4,049 |
| 8.8 | % |
| 3,627 |
| 11.5 | % |
| 422 |
| 11.6 | % |
| |
| 4,198 |
| 7.6 | % |
| 3,895 | | 9.5 | % |
| 303 |
| 7.8 | % | |
Intangible amortization |
|
| 203 |
| 0.4 | % |
| 471 |
| 1.5 | % |
| (268) |
| (56.9) | % |
| |
| 184 |
| 0.3 | % |
| 203 | | 0.5 | % |
| (19) |
| (9.4) | % | |
Total operating expenses |
|
| 4,252 |
| 9.2 | % |
| 4,098 |
| 13.0 | % |
| 154 |
| 3.8 | % |
| |
| 4,382 |
| 8.0 | % |
| 4,098 |
| 10.0 | % |
| 284 |
| 6.9 | % | |
Operating loss |
|
| (258) |
| (0.6) | % |
| (2,612) |
| (8.3) | % |
| 2,354 |
| 90.1 | % |
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Operating income (loss) | |
| 1,035 |
| 1.9 | % |
| (206) |
| (0.5) | % |
| 1,241 |
| 602.4 | % | | |||||||||||||||||
Other expense, net |
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| | | | | | | | | | | | | | | | | |
Interest expense, net |
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| (610) |
| (1.3) | % |
| (372) |
| (1.2) | % |
| (238) |
| (64.0) | % |
| |
| (474) |
| (0.9) | % |
| (773) | | (1.9) | % |
| 299 |
| 38.7 | % | |
Other, net |
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| (2) |
| (0.0) | % |
| 2,247 |
| 7.1 | % |
| (2,249) |
| (100.1) | % |
| |
| (1) |
| (0.0) | % |
| (16) | | (0.0) | % |
| 15 |
| 93.8 | % | |
Total other expense, net |
|
| (612) |
| (1.3) | % |
| 1,875 |
| 6.0 | % |
| (2,487) |
| (132.6) | % |
| |
| (475) |
| (0.9) | % |
| (789) |
| (1.9) | % |
| 314 |
| 39.8 | % | |
Net loss before provision for income taxes |
|
| (870) |
| (1.9) | % |
| (737) |
| (2.3) | % |
| (133) |
| (18.0) | % |
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Net income (loss) before provision for income taxes | |
| 560 |
| 1.0 | % |
| (995) |
| (2.4) | % |
| 1,555 |
| 156.3 | % | | |||||||||||||||||
Provision for income taxes |
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| 28 |
| 0.1 | % |
| 13 |
| 0.0 | % |
| 15 |
| 115.4 | % |
| |
| 31 |
| 0.1 | % |
| 23 | | 0.1 | % |
| 8 |
| 34.8 | % | |
Loss from continuing operations |
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| (898) |
| (1.9) | % |
| (750) |
| (2.4) | % |
| (148) |
| (19.7) | % |
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Income (loss) from discontinued operations |
|
| — |
| — | % |
| (33) |
| (0.1) | % |
| 33 |
| 100.0 | % |
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Net loss |
| $ | (898) |
| (1.9) | % | $ | (783) |
| (2.5) | % | $ | (115) |
| (14.7) | % |
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Net income (loss) | | $ | 529 |
| 1.0 | % | $ | (1,018) |
| (2.5) | % | $ | 1,547 |
| 152.0 | % | |
Consolidated
Revenues increased by $13,757, primarily due to higher capacity utilization levels in the Heavy Fabrications segment as tower sections sold increased 59% from $31,445the second quarter of 2019. Industrial fabrication revenues within the Heavy Fabrication segment increased from the prior year quarter primarily due to the continued traction of our diversification efforts and substantial backlog entering the second quarter of 2020. Industrial Solutions revenue was up $1,464 from the first quarter of 2019, primarily due to activity levels associated with an increase in global new gas turbine content. Partially offsetting these improvements was a decrease in Gearing segment revenue of $2,344 due primarily to lower order intake in recent quarters primarily within the O&G and mining markets. Gearing customers delayed almost $2,000 of purchases into future periods in response to the COVID-19 pandemic and deteriorating oil prices.
Gross profit increased by $1,525 due primarily to higher capacity utilization within our Heavy Fabrication segment. This benefit was partially offset by utilizing the PPP Loans proceeds to retain personnel and the impacts of decreased sales, a lower margin sales mix and increased manufacturing inefficiencies associated with lower sales in our Gearing segment. As a result, gross margin increased to 9.9% during the three months ended SeptemberJune 30, 2018, to $46,1382020, from 9.5% during the three months ended SeptemberJune 30, 2019, primarily due2019.
Due to higher productionrevenue levels, in the Towers and Heavy Fabrications segment as towers sections sold increased 84% and due to growth of the other heavy fabrications product line. Gearing revenue was down $2,067 as weaker demand from O&G customers was partially offset by higher mining customer demand. Process Systems revenue was up $1,641, or 61%, primarily due to increased shipments of new gas turbine content for international shipments.
Gross profit increased by $2,508, from $1,486 during the three months ended September 30, 2018, to $3,994 during the three months ended September 30, 2019. Gross margin increased from 4.7% during the three months ended September 30, 2018, to 8.7% during the three months ended September 30, 2019. The increase in gross profit was primarily attributable to improved capacity utilization and lower depreciation expense, partially offset by lower margins in our Towers and Heavy Fabrications segment, where margins have been depressed because of increased competition from foreign tower manufacturers with access to lower cost steel.
Operating expenses increased from $4,098 during the three months ended September 30, 2018, to $4,252 during the three months ended September 30, 2019. The increase was primarily attributable to increased incentive compensation, partially offset by a decrease in intangible amortization expense. As a result, operating expenses as a percentage of sales decreasedimproved to 9.2%8.0% in the current-year quarter from 13.0%10.0% in the prior year quarter.
Net lossincome increased from $783to $529 during the three months ended SeptemberJune 30, 2018, to $8982020 from a net loss of $1,018 during the three months ended SeptemberJune 30, 2019 due to the absence of the prior year $2,249 gainfactors described above and lower interest expense associated with the extinguishment of the New Markets Tax Credit transaction, partially offset by the factors described above. reduced debt levels.
Towers and Heavy Fabrications Segment
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| September 30, |
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| 2019 |
| 2018 |
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| | Three Months Ended |
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| | June 30, |
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| | 2020 | | 2019 |
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Orders |
| $ | 65,559 |
| $ | 4,642 |
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| $ | 31,401 |
| $ | 96,328 | | |
Tower sections sold | | | 320 | | | 201 | | |||||||||
Revenues |
|
| 33,834 |
|
| 18,810 |
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| |
| 43,614 | |
| 28,970 | | |
Operating income (loss) |
|
| 693 |
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| (885) |
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Operating income | |
| 3,199 | |
| 318 | | |||||||||
Operating margin |
|
| 2.0 | % |
| (4.7) | % |
| |
| 7.3 | % |
| 1.1 | % | |
Towers andThe decrease in Heavy Fabrications segment orders spiked as we received a surgewas primarily due to certain tower customers securing production capacity in ordersadvance of historical lead times in the prior year to support strong 2020 demand. During 2018, our largest customer fulfilled orders under a three-year framework agreementaccount for surging wind tower installation expectations in which minimum contract orders were reported in backlog at the onset of the agreement in 2016 and is now placing orders on a project-by-project basis. Other heavy2020. Industrial fabrication orders improved $4,936 reflecting expansion of our customer basewithin the Heavy Fabrication segment decreased primarily due to weaker mining and investmentsconstruction demand as customers deferred or reduced inventory purchases in response to broaden our manufacturing capabilities. Tower and Heavy Fabrications segmenteconomic uncertainty stemming from the COVID-19 pandemic. Segment revenues were up $15,024 or 80%increased by $14,644 due to a 84%59% increase in tower sections sold overcompared to the prior year quarter and anquarter. Industrial fabrication revenues increased to $3,120, a 111% increase, primarily as a result of our commercial diversification efforts in other heavy fabrication sales of $2,242.
recent quarters.
20
Towers and Heavy Fabrications segment operating income increasedresults improved by $1,578 from a loss of $885 during$2,881 compared to the three months ended September 30, 2018, to income of $693 during the three months ended September 30, 2019.prior year. The year-over-yearquarter-over-quarter improvement reflected the higher capacity utilization in towers, strategic growth in other heavy fabrication activityassociated with increased tower and lower depreciation expense. Partially offsettingindustrial fabrications production. Operating margin was 7.3% during the volumethree months ended June 30, 2020, an increase was adverse margin compressionfrom 1.1% during the three months ended June 30, 2019.
Gearing Segment
| | | | | | | | |
| | Three Months Ended |
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| | June 30, |
| | ||||
| | 2020 | | 2019 |
| | ||
Orders |
| $ | 3,731 |
| $ | 5,572 | | |
Revenues | | | 6,922 | | | 9,266 | | |
Operating (loss) income | | | (651) | | | 913 | | |
Operating margin | | | (9.4) | % | | 9.9 | % | |
Gearing segment orders decreased 33% primarily due to increased competitionreduced demand for O&G driven by the negative effects caused by the COVID-19 pandemic and oil price declines resulting from offshore tower manufacturers.the Saudi-Russian conflict in early 2020. Other markets within the Gearing segment also realized lower new order demand as customers delayed or reduced capital purchases as the COVID-19 pandemic led to economic uncertainty. Gearing revenue was down 25% driven primarily due to lower order intake in recent quarters, primarily in O&G and mining end markets. Additionally, Gearing customers postponed almost $2,000 of scheduled purchases into future periods due to the prevailing market uncertainty in the O&G market.
Gearing segment operating results decreased $1,564 from the prior year period. The decrease was primarily attributable to decreased plant utilization, a lower margin sales mix and manufacturing inefficiencies associated with the lower activity levels. Operating margin increased from (4.7%was (9.4%) during the three months ended SeptemberJune 30, 2018, to 2.0%2020, down from 9.9% during the three months ended September 30, 2019.
Gearing Segment
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| Three Months Ended |
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| September 30, |
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| 2019 |
| 2018 |
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Orders |
| $ | 5,877 |
| $ | 11,530 |
|
|
Revenues |
|
| 7,989 |
|
| 10,056 |
|
|
Operating income |
|
| 496 |
|
| 346 |
|
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Operating margin |
|
| 6.2 | % |
| 3.4 | % |
|
Gearing segment orders for the three months ended SeptemberJune 30, 2019, decreased $5,653 compared todriven by the prior year period primarily due to lower O&G demand attributable to a slowdown in fracking activity, as well as the timing of wind orders. Revenue decreased from $10,056 during the three months ended September 30, 2018, to $7,989 during the three months ended September 30, 2019. The decrease was driven primarily by lower O&G demand, partially offset by increased shipments to mining industry customers. items listed above.
Gearing segment operating income improved by $150, from $346 during the three months ended September 30, 2018, to income of $496 during the three months ended September 30, 2019. The improvement was primarily attributable to the product mix sold as well as decreased sales commissions. Operating margin was 6.2% during the three months ended September 30, 2019, up from 3.4% during the three months ended September 30, 2018.Industrial Solutions Segment
| | | | | | |
| Three Months Ended | |||||
| June 30, | |||||
| 2020 | | | 2019 | ||
Orders | $ | 4,426 | | $ | 2,712 |
|
Revenues |
| 4,397 | | | 2,933 | |
Operating income |
| 217 | | | 28 | |
Operating margin |
| 4.9 | % | | 1.0 | % |
Process Systems Segment
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| Three Months Ended | |||||
| September 30, | |||||
| 2019 |
|
| 2018 | ||
Orders | $ | 5,081 |
| $ | 3,545 |
|
Revenues |
| 4,317 |
|
| 2,676 |
|
Operating income (loss) |
| 141 |
|
| (787) |
|
Operating margin |
| 3.3 | % |
| (29.4) | % |
Process SystemsIndustrial Solutions segment orders and revenues have increased from the prior year period primarily due to stronger near-term demand for new gas turbine content primarily to support international installations, partially offset by weaker aftermarket demand.as global new gas turbine activity levels increased. The Process Systems segment operating income improvement was theprimarily a result of the revenue growth improved margins on the product mix sold and lower amortization expense during the current year quarter.general operating efficiencies. The operating margin improved from (29.4%)to 4.9% during the three months ended SeptemberJune 30, 2018 to 3.3%2020 from 1.0% during the three months ended SeptemberJune 30, 2019.
Corporate and Other
Corporate and Other expenses increased from $1,286by $265 during the three months ended SeptemberJune 30, 2018, to $1,588 during2020 from the three months ended September 30, 2019. The increase wasprior year period primarily attributabledue to higher compensation costsself-insured expenses in the current year.year quarter.
NineSix months ended SeptemberJune 30, 2019,2020, Compared to NineSix months ended SeptemberJune 30, 20182019
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 ninesix months ended SeptemberJune 30, 2019,2020, compared to the ninesix months ended SeptemberJune 30, 2018.2019.
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| Nine Months Ended September 30, |
| 2019 vs. 2018 |
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| 2019 |
| Revenue |
| 2018 |
| Revenue |
| $ Change |
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| | Six Months Ended June 30, | | 2020 vs. 2019 |
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| | | | | % of Total | | | | | % of Total | | | | | |
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| | 2020 | | Revenue | | 2019 | | Revenue | | $ Change | | % Change |
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Revenues |
| $ | 128,967 |
| 100.0 | % | $ | 98,193 |
| 100.0 | % | $ | 30,774 |
| 31.3 | % |
| $ | 103,560 |
| 100.0 | % | $ | 82,829 | | 100.0 | % | $ | 20,731 |
| 25.0 | % |
Cost of sales |
|
| 117,532 |
| 91.1 | % |
| 94,228 |
| 96.0 | % |
| 23,304 |
| 24.7 | % | |
| 91,971 |
| 88.8 | % |
| 75,388 | | 91.0 | % |
| 16,583 |
| 22.0 | % |
Restructuring |
|
| 12 |
| 0.0 | % |
| 388 |
| 0.4 | % |
| (376) |
| (96.9) | % | |
| — |
| — | % |
| 12 |
| 0.0 | % |
| (12) |
| (100.0) | % |
Gross profit |
|
| 11,423 |
| 8.9 | % |
| 3,577 |
| 3.6 | % |
| 7,846 |
| 219.3 | % | |
| 11,589 |
| 11.2 | % |
| 7,429 |
| 9.0 | % |
| 4,160 |
| 56.0 | % |
Operating expenses |
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| | | | | | | | | | | | | | | | |
Selling, general and administrative expenses | |
| 8,507 |
| 8.2 | % |
| 7,723 | | 9.3 | % |
| 784 |
| 10.2 | % |
21
Selling, general and administrative expenses |
|
| 11,772 |
| 9.1 | % |
| 10,020 |
| 10.2 | % |
| 1,752 |
| 17.5 | % |
Impairment charges |
|
| — |
| — | % |
| 4,993 |
| 5.1 | % |
| (4,993) |
| (100.0) | % |
Intangible amortization |
|
| 609 |
| 0.5 | % |
| 1,413 |
| 1.4 | % |
| (804) |
| (56.9) | % |
Restructuring |
|
| — |
| — | % |
| 36 |
| 0.0 | % |
| (36) |
| (100.0) | % |
Total operating expenses |
|
| 12,381 |
| 9.6 | % |
| 16,462 |
| 16.8 | % |
| (4,081) |
| (24.8) | % |
Operating loss |
|
| (958) |
| (0.7) | % |
| (12,885) |
| (13.1) | % |
| 11,927 |
| 92.6 | % |
Other expense, net |
|
|
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|
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|
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|
|
|
|
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Interest expense, net |
|
| (1,919) |
| (1.5) | % |
| (1,022) |
| (1.0) | % |
| (897) |
| (87.8) | % |
Other, net |
|
| (20) |
| (0.0) | % |
| 2,243 |
| 2.3 | % |
| (2,263) |
| (100.9) | % |
Total other expense, net |
|
| (1,939) |
| (1.5) | % |
| 1,221 |
| 1.2 | % |
| (3,160) |
| (258.8) | % |
Net loss before provision (benefit) for income taxes |
|
| (2,897) |
| (2.2) | % |
| (11,664) |
| (11.9) | % |
| 8,767 |
| 75.2 | % |
Provision (benefit) for income taxes |
|
| 62 |
| 0.0 | % |
| (20) |
| (0.0) | % |
| 82 |
| 410.0 | % |
Loss from continuing operations |
|
| (2,959) |
| (2.3) | % |
| (11,644) |
| (11.9) | % |
| 8,685 |
| 74.6 | % |
Income (loss) from discontinued operations, net of tax |
|
| 1 |
| 0.0 | % |
| (93) |
| (0.1) | % |
| 94 |
| 101.1 | % |
Net loss |
| $ | (2,958) |
| (2.3) | % | $ | (11,737) |
| (12.0) | % | $ | 8,779 |
| 74.8 | % |
Intangible amortization | |
| 367 |
| 0.4 | % |
| 406 | | 0.5 | % |
| (39) |
| (9.6) | % |
Total operating expenses | |
| 8,874 |
| 8.6 | % |
| 8,129 |
| 9.8 | % |
| 745 |
| 9.2 | % |
Operating income (loss) | |
| 2,715 |
| 2.6 | % |
| (700) |
| (0.8) | % |
| 3,415 |
| 487.9 | % |
Other expense, net | | | | | | | | | | | | | | | | |
Interest expense, net | |
| (1,147) |
| (1.1) | % |
| (1,309) | | (1.6) | % |
| 162 |
| 12.4 | % |
Other, net | |
| (3) |
| (0.0) | % |
| (17) | | (0.0) | % |
| 14 |
| 82.4 | % |
Total other expense, net | |
| (1,150) |
| (1.1) | % |
| (1,326) |
| (1.6) | % |
| 176 |
| 13.3 | % |
Net income (loss) before provision (benefit) for income taxes | |
| 1,565 |
| 1.5 | % |
| (2,026) |
| (2.4) | % |
| 3,591 |
| 177.2 | % |
Provision (benefit) for income taxes | |
| 83 |
| 0.1 | % |
| 34 | | 0.0 | % |
| 49 |
| 144.1 | % |
Net income (loss) before provision (benefit) for income taxes | | $ | 1,482 |
| 1.4 | % | $ | (2,060) |
| (2.5) | % | $ | 3,542 |
| 171.9 | % |
Consolidated
Revenues increased 31%,by $20,731 from $98,193 during the nine months ended September 30, 2018,prior year period, primarily due to $128,967 duringhigher production levels in the nine months ended September 30, 2019. Towers and Heavy Fabrications segment revenues were up $28,541 or 46% primarily due to a 33% increase in toweras towers sections sold increased 62% from the first half of 2019 and an increase in other heavy fabricationindustrial fabrications revenue of $2,684. Gearing segment revenues were down $212 or 1%,increased primarily as a result of our ongoing diversification efforts. Partially offsetting this increase was a lower O&G demand from fracking customers, partially offset by increased aftermarket wind shipments and stronger mining demand. Process Systems revenue increased by 28%average sales price on towers sold primarily due to increaseda higher level of customer supplied materials in the current year. Gearing segment revenue decreased $6,144 due primarily to lower order intake in recent quarters primarily within the O&G and mining markets and as customers postponed approximately $2,400 of scheduled purchases into future periods due to the COVID-19 pandemic and oil price declines resulting from the Saudi-Russian conflict in early 2020. Industrial Solutions revenue was up $2,163 from the first half of 2019, primarily due to stronger near-term demand for new gas turbine content for international installations.content.
Gross profit increased by $7,846, from $3,577$4,160 primarily due to higher capacity utilization within our Heavy Fabrication segment. This benefit was partially offset by utilizing the PPP Loans proceeds to retain personnel, the impacts of decreased sales, a lower margin sales mix and increased manufacturing inefficiencies associated with lower sales in our Gearing segment. As a result, gross margin increased to 11.2% during the ninesix months ended SeptemberJune 30, 2018, to $11,4232020, from 9.0% during the ninesix months ended SeptemberJune 30, 2019. Gross margin more than doubled from 3.6% during the nine months ended September 30, 2018, to 8.9% during the nine months ended September 30, 2019. The increase in gross profit was primarily attributable
Due to higher plant utilization and improved manufacturing efficiencies in our Towers and Heavy Fabrications and Gearing segments. Partially offsetting these benefits was adverse margin compression due to increased competition from offshore tower manufacturers.
Operating expenses decreased from $16,462 during the nine months ended September 30, 2018, to $12,381 during the nine months ended September 30, 2019. The decrease was primarily attributable to the absence of a $4,993 goodwill impairment charge that occurred during the prior year and lower amortization and commission expense. Partially offsetting these factors was the absence of a $1,140 reversal of the final Red Wolf earn-out reserve which occurred during the prior year and higher incentive compensation costs. Operatingrevenue levels, operating expenses as a percentage of revenue decreasedsales improved to 9.6%8.6% compared to 9.8% in the first three quartershalf of 2019, comparedthe prior year.
Net income increased to 16.8%$1,482 during the prior year period.
Netsix months ended June 30, 2020 from a net loss decreased from $11,737of $2,060 during the ninesix months ended September 30, 2018, to $2,958 during the nine months ended SeptemberJune 30, 2019 as a result ofdue to the factors described above, partially offset by the absence of the New Markets Tax Credit transaction.above.
Towers and Heavy Fabrications Segment
|
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| Nine Months Ended |
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| September 30, |
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| 2019 |
| 2018 |
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| | Six Months Ended |
| | |||||||||||
| | June 30, |
| | |||||||||||
| | 2020 | | 2019 |
| | |||||||||
Orders |
| $ | 174,398 |
| $ | 24,316 |
|
| $ | 46,916 |
| $ | 108,839 | | |
Tower sections sold | | | 632 | | | 389 | | | |||||||
Revenues |
|
| 91,098 |
|
| 62,557 |
| |
| 81,983 | |
| 57,264 | | |
Operating income (loss) |
|
| 789 |
|
| (2,441) |
| ||||||||
Operating income | |
| 6,740 | |
| 96 | | | |||||||
Operating margin |
|
| 0.9 | % |
| (3.9) | % | |
| 8.2 | % |
| 0.2 | % | |
Towers and Heavy Fabrications segment orders spiked as both new and existing customers secured capacity to support strong turbine demand in 2020. In addition, our largest customer fulfilled orders under a three-year customer framework agreement in which minimum contract orders were reported in backlog at the onset of the agreement in 2016 and is now placing orders on a project-by-project basis. Towers and Heavy Fabrications segment revenues increased by $28,541 due to a 33% increase in tower sections sold and a higher average sales price on the towers sold due to a more complex design and higher steel prices. Other heavy fabrication revenues increased $2,684 due to growth in our customer base linked to investments in additional machining capabilities.
22
TowersThe decrease in Heavy Fabrications segment orders was primarily driven by certain tower customers securing production capacity in advance of historical lead times in the prior year due to surging wind tower installation expectations in 2020. Industrial fabrication orders were up $1,543, an 18% improvement from the prior year period, primarily due to ongoing diversification efforts into mining and material handling markets. Segment revenues increased by $24,719 primarily due to a 62% increase in tower sections sold compared to the prior year period. This was partially offset by a lower average sales price on towers sold due primarily to increased customer supplied materials in the current year.
Heavy Fabrications segment operating results improved by $3,230, from a loss of $2,441$6,644 compared to the prior year period. The year-over-year improvement primarily reflected the higher segment capacity utilization. Operating margin was 8.2% during the ninesix months ended SeptemberJune 30, 2018, to income of $7892020, an increase from 0.2% during the ninesix months ended SeptemberJune 30, 2019. The negative impacts from increased competitive pricing pressure in the current year, were offset by increased production volumes and the absence of plant start-up costs incurred in the prior year.
Gearing Segment
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| Nine Months Ended |
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| 2019 |
| 2018 |
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| | Six Months Ended |
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| | June 30, |
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| | 2020 | | 2019 |
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Orders |
| $ | 18,584 |
| $ | 33,044 |
|
| $ | 16,151 |
| $ | 12,707 | | |
Revenues |
|
| 27,282 |
|
| 27,494 |
| | | 13,149 | | | 19,293 | | |
Operating income (loss) |
|
| 2,797 |
|
| (941) |
| ||||||||
Operating (loss) income | | | (912) | | | 2,300 | | ||||||||
Operating margin |
|
| 10.3 | % |
| (3.4) | % | | | (6.9) | % | | 11.9 | % | |
Gearing segment orders decreased $14,460 during the nine months ended September 30, 2019increased 27% compared to the prior year period primarily due to an increase in aftermarket wind gearing, steel and other industrial customer orders, partially offset by a decrease in demandO&G and mining demand. Revenue decreased 32% from O&G customers. Thethe prior year period included the benefit of the industry’s expansion of fracking capacitydue primarily to lower order intake in recent quarters within O&G and significantly longer lead timesmining. In addition, due to steel availability issues. Also impacting the comparison was a decrease in aftermarket wind orders. Partially offsetting these decreases was an increase in industrial customer orders. Revenue was essentially unchanged as the impact of lower O&G sales was offset by increased sales to aftermarket winddeclining oil prices and mining customers. general market uncertainty, customers delayed approximately $2,400 purchases into future periods.
The Gearing segment operating profit improved by $3,738,results decreased $3,212 from a loss of $941 during the nine months ended September 30, 2018, to income of $2,797 during the nine months ended September 30, 2019.prior year period. The improvementdecrease was primarily attributable to the producta decrease in sales across most core markets, a lower margin sales mix sold, improved plant throughput and improved manufacturing efficiencies includinginefficiencies associated with lower scrap and warranty costs.activity levels. Operating margin was 10.3% during the nine months ended September 30, 2019, up sharply from (3.4%(6.9%) during the ninesix months ended SeptemberJune 30, 2018.2020, down from 11.9% during the six months ended June 30, 2019.
Process SystemsIndustrial Solutions Segment
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| Nine Months Ended |
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| 2019 |
| 2018 |
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| | Six Months Ended | | |||||||||||
| | June 30, | | |||||||||||
| | 2020 | | 2019 | | |||||||||
Orders |
| $ | 12,153 |
| $ | 9,154 |
| | $ | 10,300 | | $ | 7,072 | |
Revenues |
| 10,589 |
|
| 8,262 |
| | 8,435 | | | 6,272 | | ||
Impairment charges |
| - |
|
| 4,993 |
| ||||||||
Operating loss |
| (116) |
|
| (6,675) |
| ||||||||
Operating income (loss) | | 410 | | | (256) | | ||||||||
Operating margin |
| (1.1) | % |
| (80.8) | % | | 4.9 | % | | (4.1) | % |
Process Systems
Industrial Solutions segment orders and revenues increased 33%, from $9,154 during the nine months ended September 30, 2018, to $12,153 during the nine months ended September 30, 2019. The increase in orders isprior year period primarily due to higher customerstronger near-term demand for new gas turbine content, partially offset by lower customer demand for aftermarket products. Process Systems segment revenues increased by $2,327, from $8,262 during the nine months ended September 30, 2018, to $10,589 during the nine months ended September 30, 2019 primarily due to increased sales for gas turbine components.
content. The Process Systems segment operating lossincome improvement was thea result of increased pricingthe revenue growth and margins, the absence of a $4,993 goodwill impairment charge that occurred during the prior year, and lower amortization expense.general operating efficiencies. The operating margin improved to (1.1%4.9% during the six months ended June 30, 2020 from (4.1%) during the ninesix months ended SeptemberJune 30, 2019 from (80.8%) during the nine months ended September 30, 2018, due to the factors mentioned above.2019.
Corporate and Other
Corporate and Other expenses increased from $2,828by $683 during the ninesix months ended SeptemberJune 30, 2018,2020 primarily due to $4,428 during the nine months ended September 30, 2019. The increase was primarily attributable to the absence of a $1,140increased salary and benefit in the prior year associated with the reversal of the final Red Wolf earn-out reserve and higher incentive compensationrelated expenses in the current year.year quarter.
23
LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES
As of SeptemberJune 30, 2019,2020, cash and cash equivalents totaled $15$2,119 a decrease of $1,162$297 from December 31, 2018.2019. Cash balances remain minimallimited as operating receipts and disbursements flow through our Credit Facility, which is in a drawn position. Debt and finance lease obligations at September 30, 2019 totaled $11,505. As of September 30, 2019, we had the ability to borrow up to an additional $19,234 under the Credit Facility (as defined in Note 7, “Debt and Credit Agreements,” in the notes to our condensed consolidated financial statements)., which is in a drawn position. Debt and finance lease obligations at June 30, 2020 totaled $25,347. As of June 30, 2020, we had the ability to borrow up to an additional $19,826 under the Credit Facility. 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. The Form S-3 will expire on October 10, 2020.
On February 25, 2019, we executed an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan Agreement”) which expanded our Credit Facility to $35,000 and extended the term to February 25, 2022. The Amended and Restated Loan Agreement includes minimum EBITDA covenants through September 30, 2019, replaced by a Fixed Charge Coverage Ratio thereafter.
In conjunction withApril 2020, the Amended and Restated Loan Agreement, during June 2019, we 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 our 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.
We anticipate that current cash resources, amounts availableCompany received funds under the Credit Facility, cashU.S. Paycheck Protection Program. Refer to be generated from operations, and any potential proceeds from the sale of our securitiesdiscussion below under the Form S-3 or other privately raised funds will be adequate to meet our liquidity needsheading “Sources and Uses of Cash - Other” for at least the next twelve months. more information.
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, particularly in light of the COVID-19 pandemic and its effects on domestic and global economies, 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.
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 six months ended June 30, 2020 and 2019:
| | | | | | |
| | Six Months Ended | ||||
| | June 30, | ||||
| | 2020 | | 2019 | ||
Total cash (used in) provided by: | | | | | | |
Operating activities |
| $ | (8,238) |
| $ | (14,611) |
Investing activities | | | (929) | | | (1,182) |
Financing activities | | | 8,870 | | | 14,690 |
Net decrease in cash | | $ | (297) | | $ | (1,103) |
24
Sources and Uses of Cash
Operating Cash Flows
During the ninesix months ended SeptemberJune 30, 2019,2020, net cash provided byused in operating activities totaled $4,333,$8,238, compared to net cash used in operating activities of $7,233$14,611 for the ninesix months ended SeptemberJune 30, 2018. Net2019. This decrease in net cash provided byused was primarily due to improved operating activities increased versusperformance and a lower working capital build in the priorcurrent year period, due to collectionslargely as a result of deposits related to new tower orders. This increase was partially offset by a build of other working capital accounts driven by higher production levels within the Towers and Heavy Fabrications segment.lower inventory build.
Investing Cash Flows
During the ninesix months ended SeptemberJune 30, 2019,2020, net cash used in investing activities totaled $1,775,$929, compared to net cash used in investing activities of $1,435$1,182 during the ninesix months ended SeptemberJune 30, 2018.2019. The increasedecrease in net cash used in investing activities as compared to the prior-year period was primarily due to the absencea decrease in net purchases of proceeds from property disposals in the prior year period.and equipment.
Financing Cash Flows
During the ninesix months ended SeptemberJune 30, 2019,2020, net cash used inprovided by financing activities totaled $3,721,$8,870, compared to net cash provided by financing activities of $8,804$14,690 for the ninesix months ended SeptemberJune 30, 2018.2019. The increase in net cash used in financing activities as compared todecrease versus the prior-year period was primarily due to paydownslower usage of our Credit Facility in the current year, partially offset by PPP Loans proceeds received in the current year.
Other
In 2016, we entered into a $570 loan agreement with the Development Corporation of Abilene which is included in long-termthe “Long-term debt, less current maturities. The loan is forgivable upon meetingmaturities” line item of our condensed consolidated financial statements as of June 30, 2020 and maintaining specific employment thresholds.December 31, 2019. The loan is forgivable upon the Company meeting and maintaining specific employment thresholds. During each of the fourth quarter ofyears 2019 and 2018, $114 of the loan was forgiven. As of SeptemberJune 30, 2019,2020, the loan balance was $456.$342. In addition, we have outstanding notes payable for capital expenditures in the amount of $1,209$946 and $1,882$1,563 as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively, with $855$940 and $930$1,400 included in the “Line of Credit and other notes payable” line item of our condensed consolidated financial statements as of SeptemberJune 30, 20192020 and December 31, 2018,2019, 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 2020February 2021 to August 2022.
25
On April 15, 2020, we received funds under notes and related documents (“PPP Loans”) with CIBC Bank, USA under the Paycheck Protection Program (the “PPP”) which was established under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) enacted on March 27, 2020 in response to the COVID-19 pandemic and is administered by the U.S. Small Business Administration (the “SBA”). We received total proceeds of $9,530 from the PPP loans and made repayments of $379 on May 13, 2020. Under the terms of the CARES Act, as amended by the Paycheck Protection Program Flexibility Act of 2020 enacted on June 5, 2020 (the “Flexibility Act”), the PPP Loans, and accrued interest and fees may be forgiven following a period of twenty-four weeks after PPP Loan proceeds are received (the “covered period”) if they are used for qualifying expenses as described in the CARES Act including payroll costs and benefits (which must equal or exceed 60% of the amount requested to be forgiven), rent, mortgage interest, and utilities, which are subject to certain reductions based on the number of full time equivalent employees and the level of compensation for employees during such covered period. The amount of loan forgiveness will be reduced if the borrower terminates employees or significantly reduces salaries during such period, subject to certain exceptions. Subject to the terms and conditions applicable to loans administered by the SBA under the PPP, as amended by the Flexibility Act, the unforgiven portion of a PPP Loan is payable over a two year period at an interest rate of 1.00%, with a deferral of payments of principal, interest and fees until the date on which the SBA remits the loan forgiveness amount to the lender (or notifies the lender that no loan forgiveness is allowed), provided that the borrower applies for forgiveness within 10 months after the last day of the covered period (and if not, payment of principal and interest shall commence 10 months after the last day of the covered period). We used at least 60% of the amount of the PPP Loans proceeds to pay for payroll costs and the balance on other eligible qualifying expenses that we believe to be consistent with the terms of the PPP and plans to submit its forgiveness applications to CIBC Bank, USA by September 2020. While we currently believe that our use of the loan proceeds will meet the conditions for forgiveness of the PPP Loans, we cannot provide assurance that we have not taken and will not take actions that could cause us to be ineligible for forgiveness of the PPP Loans, in whole or in part.
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, 2018.2019. 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: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; (ii)(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; (iii)(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; (iv)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; (v)(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; (vi)(ix) our ability to realize revenue from customer orders and backlog; (vii)(x) our ability to operate our business efficiently, comply with our debt obligations, manage capital expenditures and costs effectively, and generate cash flow; (viii)(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; (ix)(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; (x)(xiii) the effects of market disruptions and regular market volatility, including fluctuations in the price of oil, gas and other commodities; xi)(xiv) competition from new or existing industry participants including, in particular, increased competition from foreign tower manufacturers with access to lower cost steel; (xii)manufacturers; (xv) the effects of the change of administrations in the U.S. federal government; (xiii)(xvi) our ability to successfully integrate and operate acquired companies and to identify, negotiate and execute future acquisitions; (xiv)(xvii) the potential loss of tax benefits if we experience an “ownership change” under Section 382 of the IRC; (xv) the limitedInternal Revenue Code of 1986, as amended; (xviii) our ability to utilize various
2526
relief options enabled by the CARES Act, including our ability to receive forgiveness of the PPP Loans; (xix) the limited trading market for our securities and the volatility of market price for our securities; and (xvi)(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, 2018.2019, 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.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 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 SeptemberJune 30, 2019.2020.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended SeptemberJune 30, 20192020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
2627
INFORMATIOItem 1.Legal ProceedingsN
Item 1. |
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 FactorItem 1A.Risk Factorss
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, 2018. 2019 except as set forth below and as supplemented by the risk factor set forth on our Current Report on Form 8-K filed April 17, 2020.
Item 2.Unregistered SalesWe have incurred indebtedness under the CARES Act which may be subject to audit, may not be forgivable and may eventually have to be repaid. Any repayment of Equity Securitiessuch indebtedness may limit the funds available to us and Usemay restrict our flexibility in operating our business or otherwise adversely affect our results of Proceedsoperations.
On April 15, 2020, the Company received funds under notes and related documents (“PPP Loans”) with CIBC Bank, USA under the Paycheck Protection Program (the “PPP”) which was established under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), as amended by the Paycheck Protection Program Flexibility Act of 2020 (the “Flexibility Act”) in response to the COVID-19 pandemic and is administered by the SBA. The Company received total proceeds of $9,530 from the PPP Loans and made repayments of $379 on May 13, 2020. Under the terms of the CARES Act, as amended by the Flexibility Act, the PPP Loans and accrued interest and fees may be forgiven following a period of twenty-four weeks after PPP Loan proceeds are received (the “covered period”) if they are used for qualifying expenses as described in the CARES Act including payroll costs and benefits (which must equal or exceed 60% of the amount requested to be forgiven), rent, mortgage interest and utilities which are subject to certain reductions based on the number of full time equivalent employees and the level of compensation for employees during such period. Subject to the terms and conditions applicable to loans administered by the SBA under the PPP, as amended by the Flexibility Act, the unforgiven portion of a PPP Loan would be payable over a two year period at an interest rate of 1.00%, with a deferral of payments of principal, interest and fees until the date on which the SBA remits the loan forgiveness amount to the lender (or notifies the lender that no loan forgiveness is allowed), provided that the borrower applies for forgiveness within 10 months after the last day of the covered period (and if not, payment of principal and interest shall commence 10 months after the last day of the covered period).
The Company used at least 60% of its PPP Loan proceeds to pay for payroll costs and the balance on other eligible qualifying expenses that it believes to be consistent with the PPP and plans to submit its forgiveness applications to the CIBC Bank, USA. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the PPP Loans, if all or substantially all of the PPP Loans are not forgiven or it is subsequently determined that the PPP Loans must be repaid, the Company may be required to use a substantial portion of our cash flows from operations to pay interest and principal on the PPP Loans. In addition, although the Company has no current intention of repaying the PPP Loans, any future repayment of such loans, or the Company’s inability to qualify for forgiveness, would impact the Company’s operations and financial results.
The U.S. Department of the Treasury has announced that it will conduct audits for PPP Loans that exceed $2 million. Should the Company be audited or reviewed by the U.S. Department of the Treasury or the SBA, such audit or review could result in the diversion of management’s time and attention and cause the Company to incur significant costs. If the Company were to be audited and receive an adverse outcome in such an audit, the Company could be required to return the full amount of the PPP Loans and may potentially be subject to civil and criminal fines and penalties.
The outbreak of COVID-19 has had adverse effects on our operations.
We have experienced adverse impacts from the novel coronavirus disease (known as COVID-19) in the second quarter of 2020 including a decline in order activity levels within the Gearing and Heavy Fabrications segments and customers’ postponement of scheduled purchases and project timing partially offset by the continued operation of our facilities as essential businesses in light of the customers and markets served. In response to the pandemic, we are right-sizing our workforce and delaying certain capital expenditures. In future periods, we may experience weaker customer demand, requests for extended payment terms, customer bankruptcies, supply chain disruption, employee staffing constraints and difficulties, government restrictions or other factors that could negatively impact the Company and its business, operations and financial results. As we cannot predict the duration or scope of the pandemic or its impact on economic and financial markets, any negative impact to our results cannot be reasonably estimated, but it could be material.
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Item 2. |
None.
Item 3.Defaults Upon Senior Securities
Item 3. |
None.
Item 4.Mine Safety Disclosures
Item 4. |
Not Applicable.
Item 5. |
Not Applicable.
Item 6. |
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, ENERGY, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBERJUNE 30, 20192020
*Filed herewith.________________________
* | Filed herewith. |
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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, | |
| | |
| | |
| By: | /s/ |
| |
|
| | President, Chief Executive Officer |
| | (Principal Executive Officer) |
| By: | /s/ Jason L. Bonfigt |
| | Jason L. Bonfigt |
| | Vice President, Chief Financial Officer (Principal Financial Officer) |
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