UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| | 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
BROADWIND, INC.
(Exact name of registrant as specified in its charter)
| | | |
| (State or other jurisdiction | | (I.R.S. Employer |
(Address of principal executive offices)
(
(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 |
| | | The |
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.
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).
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 ☐ |
| | | |
| | | Smaller reporting company |
| Emerging growth 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
Number of shares of registrant’s common stock, par value $0.001, outstanding as of November 8, 2021:
BROADWIND, INC. AND SUBSIDIARIES
INDEX
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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BROADWIND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share and per share data)
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Employee retention credit receivable | ||||||||
| Contract assets | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| LONG-TERM ASSETS: | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Intangible assets, net | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Line of credit and other notes payable | $ | $ | ||||||
| Current portion of finance lease obligations | ||||||||
| Current portion of operating lease obligations | ||||||||
| Accounts payable | ||||||||
| Accrued liabilities | ||||||||
| Customer deposits | ||||||||
| Total current liabilities | ||||||||
| LONG-TERM LIABILITIES: | ||||||||
| Long-term debt, net of current maturities | ||||||||
| Long-term finance lease obligations, net of current portion | ||||||||
| Long-term operating lease obligations, net of current portion | ||||||||
| Other | ||||||||
| Total long-term liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Preferred stock, par value; shares authorized; shares issued or outstanding | ||||||||
| Common stock, par value; shares authorized; and shares issued as of September 30, 2021, and December 31, 2020, respectively | ||||||||
| Treasury stock, at cost, shares as of September 30, 2021 and December 31, 2020 | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
BROADWIND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| Revenues |
$ | $ | $ | $ | ||||||||||||
| Cost of sales |
||||||||||||||||
| Gross profit |
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| OPERATING EXPENSES: |
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| Selling, general and administrative |
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| Intangible amortization |
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| Total operating expenses |
||||||||||||||||
| Operating (loss) income |
( |
) | ( |
) | ( |
) | ||||||||||
| OTHER (EXPENSE) INCOME, net: |
||||||||||||||||
| Paycheck Protection Program loan forgiveness |
||||||||||||||||
| Interest expense, net |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other, net |
( |
) | ( |
) | ||||||||||||
| Total other (expense) income, net |
( |
) | ( |
) | ( |
) | ||||||||||
| Net (loss) income before provision for income taxes |
( |
) | ( |
) | ||||||||||||
| Provision for income taxes |
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| NET (LOSS) INCOME |
( |
) | ( |
) | ||||||||||||
| NET (LOSS) INCOME PER COMMON SHARE—BASIC: |
||||||||||||||||
| Net (loss) income |
$ | ( |
) | $ | ( |
) | $ | $ | ||||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—BASIC |
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| NET (LOSS) INCOME PER COMMON SHARE—DILUTED: |
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| Net (loss) income |
$ | ( |
) | $ | ( |
) | $ | $ | ||||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—DILUTED |
||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
BROADWIND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(in thousands, except share data)
| Common Stock | Treasury Stock | Additional | ||||||||||||||||||||||||||
| Shares | Issued | Issued | Paid-in | Accumulated | ||||||||||||||||||||||||
| Issued | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| BALANCE, December 31, 2019 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||
| Stock issued for restricted stock | ||||||||||||||||||||||||||||
| Share-based compensation | — | — | ||||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| BALANCE, March 31, 2020 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||
| Stock issued for restricted stock | ||||||||||||||||||||||||||||
| Share-based compensation | — | — | ||||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| BALANCE, June 30, 2020 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||
| Stock issued for restricted stock | ||||||||||||||||||||||||||||
| Share-based compensation | — | — | ||||||||||||||||||||||||||
| Sale of common stock, net | ||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| BALANCE, September 30, 2020 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||
| BALANCE, December 31, 2020 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||
| Stock issued for restricted stock | ||||||||||||||||||||||||||||
| Stock issued under defined contribution 401(k) retirement savings plan | ||||||||||||||||||||||||||||
| Share-based compensation | — | — | ||||||||||||||||||||||||||
| Shares withheld for taxes in connection with issuance of restricted stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Sale of common stock, net | ||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| BALANCE, March 31, 2021 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||
| Stock issued for restricted stock | ||||||||||||||||||||||||||||
| Stock issued under defined contribution 401(k) retirement savings plan | ||||||||||||||||||||||||||||
| Share-based compensation | — | — | ||||||||||||||||||||||||||
| Shares withheld for taxes in connection with issuance of restricted stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Sale of common stock, net | ||||||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| BALANCE, June 30, 2021 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||
| Stock issued for restricted stock | ||||||||||||||||||||||||||||
| Stock issued under defined contribution 401(k) retirement savings plan | ||||||||||||||||||||||||||||
| Share-based compensation | — | — | ||||||||||||||||||||||||||
| Shares withheld for taxes in connection with issuance of restricted stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Sale of common stock, net | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| BALANCE, September 30, 2021 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
BROADWIND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
| Nine Months Ended September 30, |
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| 2021 |
2020 |
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| CASH FLOWS FROM OPERATING ACTIVITIES: |
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| Net income |
$ | $ | ||||||
| Adjustments to reconcile net cash used in operating activities: |
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| Depreciation and amortization expense |
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| Paycheck Protection Program loan forgiveness |
( |
) | ||||||
| Deferred income taxes |
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| Change in fair value of interest rate swap agreements |
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| Stock-based compensation |
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| Allowance for doubtful accounts |
( |
) | ||||||
| Common stock issued under defined contribution 401(k) plan |
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| Gain on disposal of assets |
( |
) | ||||||
| Changes in operating assets and liabilities: |
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| Accounts receivable |
( |
) | ( |
) | ||||
| Employee retention credit receivable |
( |
) | ||||||
| Contract assets |
( |
) | ||||||
| Inventories |
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| Prepaid expenses and other current assets |
( |
) | ||||||
| Accounts payable |
( |
) | ( |
) | ||||
| Accrued liabilities |
( |
) | ||||||
| Customer deposits |
( |
) | ( |
) | ||||
| Other non-current assets and liabilities |
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| Net cash used in operating activities |
( |
) | ( |
) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
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| Purchases of property and equipment |
( |
) | ( |
) | ||||
| Proceeds from disposals of property and equipment |
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| Net cash used in investing activities |
( |
) | ( |
) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
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| Proceeds from line of credit |
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| Payments on line of credit |
( |
) | ( |
) | ||||
| Proceeds from long-term debt |
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| Payments on long-term debt |
( |
) | ( |
) | ||||
| Principal payments on finance leases |
( |
) | ( |
) | ||||
| Shares withheld for taxes in connection with issuance of restricted stock |
( |
) | ||||||
| Proceeds from sale of common stock, net |
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| Net cash provided by financing activities |
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| NET (DECREASE) INCREASE IN CASH |
( |
) | ||||||
| CASH beginning of the period |
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| CASH end of the period |
$ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
BROADWIND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars are presented in thousands, except share, per share and per employee data or unless otherwise stated)
NOTE 1 — BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements presented herein include the accounts of Broadwind, Inc. (the “Company”) and its wholly-owned subsidiaries Broadwind Heavy Fabrications, Inc. (“Broadwind Heavy Fabrications”), Brad Foote Gear Works, Inc. (“Brad Foote”) and Broadwind Industrial Solutions, LLC (“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 nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the twelve months ending December 31, 2021, 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, 2020.
The December 31, 2020 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, 2020.
There have been no material changes in the Company’s significant accounting policies during the nine months ended September 30, 2021 as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
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 value products to customers with complex systems and stringent quality standards that operate in energy, mining and infrastructure 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
Liquidity
The Company typically 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/or equity markets, including the option to raise capital from the sale of our securities under the 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 September 30, 2021 totaled $
On August 18, 2020, 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 13, 2020 (the “Form S-3”) and expires on October 12, 2023. This shelf registration statement, 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.
On March 9, 2021, the Company entered into a $
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law providing numerous tax provisions and other stimulus measures, including an employee retention credit (“ERC”), which is a refundable tax credit against certain employment taxes. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERC. The ERC is available for wages paid through December 31, 2021 and is equal to 70% of qualified wages (which includes employer qualified health plan expenses) paid to employees. During each quarter of 2021, a maximum of $10,000 in qualified wages for each employee is eligible for the ERC. Therefore, the maximum tax credit that can be claimed by an eligible employer in 2021 is $7,000 per employee per calendar quarter. In the first and second quarters of 2021, the Company received ERC benefits of $
The Company anticipates that current cash resources, 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 receipt of customer deposits and revenues generated from new customer orders, are materially inconsistent with management’s expectations, particularly in light of the COVID-19 pandemic, emerging variants 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 its 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 cash flows, inventory reserves, warranty reserves, impairment of long-lived assets, allowance for doubtful accounts 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, particularly in light of the COVID-19 pandemic.
NOTE 2 — REVENUES
Revenues are recognized when the promised goods or services are 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 nine months ended September 30, 2021 and 2020:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Heavy Fabrications | $ | $ | $ | $ | ||||||||||||
| Gearing | ||||||||||||||||
| Industrial Solutions | ||||||||||||||||
| Eliminations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Consolidated | $ | $ | $ | $ | ||||||||||||
Revenue within the Company’s Gearing and Industrial Solutions segments, as well as industrial fabrication product line revenues within the Heavy Fabrications segment, are generally recognized at a point in time, typically when the promised goods or services are physically 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 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 tower sales within the Company’s 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.
During the nine months ended September 30, 2021, the Company recognized a portion of revenue within the Gearing and Heavy Fabrications segments over time, as the products had no alternative use to the Company and the Company had an enforceable right to payment, including profit, upon termination of the contracts. Since the projects are labor intensive, the Company uses labor hours as the input measure of progress for the applicable contracts. Within the Heavy Fabrications segment, the Company recognized revenue over time of $
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 nine months ended September 30, 2021 and 2020, as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Basic earnings per share calculation: | ||||||||||||||||
| Net (loss) income | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Weighted average number of common shares outstanding | ||||||||||||||||
| Basic net (loss) income per share | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Diluted earnings per share calculation: | ||||||||||||||||
| Net (loss) income | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Weighted average number of common shares outstanding | ||||||||||||||||
| Common stock equivalents: | ||||||||||||||||
| Non-vested stock awards | ||||||||||||||||
| Weighted average number of common shares outstanding | ||||||||||||||||
| Diluted net (loss) income per share | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
|
|
NOTE 4 — INVENTORIES
The components of inventories as of September 30, 2021 and December 31, 2020 are summarized as follows:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| Less: Reserve for excess and obsolete inventory | ( | ) | ( | ) | ||||
| Net inventories | $ | $ | ||||||
NOTE 5 — INTANGIBLE ASSETS
Intangible 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, trade names and customer relationships that were part of the Company’s acquisition of Red Wolf Company, LLC completed in 2017. Intangible assets are amortized on a straight-line basis over their estimated useful lives, with a remaining life range from
As of September 30, 2021 and December 31, 2020, the cost basis, accumulated amortization and net book value of intangible assets were as follows:
| September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||||
| 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 | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||
| Customer relationships | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Trade names | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Intangible assets | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||
As of September 30, 2021, estimated future amortization expense was as follows:
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 and thereafter | ||||
| Total | $ |
NOTE 6 — ACCRUED LIABILITIES
Accrued liabilities as of September 30, 2021 and December 31, 2020 consisted of the following:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Accrued payroll and benefits | $ | $ | ||||||
| Fair value of interest rate swap | ||||||||
| Accrued property taxes | ||||||||
| Income taxes payable | ||||||||
| Accrued professional fees | ||||||||
| Accrued warranty liability | ||||||||
| Self-insured workers compensation reserve | ||||||||
| Accrued other | ||||||||
| Total accrued liabilities | $ | $ | ||||||
NOTE 7 — DEBT AND CREDIT AGREEMENTS
The Company’s outstanding debt balances as of September 30, 2021 and December 31, 2020 consisted of the following:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Line of credit | $ | $ | ||||||
| PPP Loans | ||||||||
| Other notes payable | ||||||||
| Long-term debt | ||||||||
| Less: Current portion | ( | ) | ( | ) | ||||
| Long-term debt, net of current maturities | $ | $ | ||||||
Credit Facility
On October 26, 2016, the Company established a -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 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, providing the Company and its subsidiaries with a $
On October 29, 2020, the Company executed the First Amendment to the Amended and Restated Loan Agreement, implementing a payoff of a syndicated lender and a pricing grid based on the Company’s trailing twelve month EBITDA under which applicable margins range from
On February 23, 2021, the Company executed the Second Amendment to the Amended and Restated Loan Agreement, which waived testing of the fixed charge coverage covenant for the quarters ended March 31, 2021 and June 20, 2021, added a new liquidity covenant applicable to the quarter ended March 31, 2021 and new minimum EBITDA covenants applicable to the quarters ended March 31, 2021 and June 30, 2021. As of September 30, 2021, the Company transitioned back to a fixed charge coverage covenant.
On November 8, 2021, the Company executed the Third Amendment to the Amended and Restated Loan Agreement (the “Third Amendment”) which waived the fixed charge coverage ratio default for the quarter ended September 30, 2021, suspended testing of the fixed charge coverage ratio covenant through September 30, 2022, added a minimum EBITDA covenant applicable to the three-month period ending December 31, 2021, the six-month period ending March 31, 2022, the nine-month period ending June 30, 2022 and the twelve-month period ending September 30, 2022 and added a reserve of $
The Credit Facility is an asset-based revolving credit facility, pursuant to which the CIBC advances funds against a borrowing base consisting of approximately (a)
The Credit Facility contains customary representations and warranties applicable to the Company and its subsidiaries. It also contains a requirement that the Company, on a consolidated basis, maintain a minimum quarterly fixed charge coverage ratio, along with other customary restrictive covenants, certain of which are subject to materiality thresholds, baskets and customary exceptions and qualifications.
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 $
As of September 30, 2021, there was $
Other
In 2016, the Company entered into a $
On April 15, 2020, the Company received funds under notes and related documents with CIBC, under the Paycheck Protection Program (the “PPP”) which was established under the CARES Act enacted on March 27, 2020 in response to the COVID-19 pandemic and is administered by the SBA. The Company received total proceeds of $
NOTE 8 — LEASES
The Company leases certain facilities and equipment. On January 1, 2019, the Company adopted Accounting Standard Update (“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 adoption of Topic 842 resulted in the Company recognizing operating lease liabilities totaling $
The Company has elected to apply the short-term lease exception to all leases of one year or less. During the nine months ended September 30, 2021 and 2020, the Company had additional operating leases that resulted in right-of-use assets obtained in exchange for lease obligations of $
Some of the Company’s facility leases include options to renew. The exercise of the renewal options is typically at the Company’s discretion. The Company regularly evaluates the renewal options and includes them in the lease term when the Company is reasonably certain to exercise them.
Quantitative information regarding the Company’s leases is as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Components of lease cost | ||||||||||||||||
| Finance lease cost components: | ||||||||||||||||
| Amortization of finance lease assets | $ | $ | $ | $ | ||||||||||||
| Interest on finance lease liabilities | ||||||||||||||||
| Total finance lease costs | ||||||||||||||||
| Operating lease cost components: | ||||||||||||||||
| Operating lease cost | ||||||||||||||||
| Short-term lease cost | ||||||||||||||||
| Variable lease cost (1) | ||||||||||||||||
| Sublease income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total operating lease costs | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
| Supplemental cash flow information related to our operating leases is as follows for the nine months ended September 30, 2021 and 2020: | ||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||
| Operating cash outflow from operating leases | $ | $ | ||||||||||||||
| Weighted-average remaining lease term-finance leases at end of period (in years) | ||||||||||||||||
| Weighted-average remaining lease term-operating leases at end of period (in years) | ||||||||||||||||
| Weighted-average discount rate-finance leases at end of period | % | % | ||||||||||||||
| Weighted-average discount rate-operating leases at end of period | % | % | ||||||||||||||
| (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 September 30, 2021, future minimum lease payments under finance leases and operating leases were as follows:
| Finance | Operating | |||||||||||
| Leases | Leases | Total | ||||||||||
| 2021 | $ | $ | $ | |||||||||
| 2022 | ||||||||||||
| 2023 | ||||||||||||
| 2024 | ||||||||||||
| 2025 | ||||||||||||
| 2026 and thereafter | ||||||||||||
| Total lease payments | ||||||||||||
| Less—portion representing interest | ( | ) | ( | ) | ( | ) | ||||||
| Present value of lease obligations | ||||||||||||
| Less—current portion of lease obligations | ( | ) | ( | ) | ( | ) | ||||||
| Long-term portion of lease obligations | $ | $ | $ | |||||||||
NOTE 9 — FAIR VALUE MEASUREMENTS
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments, which include cash, 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.
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 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.
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 following tables represent the fair values of the Company’s financial liabilities as of September 30, 2021 and December 31, 2020:
| September 30, 2021 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities measured on a recurring basis: | ||||||||||||||||
| Interest rate swap | $ | $ | $ | $ | ||||||||||||
| Total liabilities at fair value | $ | $ | $ | $ | ||||||||||||
| December 31, 2020 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities measured on a recurring basis: | ||||||||||||||||
| Interest rate swap | $ | $ | $ | $ | ||||||||||||
| Total liabilities at fair value | $ | $ | $ | $ | ||||||||||||
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 September 30, 2021, the Company has a full valuation allowance recorded against deferred tax assets. During the nine months ended September 30, 2021, the Company recorded a provision for income taxes of $
The Company files income tax returns in U.S. federal and state jurisdictions. As of September 30, 2021, 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, 2020, the Company had federal and unapportioned state net operating loss (“NOL”) carryforwards of $
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 losses available for utilization, thereby currently limiting annual NOL usage to $
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 the Company’s stockholders at the Company’s 2019 Annual Meeting of Stockholders and has a term of years.
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
As of September 30, 2021, the Company had
NOTE 11 — SHARE-BASED COMPENSATION
There was no stock option activity during the nine months ended September 30, 2021 and
The following table summarizes the Company’s restricted stock unit and performance award activity during the nine months ended September 30, 2021:
| Weighted Average | ||||||||
| Number of | Grant-Date Fair Value | |||||||
| Shares | Per Share | |||||||
| Unvested as of December 31, 2020 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Forfeited | ( | ) | $ | |||||
| Unvested as of September 30, 2021 | $ | |||||||
Under certain situations, shares are withheld from issuance to cover taxes for the vesting of restricted stock units and performance awards. For the nine months ended September 30, 2021,
The following table summarizes share-based compensation expense included in the Company’s condensed consolidated statements of operations for the nine months ended September 30, 2021 and 2020, as follows:
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Share-based compensation expense: | ||||||||
| Cost of sales | $ | $ | ||||||
| Selling, general and administrative | ||||||||
| Net effect of share-based compensation expense on net income | $ | $ | ||||||
| Reduction in earnings per share: | ||||||||
| Basic earnings per share | $ | $ | ||||||
| Diluted earnings per share | $ | $ | ||||||
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 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.
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.
The Company’s segments and their product and service offerings are summarized below:
Heavy Fabrications
The Company provides 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 energy industry, although it has diversified into other industrial markets in order to improve capacity utilization, reduce customer concentration, 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 tower 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
Gearing
The Company provides gearing and gearboxes to a broad set of customers in diverse markets including; onshore and offshore O&G fracking and drilling, surface and underground mining, wind energy, steel, material handling and other infrastructure markets. The Company has manufactured loose gearing, gearboxes and systems, and provided heat treat 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 in Neville Island, Pennsylvania.
Industrial Solutions
The Company provides supply chain solutions, light fabrication, inventory management, kitting and assembly services, primarily serving the combined cycle natural gas turbine market, as well as other clean technology markets.
Corporate
“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.
The accounting policies of 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 nine months ended September 30, 2021 and 2020 is as follows:
| Heavy Fabrications | Gearing | Industrial Solutions | Corporate | Eliminations | Consolidated | |||||||||||||||||||
| For the Three Months Ended September 30, 2021 | ||||||||||||||||||||||||
| Revenues from external customers | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Intersegment revenues | ( | ) | ||||||||||||||||||||||
| Net revenues | ( | ) | ||||||||||||||||||||||
| Operating (loss) profit | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||
| Capital expenditures | ||||||||||||||||||||||||
| Heavy Fabrications | Gearing | Industrial Solutions | Corporate | Eliminations | Consolidated | |||||||||||||||||||
| For the Three Months Ended September 30, 2020 | ||||||||||||||||||||||||
| Revenues from external customers | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Intersegment revenues | ( | ) | ||||||||||||||||||||||
| Net revenues | ( | ) | ||||||||||||||||||||||
| Operating profit (loss) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||
| Capital expenditures | ||||||||||||||||||||||||
| Heavy Fabrications | Gearing | Industrial Solutions | Corporate | Eliminations | Consolidated | |||||||||||||||||||
| For the Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||
| Revenues from external customers | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Intersegment revenues | ( | ) | ||||||||||||||||||||||
| Net revenues | ( | ) | ||||||||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||
| Capital expenditures | ||||||||||||||||||||||||
| Heavy Fabrications | Gearing | Industrial Solutions | Corporate | Eliminations | Consolidated | |||||||||||||||||||
| For the Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||
| Revenues from external customers | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Intersegment revenues | ( | ) | ||||||||||||||||||||||
| Net revenues | ( | ) | ||||||||||||||||||||||
| Operating profit (loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||
| Capital expenditures | ||||||||||||||||||||||||
| Total Assets as of | ||||||||
| September 30, | December 31, | |||||||
| Segments: | 2021 | 2020 | ||||||
| Heavy Fabrications | $ | $ | ||||||
| Gearing | ||||||||
| Industrial Solutions | ||||||||
| Corporate | ||||||||
| Eliminations | ( | ) | ( | ) | ||||
| $ | $ | |||||||
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.
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.
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 nine months ended September 30, 2021 and 2020 consisted of the following:
| For the Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Balance at beginning of period | $ | $ | ||||||
| Bad debt expense | ||||||||
| Write-offs | ( | ) | ( | ) | ||||
| Other adjustments | ( | ) | ( | ) | ||||
| Balance at end of period | $ | $ | ||||||
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 September 30, 2021 or December 31, 2020.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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, 2020. 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 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, Inc., a Delaware corporation headquartered in Cicero, Illinois, and its subsidiaries, as appropriate.
(Dollars are presented in thousands except share, per share and per employee 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 (as defined below) 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 |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| Net revenues |
$ | 40,389 | $ | 54,614 | $ | 119,608 | $ | 158,174 | ||||||||
| Net (loss) income |
$ | (2,105 | ) | $ | (1,003 | ) | $ | 6,937 | $ | 480 | ||||||
| Adjusted EBITDA (1) |
$ | 401 | $ | 1,297 | $ | 14,418 | $ | 7,766 | ||||||||
| Capital expenditures |
$ | 604 | $ | 668 | $ | 1,369 | $ | 1,597 | ||||||||
| Free cash flow (2) |
$ | (3,251 | ) | $ | 7,256 | $ | (1,913 | ) | $ | (1,737 | ) | |||||
| Operating working capital (3) |
$ | 19,554 | $ | 13,486 | $ | 19,554 | $ | 13,486 | ||||||||
| Total debt (4) |
$ | 5,673 | $ | 17,673 | $ | 5,673 | $ | 17,673 | ||||||||
| Total orders |
$ | 42,597 | $ | 39,555 | $ | 103,252 | $ | 112,922 | ||||||||
| Backlog at end of period (5) |
$ | 76,531 | $ | 97,146 | $ | 76,531 | $ | 97,146 | ||||||||
| Book-to-bill (6) |
1.1 | 0.7 | 0.9 | 0.7 | ||||||||||||
| (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) |
Total debt at September 30, 2020 includes PPP Loans totaling $9,151. |
| (5) |
Our backlog at September 30, 2021 and September 30, 2020 is net of revenue recognized over time. |
| (6) |
We define the book-to-bill as the ratio of new orders we received, net of cancellations, to revenue during a period. |
The following table reconciles our non-GAAP key financial measures to the most directly comparable GAAP measure:
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| Net (loss) income |
$ | (2,105 | ) | $ | (1,003 | ) | $ | 6,937 | $ | 480 | ||||||
| Interest expense |
269 | 507 | 816 | 1,654 | ||||||||||||
| Income tax provision |
24 | 20 | 101 | 103 | ||||||||||||
| Depreciation and amortization |
1,594 | 1,567 | 4,758 | 4,761 | ||||||||||||
| Share-based compensation and other stock payments |
619 | 206 | 1,806 | 768 | ||||||||||||
| Adjusted EBITDA |
401 | 1,297 | 14,418 | 7,766 | ||||||||||||
| Changes in operating working capital |
(2,555 | ) | 6,627 | (14,492 | ) | (7,906 | ) | |||||||||
| Employee retention credit receivable |
(503 | ) | — | (503 | ) | — | ||||||||||
| Capital expenditures |
(604 | ) | (668 | ) | (1,369 | ) | (1,597 | ) | ||||||||
| Proceeds from disposal of property and equipment |
10 | — | 33 | — | ||||||||||||
| Free Cash Flow |
$ | (3,251 | ) | $ | 7,256 | $ | (1,913 | ) | $ | (1,737 | ) | |||||
OUR BUSINESS
Third Quarter Overview
We booked $42,597 in new orders in the third quarter of 2021, up from $39,555 in the third quarter of 2020. Gearing segment orders increased 258% compared to the third quarter of 2020 primarily due to increased demand from oil and gas (“O&G”) and mining customers. Within our Heavy Fabrications segment, wind tower orders decreased 38% versus the prior year quarter as customers continue to delay orders due to uncertainty regarding the timing and likelihood of potential wind energy incentives provided by the federal government and elevated steel prices. Consistent with the Company's diversification strategy, this reduction was partially offset by an increase in industrial fabrications product line orders of 262% primarily due to higher order intake within all markets served as customers resumed capital spending and inventory purchases. Orders within our Industrial Solutions segment decreased by 9% as compared to the prior year, primarily due to the timing of orders associated with aftermarket projects.
We recognized revenue of $40,389 in the third quarter of 2021, down 26% compared to the third quarter of 2020, primarily due to a 37% decrease in tower sections sold as a result of project delays and lower industry wide activity levels. Industrial fabrications product line revenue within the Heavy Fabrications segment increased 14% primarily due to recognizing our first revenue associated with our Modular Pressure Reducing Systems (“PRS”) units. Gearing revenue increased by $437 from the third quarter of 2020, driven by higher order intake in recent quarters from O&G and steel customers, partially offset by decreased revenue from other industrial customers. Industrial Solutions revenue increased $132 from the third quarter of 2020, representing a 3% increase compared to the prior year quarter, primarily due to the timing of new gas turbine projects.
We recorded a net loss of $2,105 or $0.11 per share in the third quarter of 2021, compared to a net loss of $1,003 or $0.06 per share in the third quarter of 2020 primarily due to a 37% decrease in tower sections sold due to project delays and underutilization of plant capacity in the quarter. This was partially offset by higher sales and improved manufacturing efficiencies in the Gearing segment.
On March 27, 2020, the CARES Act was signed into law providing numerous tax provisions and other stimulus measures, including the Employee Retention Credit (“ERC”), which is a refundable tax credit against certain employment taxes. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERC. The ERC is available for wages paid through December 31, 2021 and is equal to 70% of qualified wages (which includes employer qualified health plan expenses) paid to employees. During each quarter of 2021, a maximum of $10,000 in qualified wages for each employee is eligible for the ERC. Therefore, the maximum tax credit that can be claimed by an eligible employer in 2021 is $7,000 per employee per calendar quarter. We qualified for the ERC in the first quarter of the year because we experienced a reduction in gross receipts of more than 20% for the first quarter of 2021 compared to the first quarter of 2019, the relevant criteria for the ERC. Since we qualified for the ERC in the first quarter of 2021, we automatically qualified for the ERC in the second quarter of 2021. In the first and second quarters of 2021, we received ERC benefits of $3,372 and $3,593, respectively, which were recorded in “Other income (expense), net” in our condensed consolidated statement of operations. During the third quarter of 2021 due to relatively higher revenues in 2021 as compared to the third quarter of 2019, we did not qualify for the ERC benefit. The receivable for the remaining uncollected ERC benefit is $503 as of September 30, 2021 and is included in the “Employee retention credit receivable” line item in our condensed consolidated balance sheet at September 30, 2021.
COVID-19 Pandemic
In March 2020, the World Health Organization recognized a novel strain of coronavirus (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 advised 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 U.S. and global economies, including in the regions in which we operate.
Our facilities continued to operate as essential businesses in light of the customers and markets served. However, through September 30, 2021, we have experienced an adverse impact to our business, operations and financial results as a result of this pandemic due in part to a decline in order activity levels, manufacturing inefficiencies associated with supply chain disruptions and employee staffing constraints due to the spread of the COVID-19 pandemic. In response to the pandemic, we continue to right-size our workforce and delay certain capital expenditures. In future periods, we may experience weaker customer demand, requests for extended payment terms, customer bankruptcies, additional 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, including in light of the emerging variants, 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, including emerging variants. We have been able to 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 September 30, 2021, Compared to Three months ended September 30, 2020
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 September 30, 2021, compared to the three months ended September 30, 2020.
| Three Months Ended September 30, |
2021 vs. 2020 |
|||||||||||||||||||||||
| % of Total |
% of Total |
|||||||||||||||||||||||
| 2021 |
Revenue |
2020 |
Revenue |
$ Change |
% Change |
|||||||||||||||||||
| Revenues |
$ | 40,389 | 100.0 | % | $ | 54,614 | 100.0 | % | $ | (14,225 | ) | (26.0 | )% | |||||||||||
| Cost of sales |
38,315 | 94.9 | % | 50,876 | 93.2 | % | (12,561 | ) | (24.7 | )% | ||||||||||||||
| Gross profit |
2,074 | 5.1 | % | 3,738 | 6.8 | % | (1,664 | ) | (44.5 | )% | ||||||||||||||
| Operating expenses |
||||||||||||||||||||||||
| Selling, general and administrative expenses |
3,888 | 9.6 | % | 4,030 | 7.4 | % | (142 | ) | (3.5 | )% | ||||||||||||||
| Intangible amortization |
183 | 0.5 | % | 183 | 0.3 | % | — | 0.0 | % | |||||||||||||||
| Total operating expenses |
4,071 | 10.1 | % | 4,213 | 7.7 | % | (142 | ) | (3.4 | )% | ||||||||||||||
| Operating loss |
(1,997 | ) | (4.9 | )% | (475 | ) | (0.9 | )% | (1,522 | ) | (320.4 | )% | ||||||||||||
| Other (expense) income, net |
||||||||||||||||||||||||
| Interest expense, net |
(269 | ) | (0.7 | )% | (507 | ) | (0.9 | )% | 238 | 46.9 | % | |||||||||||||
| Other, net |
185 | 0.5 | % | (1 | ) | (0.0 | )% | 186 | 18600.0 | % | ||||||||||||||
| Total other (expense) income, net |
(84 | ) | (0.2 | )% | (508 | ) | (0.9 | )% | 424 | 83.5 | % | |||||||||||||
| Net loss before provision for income taxes |
(2,081 | ) | (5.2 | )% | (983 | ) | (1.8 | )% | (1,098 | ) | (111.7 | )% | ||||||||||||
| Provision for income taxes |
24 | 0.1 | % | 20 | 0.0 | % | 4 | 20.0 | % | |||||||||||||||
| Net loss |
$ | (2,105 | ) | (5.2 | )% | $ | (1,003 | ) | (1.8 | )% | $ | (1,102 | ) | (109.9 | )% | |||||||||
Consolidated
Revenues decreased by $14,225 versus the prior year quarter, which was primarily driven by a 37% decrease in tower sections sold in our Heavy Fabrications segment, reflecting both project delays and an industry-wide reduction in activity. Partly offsetting this was a 14% increase in industrial fabrications product line revenue, primarily due to recognizing our first revenue associated with our PRS units. Gearing segment revenue was up $437 from the third quarter of 2020, primarily driven by higher order intake in recent quarters from O&G and steel customers, partially offset by decreased revenue from other industrial customers. Industrial Solutions segment revenue increased $132 representing a 3% increase compared to the prior year quarter, primarily due to the timing of new gas turbine customer projects.
Gross profit decreased by $1,664 from the prior year quarter primarily due to reduced operating leverage associated with lower wind tower production. This decrease was partially offset by higher sales and improved manufacturing efficiencies within the Gearing segment. As a result, gross margin decreased to 5.1% during the three months ended September 30, 2021, from 6.8% during the three months ended September 30, 2020.
Due to lower revenue levels, higher commission expenses, and an increase in employee costs, operating expenses as a percentage of sales increased to 10.1% in the current-year quarter from 7.7% in the prior year quarter.
Net loss was $2,105 during the three months ended September 30, 2021, compared to $1,003 during the three months ended September 30, 2020. This erosion was primarily due to the factors described above, partially offset by a 47% reduction in interest expense.
Heavy Fabrications Segment
| Three Months Ended |
||||||||
| September 30, |
||||||||
| 2021 |
2020 |
|||||||
| Orders |
$ | 26,539 | $ | 31,391 | ||||
| Tower sections sold |
197 | 312 | ||||||
| Revenues |
28,675 | 43,440 | ||||||
| Operating (loss) income |
(445 | ) | 2,020 | |||||
| Operating margin |
(1.6 | )% | 4.7 | % | ||||
Heavy Fabrications segment wind tower orders decreased 38% as compared to the third quarter of 2020 as customers delayed orders due to uncertainty regarding the timing and likelihood of potential U.S. federal wind energy incentives and elevated steel prices. Industrial fabrication product line orders increased 262% quarter-over-quarter as customers resumed capital spending and inventory purchases in all end markets. Segment revenues decreased $14,765 from the prior year quarter primarily due to a 37% decrease in tower sections sold due to the aforementioned project delays. This was partially offset by increased industrial fabrication revenues as we recognized our first revenue associated with our PRS units in the current year quarter.
Heavy Fabrications segment operating income decreased by $2,465 compared to the prior year. The quarter-over-quarter degradation in operating performance reflects the adverse volume impacts described previously, manufacturing inefficiencies caused by supply chain disruptions, and the underutilization of plant capacity in the quarter. Operating margin was (1.6)% during the three months ended September 30, 2021, a decrease from 4.7% during the three months ended September 30, 2020.
Gearing Segment
| Three Months Ended |
||||||||
| September 30, |
||||||||
| 2021 |
2020 |
|||||||
| Orders |
$ | 11,546 | $ | 3,225 | ||||
| Revenues |
7,562 | 7,125 | ||||||
| Operating loss |
(219 | ) | (1,023 | ) | ||||
| Operating margin |
(2.9 | )% | (14.4 | )% | ||||
Gearing segment orders increased 258% from the prior year period primarily due to increased demand from O&G and mining customers. Gearing revenue was up 6% relative to the comparable prior year period, a reflection of higher order intake in the current year, primarily from O&G and steel customers, partially offset by a decrease in revenue from other industrial customers.
Gearing segment operating loss decreased $804 from the prior year period. This was primarily attributable to higher sales and improved manufacturing efficiencies. Operating margin was (2.9)% during the three months ended September 30, 2021, an improvement from (14.4)% during the three months ended September 30, 2020, driven primarily by the items identified above.
Industrial Solutions Segment
| Three Months Ended |
||||||||
| September 30, |
||||||||
| 2021 |
2020 |
|||||||
| Orders |
$ | 4,512 | $ | 4,939 | ||||
| Revenues |
4,213 | 4,081 | ||||||
| Operating (loss) income |
(108 | ) | 87 | |||||
| Operating margin |
(2.6 | )% | 2.1 | % | ||||
Industrial Solutions segment orders decreased by 9% from the prior year period primarily due to the timing of orders associated with aftermarket projects. Segment revenue increased by 3% from the prior year period primarily due to the timing of new gas turbine projects. The decrease in operating income versus the prior-year quarter was primarily a result of a lower margin sales mix sold.
Corporate and Other
Corporate and Other expenses during the three months ended September 30, 2021 decreased from the prior year period primarily due to lower incentive compensation and decreased professional service expenses.
Nine Months Ended September 30, 2021, Compared to Nine Months Ended September 30, 2020
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 nine months ended September 30, 2021, compared to the nine months ended September 30, 2020.
| Nine Months Ended September 30, |
2021 vs. 2020 |
|||||||||||||||||||||||
| % of Total |
% of Total |
|||||||||||||||||||||||
| 2021 |
Revenue |
2020 |
Revenue |
$ Change |
% Change |
|||||||||||||||||||
| Revenues |
$ | 119,608 | 100.0 | % | $ | 158,174 | 100.0 | % | $ | (38,566 | ) | (24.4 | )% | |||||||||||
| Cost of sales |
115,054 | 96.2 | % | 142,847 | 90.3 | % | (27,793 | ) | (19.5 | )% | ||||||||||||||
| Gross profit |
4,554 | 3.8 | % | 15,327 | 9.7 | % | (10,773 | ) | (70.3 | )% | ||||||||||||||
| Operating expenses |
||||||||||||||||||||||||
| Selling, general and administrative expenses |
12,623 | 10.6 | % | 12,537 | 7.9 | % | 86 | 0.7 | % | |||||||||||||||
| Intangible amortization |
550 | 0.5 | % | 550 | 0.3 | % | — | — | % | |||||||||||||||
| Total operating expenses |
13,173 | 11.0 | % | 13,087 | 8.3 | % | 86 | 0.7 | % | |||||||||||||||
| Operating (loss) income |
(8,619 | ) | (7.2 | )% | 2,240 | 1.4 | % | (10,859 | ) | (484.8 | )% | |||||||||||||
| Other income (expense), net |
||||||||||||||||||||||||
| Paycheck Protection Program loan forgiveness |
9,151 | 7.7 | % | — | — | % | 9,151 | 100.0 | % | |||||||||||||||
| Interest expense, net |
(816 | ) | (0.7 | )% | (1,654 | ) | (1.0 | )% | 838 | 50.7 | % | |||||||||||||
| Other, net |
7,322 | 6.1 | % | (3 | ) | (0.0 | )% | 7,325 | 244166.7 | % | ||||||||||||||
| Total other income (expense), net |
15,657 | 13.1 | % | (1,657 | ) | (1.0 | )% | 17,314 | 1044.9 | % | ||||||||||||||
| Net income before provision for income taxes |
7,038 | 5.9 | % | 583 | 0.4 | % | 6,455 | 1107.2 | % | |||||||||||||||
| Provision for income taxes |
101 | 0.1 | % | 103 | 0.1 | % | (2 | ) | (1.9 | )% | ||||||||||||||
| Net income |
$ | 6,937 | 5.8 | % | $ | 480 | 0.3 | % | $ | 6,457 | 1345.2 | % | ||||||||||||
Consolidated
Revenues decreased by $38,566 from the nine months ended September 30, 2020, primarily due to a 29% decrease in tower sections sold due to customer driven project delays and a lower average selling price due to the mix of tower designs sold.
Gross profit decreased by $10,773 from the first nine months of 2020 primarily due to lower sales volumes and due to manufacturing inefficiencies caused by supply chain disruptions, and a temporary shut-down of our Abilene, Texas plant due to a weather event in the first quarter of 2021. As a result, gross margin decreased to 3.8% during the nine months ended September 30, 2021, from 9.7% during the nine months ended September 30, 2020.
Due to lower revenue levels, higher legal expenses and an increase in professional service fees, operating expenses as a percentage of sales increased to 11.0% in the current year from 8.3% in the prior year period.
Net income was $6,937 during the nine months ended September 30, 2021, compared to $480 during the nine months ended September 30, 2020. The increase was primarily attributable to income of $9,151 recognized from the PPP Loan forgiveness and income of $6,965 recognized from the ERC benefit. Both of these items were recognized in “Other income (expense), net” in our condensed consolidated statements of operations. This was partially offset by adverse volume impacts in our Heavy Fabrications segment.
Heavy Fabrications Segment
| Nine Months Ended |
||||||||
| September 30, |
||||||||
| 2021 |
2020 |
|||||||
| Orders |
$ | 62,096 | $ | 78,306 | ||||
| Tower sections sold |
668 | 944 | ||||||
| Revenues |
87,282 | 125,424 | ||||||
| Operating (loss) income |
(1,873 | ) | 8,760 | |||||
| Operating margin |
(2.1 | )% | 7.0 | % | ||||
Heavy Fabrications segment wind tower orders decreased 34% compared to the prior year period as customers delayed orders due to uncertainty regarding the timing and likelihood of potential federal wind energy incentives and elevated U.S. steel prices. Industrial fabrication product line orders, within the Heavy Fabrication segment, increased 48% year-over-year. Segment revenues decreased by $38,142 from the prior year period primarily due to a 29% decrease in tower sections sold and a lower average selling price due to the mix of tower designs sold.
Heavy Fabrications segment operating income decreased by $10,633 compared to the prior year. The year-over-year degradation in operating performance reflects the adverse volume impacts described previously, the underutilization of plant capacity, manufacturing inefficiencies caused by supply chain disruptions and a temporary shut-down of our Abilene, Texas plant due to a weather event in the first quarter of 2021. Operating margin was (2.1)% during the nine months ended September 30, 2021, a decrease from 7.0% during the nine months ended September 30, 2020.
Gearing Segment
| Nine Months Ended |
||||||||
| September 30, |
||||||||
| 2021 |
2020 |
|||||||
| Orders |
$ | 29,325 | $ | 19,376 | ||||
| Revenues |
20,315 | 20,273 | ||||||
| Operating loss |
(2,090 | ) | (1,935 | ) | ||||
| Operating margin |
(10.3 | )% | (9.5 | )% | ||||
Gearing segment orders increased 51% from the nine months ended September 30, 2020 primarily due to increased demand from O&G customers, partially offset by the timing of aftermarket wind gearing orders, which can fluctuate based on customer order patterns and market conditions. Gearing revenue was flat as lower order intake in the second half of the prior year from industrial and mining customers was offset by increased revenue from O&G and aftermarket wind customers.
Gearing segment operating loss increased $155 from the prior year period. This was primarily attributable to increased manufacturing inefficiencies. Operating margin was (10.3)% during the nine months ended September 30, 2021, down from (9.5)% during the nine months ended September 30, 2020, driven primarily by the items identified above.
Industrial Solutions Segment
| Nine Months Ended |
||||||||
| September 30, |
||||||||
| 2021 |
2020 |
|||||||
| Orders |
$ | 11,831 | $ | 15,240 | ||||
| Revenues |
12,357 | 12,516 | ||||||
| Operating (loss) income |
(169 | ) | 496 | |||||
| Operating margin |
(1.4 | )% | 4.0 | % | ||||
Industrial Solutions segment orders decreased by 22% from the prior year period primarily due to the timing of orders associated with new gas turbine and aftermarket projects. Segment revenue decreased by 1% from the prior year period primarily due to the timing of aftermarket installations. The decrease in operating income versus the prior year was primarily a result of a lower margin sales mix sold during the first nine months of 2021. Operating margin was (1.4)% during the nine months ended September 30, 2021, a decrease from 4.0% during the nine months ended September 30, 2020.
Corporate and Other
Corporate and Other expenses during the nine months ended September 30, 2021 decreased from the prior year period primarily due to lower incentive compensation and decreased professional service expenses.
LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES
As of September 30, 2021, cash totaled $2,335, a decrease of $1,037 from December 31, 2020. Cash balances remain limited as operating receipts and disbursements flow through our 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 September 30, 2021 totaled $10,321. As of September 30, 2021, we had the ability to borrow up to an additional $18,743 under the Credit Facility.
On March 9, 2021, we entered into a $10,000 Equity Distribution Agreement (the “Equity Distribution Agreement”) with Craig-Hallum Capital Group, LLC (the “Manager”). Pursuant to the terms of the Equity Distribution Agreement, we issued 1,897,697 shares of the Company's common stock thereunder during the first two quarters of 2021. The net proceeds (before upfront costs) to the Company from the sales of such shares were approximately $9,725 after deducting commissions paid of approximately $275 and before deducting other expense of $396.
On November 8, 2021, we executed the Third Amendment to the Amended and Restated Loan Agreement (the “Third Amendment”) which waived the fixed charge coverage ratio default for the quarter ended September 30, 2021, suspended testing of the fixed charge coverage ratio covenant through September 30, 2022, added a minimum EBITDA covenant applicable to the three-month period ending December 31, 2021, the six-month period ending March 31, 2022, the nine-month period ending June 30, 2022 and the twelve-month period ending September 30, 2022 and added a reserve of $5,000,000 to the Revolving Loan Availability through December 31, 2022.
We anticipate that current cash resources, amounts available under the Credit Facility, cash to be generated from operations and any potential proceeds from the sale of further securities under the Form S-3 will be adequate to meet our liquidity needs for at least the next twelve months.
If assumptions regarding our production, sales and subsequent collections from certain of our large customers, as well as receipt of 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 emerging variants, and its effects on domestic and global economies, we may encounter cash flow and liquidity issues.
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 nine months ended September 30, 2021 and 2020:
| Nine Months Ended |
||||||||
| September 30, |
||||||||
| 2021 |
2020 |
|||||||
| Total cash (used in) provided by: |
||||||||
| Operating activities |
$ | (10,823 | ) | $ | (2,475 | ) | ||
| Investing activities |
(1,336 | ) | (1,597 | ) | ||||
| Financing activities |
11,122 | 4,197 | ||||||
| Net (decrease) increase in cash |
$ | (1,037 | ) | $ | 125 | |||
Operating Cash Flows
During the nine months ended September 30, 2021, net cash used in operating activities totaled $10,823 compared to net cash used in operating activities of $2,475 during the prior year period. The increase in net cash used was primarily due to our operating performance (excluding the PPP loan forgiveness), the timing of accruals and an increase in operating working capital in the current year period.
Investing Cash Flows
During the nine months ended September 30, 2021, net cash used in investing activities totaled $1,336, compared to net cash used in investing activities of $1,597 during the prior year period. The decrease in net cash used in investing activities as compared to the prior-year period was primarily due to a decrease in net purchases of property and equipment.
Financing Cash Flows
During the nine months ended September 30, 2021, net cash provided by financing activities totaled $11,122, compared to net cash provided by financing activities of $4,197 during the prior year period. The increase was primarily due to proceeds from the sale of securities under the Equity Distribution Agreement and increased net borrowings under our Credit Facility in the current year, partially offset by the absence of the PPP Loan (defined below) proceeds received in 2020.
Other
In 2016, we entered into a $570 loan agreement with the Development Corporation of Abilene which is included in the “Long-term debt, less current maturities” line item of our condensed consolidated financial statements as of September 30, 2021 and December 31, 2020. The loan is forgivable upon the Company meeting and maintaining specific employment thresholds. During each of the years 2020, 2019 and 2018, $114 of the loan was forgiven. As of September 30, 2021, the loan balance was $228. In addition, we have outstanding notes payable for capital expenditures in the amount of $161 and $163 as of September 30, 2021 and December 31, 2020, respectively, with $161 included in the “Line of Credit and other notes payable” line item of our condensed consolidated financial statements as of September 30, 2021 and December 31, 2020. The notes payable have monthly payments that range from $1 to $16 and an interest rate of approximately 4%. The equipment purchased is utilized as collateral for the notes payable. The outstanding notes payable have maturity dates that range from March 2022 to September 2024.
On April 15, 2020, we received funds under notes and related documents executed under the Paycheck Protection Program (“PPP Loans”) with CIBC Bank, USA under 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 are eligible to 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. 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 consistent with the terms of the PPP and submitted our forgiveness applications to CIBC Bank, USA during the first quarter of 2021. During the second quarter of 2021, all loans were forgiven by the SBA and a gain of $9,151 was recorded in Other income (expense), net in our condensed consolidated statements of operations.
The CARES Act also provided for the ERC, which is a refundable tax credit against certain employment taxes. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERC. The ERC is available for wages paid through December 31, 2021 and is equal to 70% of qualified wages (which includes employer qualified health plan expenses) paid to employees. During each quarter in 2021, a maximum of $10,000 in qualified wages for each employee is eligible for the ERC. Therefore, the maximum tax credit that can be claimed by an eligible employer in 2021 is $7,000 per employee per calendar quarter. We qualified for the ERC in the first quarter of the year because we experienced a reduction in gross receipts of more than 20% for the first quarter of 2021 compared to the first quarter of 2019, the relevant criteria for the ERC. Since we qualified for the ERC in the first quarter of 2021, we automatically qualified for the ERC in the second quarter of 2021. In the first and second quarters of 2021, we received ERC benefits of $3,372 and $3,593, respectively, which were recorded in “Other income (expense), net” in our condensed consolidated statement of operations. During the third quarter of 2021 due to relatively higher revenues, we did not qualify for the ERC benefit. The remaining receivable for the uncollected ERC benefit is $503 as of September 30, 2021 and is included in the “Employee retention credit receivable” line item in our condensed consolidated balance sheet at September 30, 2021.
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, 2020. 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”), that reflect our current expectations regarding our future growth, results of operations, financial condition, cash flows, performance, business prospects and opportunities, as well as assumptions made by, and information currently available to, our management. We have tried to identify forward looking statements by using words such as “anticipate,” “believe,” “expect,” “intend,” “will,” “should,” “may,” “plan” and similar expressions, but these words are not the exclusive means of identifying forward looking statements. 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, many of which are, and will be, amplified by the COVID-19 pandemic, including as a result of emerging variants: (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; (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; (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, 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; (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; (ix) our ability to realize revenue from customer orders and backlog; (x) our ability to operate our business efficiently, comply with our debt obligations, manage capital expenditures and costs effectively, and generate cash flow; (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; (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; (xiii) the effects of market disruptions and regular market volatility, including fluctuations in the price of oil, gas and other commodities; (xiv) competition from new or existing industry participants including, in particular, increased competition from foreign tower manufacturers; (xv) the effects of the change of administrations in the U.S. federal government; (xvi) our ability to successfully integrate and operate acquired companies and to identify, negotiate and execute future acquisitions; (xvii) the potential loss of tax benefits if we experience an “ownership change” under Section 382 of the Internal Revenue Code of 1986, as amended; (xviii) our ability to utilize various relief options enabled by the CARES Act; (xix) the limited trading market for our securities and the volatility of market price for our securities; and (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, 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 pursuant to Item 305I 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-15I and 15d-15I 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 September 30, 2021.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, including but not limited to changes resulting from the COVID-19 pandemic, during the three months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| Legal Proceedings |
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.
| Risk Factors |
The Risk Factors identified in our Annual Report on Form 10-K for the year ended December 31, 2020 continue to represent the most significant risks to the Company’s future results of operations and financial conditions, without further modification or amendment.
| Unregistered Sales of Equity Securities and Use of Proceeds |
None.
| Defaults Upon Senior Securities |
None.
| Mine Safety Disclosures |
Not Applicable.
| Other Information |
On November 8, 2021, we executed the Third Amendment to the Amended and Restated Loan Agreement (the “Third Amendment”) which waived the fixed charge coverage ratio default for the quarter ended September 30, 2021, suspended testing of the fixed charge coverage ratio covenant through September 30, 2022, added a minimum EBITDA covenant applicable to the three-month period ending December 31, 2021, the six-month period ending March 31, 2022, the nine-month period ending June 30, 2022 and the twelve-month period ending September 30, 2022 and added a reserve of $5,000,000 to the Revolving Loan Availability through December 31, 2022.
The foregoing description of the Third Amendment is not intended to be complete and is qualified in its entirety by reference to the Third Amendment to Amended and Restated Loan and Security Agreement, which is attached hereto as Exhibit 10.1 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.
| Exhibits |
The exhibits listed on the Exhibit Index are filed as part of this Quarterly Report on Form 10-Q.
EXHIBIT INDEX
BROADWIND, INC.
FORM 10-Q FOR THE QUARTER ENDED September 30, 2021
| Exhibit Number |
Exhibit |
| 3.1 |
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| 3.2 |
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| 3.3 |
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| 3.4 |
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| 10.1 | Third Amendment to Amended and Restated Loan and Security Agreement, dated November 8, 2021, among the Company, Brad Foote Gearworks, Inc., Broadwind Services, LLC, Broadwind Heavy Fabrications, Inc., Broadwind Industrial Solutions, LLC and CIBC Bank USA, as Administrative Agent for itself and all Lenders* |
| 31.1 |
Rule 13a-14(a) Certification of Chief Executive Officer* |
| 32.1 |
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| 101 |
The following financial information from this Form 10-Q of Broadwind, Inc. for the quarter ended September 30, 2021, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text. |
| 101.INS* | Inline XBRL Instance |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition |
| 101.LAB* | Inline XBRL Taxonomy Extension Labels |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| * |
Filed herewith. |
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.
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BROADWIND, INC. |
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| November 10, 2021 |
By: |
/s/ Eric B. Blashford |
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Eric B. Blashford |
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President, Chief Executive Officer, and Interim Chief Financial Officer |
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(Principal Executive Officer and Principal Financial Officer) |
EXHIBIT 10.1
THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Amendment”) is dated as of November 8, 2021 (the “Effective Date”), by among BROADWIND INC., a Delaware corporation f/k/a Broadwind Energy, Inc. (“Parent”), BRAD FOOTE GEAR WORKS, INC., an Illinois corporation (“Brad Foote”), BROADWIND HEAVY FABRICATIONS, INC., a Wisconsin corporation f/k/a Broadwind Towers, Inc. (“Fabrications”), BROADWIND SERVICES, LLC, a Delaware limited liability company (“Services”), and BROADWIND INDUSTRIAL SOLUTIONS, LLC, a North Carolina limited liability company f/k/a Red Wolf Company, LLC (“Solutions”, and collectively with Parent, Brad Foote, Fabrications, and Services, “Borrowers,” and each, a “Borrower), and CIBC BANK USA, formerly known as The PrivateBank and Trust Company, in its capacity as a Lender (“Lender”) and as administrative agent (“Administrative Agent”).
WITNESSETH:
WHEREAS, Administrative Agent, Lender, the other financial institutions from time to time party to the Loan Agreement collectively with Lender, the “Lenders”), and Borrowers have previously entered into that certain Amended and Restated Loan and Security Agreement dated as of February 25, 2019 (as amended, restated, modified or supplemented from time to time, the “Loan Agreement”), pursuant to which the Lenders agreed to make a revolving line of credit loan to Borrowers in the principal amount not to exceed $35,000,000.00 (the “Loan”). The Loan is evidenced by, among other things, that certain Third Amended and Restated Revolving Note, dated as of October 29, 2020, made by Borrowers in favor of Lender, in the principal amount of $35,000,000.00, as amended from time to time (the “Note”). The Loan is secured by, among other things, (i) that certain Deed of Trust, Assignment of Leases and Rents, and Security Agreement dated as of October 26, 2016, recorded with the Recorder of Taylor County, Texas on October 27, 2016, as Document No. 2016-00017320, executed by Fabrications to and for the benefit of Administrative Agent (the “Abilene Deed of Trust”), which Deed of Trust encumbers the real property and improvements legally described therein, and (ii) that certain Open-End Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of February 25, 2019, recorded with the Recorder of Allegheny County, Pennsylvania on April 12, 2019, as Document No. 2019-21563, executed by 5100 Neville Road, LLC, a Delaware limited liability company (“5100”) to and for the benefit of Administrative Agent (the “Pittsburgh Mortgage”, and collectively with the Loan Agreement, the Note, the Abilene Deed of Trust, and all other documents evidencing and/or securing the Loan, the “Loan Documents”), which Pittsburgh Mortgage encumbers the real property and improvements legally described therein.
WHEREAS, the parties desire to amend the terms of the Loan Agreement as provided below.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Amendment, and in consideration of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereby covenant and agree as follows:
1. Definitions. All capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement.
2. Amendments to Loan Agreement. The Loan Agreement is hereby amended and modified as follows:
(a) The following definitions in Section 1.1 of the Loan Agreement are hereby deleted in their entireties and replaced with the following:
“Benchmark Replacement means, for any Available Tenor:
(1) For purposes of clause (a) of Section 4.2.9, the first alternative set forth below that can be determined by Administrative Agent:
(a) the sum of: (i) Term SOFR and (ii) 0.11448% (11.448 basis points) for an Available Tenor of one-month’s duration, 0.26161% (26.161 basis points) for an Available Tenor of three-months’ duration, and 0.42826% (42.826 basis points) for an Available Tenor of six-months’ duration, or
(b) the sum of: (i) Daily Simple SOFR and (ii) the spread adjustment selected or recommended by the Relevant Governmental Body for the replacement of the tenor of USD LIBOR with a SOFR-based rate having approximately the same length as the interest payment period specified in clause (a) of Section 4.2.9; and
(2) For purposes of clause (b) of Section 4.2.9, the sum of (a) the alternate benchmark rate and (b) an adjustment (which may be a positive or negative value or zero), in each case, that has been selected by Administrative Agent and Borrower as the replacement for such Available Tenor of such Benchmark giving due consideration to any evolving or then-prevailing market convention, including any applicable recommendations made by the Relevant Governmental Body, for U.S. dollar-denominated syndicated credit facilities at such time;
provided that, if the Benchmark Replacement as determined pursuant to clause (1) or (2) above would be less than the Floor, the Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement.”
“Benchmark Replacement Conforming Changes means, with respect to any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of “ABR,” the definition of “Business Day,” the definition of “Interest Period,” timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, the applicability and length of lookback periods, the applicability of breakage provisions, and other technical, administrative or operational matters) that Administrative Agent decides may be appropriate to reflect the adoption and implementation of such Benchmark Replacement and to permit the administration thereof by Administrative Agent in a manner substantially consistent with market practice (or, if Administrative Agent decides that adoption of any portion of such market practice is not administratively feasible or if Administrative Agent determines that no market practice for the administration of such Benchmark Replacement exists, in such other manner of administration as Administrative Agent decides is reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).”
“Benchmark Transition Event means, with respect to any then-current Benchmark other than USD LIBOR, the occurrence of a public statement or publication of information by or on behalf of the administrator of the then-current Benchmark, the regulatory supervisor for the administrator of such Benchmark, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, an insolvency official with jurisdiction over the administrator for such Benchmark, a resolution authority with jurisdiction over the administrator for such Benchmark or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark, announcing or stating that (a) such administrator has ceased or will cease on a specified date to provide all Available Tenors of such Benchmark, permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark or (b) all Available Tenors of such Benchmark are or will no longer be representative of the underlying market and economic reality that such Benchmark is intended to measure and that representativeness will not be restored.”
“Early Opt-in Election means the occurrence of:
(1) a notification by Administrative Agent to (or the request by Borrower to Administrative Agent to notify) each of the other parties hereto that at least ten currently outstanding U.S. dollar-denominated syndicated credit facilities at such time contain (as a result of amendment or as originally executed) a SOFR-based rate (including SOFR, a term SOFR or any other rate based upon SOFR) as a benchmark rate (and such syndicated credit facilities are identified in such notice and are publicly available for review), and
(2) the joint election by Administrative Agent and Borrower to trigger a fallback from USD LIBOR and the provision by Administrative Agent of written notice of such election to Lenders.”
“Interest Period shall mean, as to any LIBOR Loan, the period commencing on the date such Loan is borrowed or continued as, or converted into, a LIBOR Loan and ending on the date one or three months thereafter as selected by Borrower pursuant to Section 2.2.2 or 2.2.3, as the case may be; provided that:
(a) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day;
(b) any Interest Period that begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall end on the last Business Day of the calendar month at the end of such Interest Period;
(c) Borrower may not select any Interest Period for a Revolving Loan which would extend beyond the scheduled Maturity Date; and
(d) Administrative Agent may, in its discretion, require that the first Interest Period under this Agreement be a period less than one (1) month (determined by Administrative Agent).”
“Relevant Governmental Body means the Board of Governors of the Federal Reserve System or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Board of Governors of the Federal Reserve System or the Federal Reserve Bank of New York, or any successor thereto.”
“SOFR means a rate per annum equal to the secured overnight financing rate for such Business Day published by the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate) on the website of the Federal Reserve Bank of New York, currently at http://www.newyorkfed.org (or any successor source for the secured overnight financing rate identified as such by the administrator of the secured overnight financing rate from time to time).”
“Term SOFR means, for the applicable corresponding tenor, the forward-looking term rate based on SOFR that has been selected or recommended by the Relevant Governmental Body.”
(b) The following new definitions are hereby added alphabetically to Section 1.1 of the Loan Agreement:
“Available Tenor means, as of any date of determination and with respect to the then-current Benchmark, as applicable, (x) if the then-current Benchmark is a term rate, any tenor for such Benchmark that is or may be used for determining the length of an Interest Period or (y) otherwise, any payment period for interest calculated with reference to such Benchmark, as applicable, pursuant to this Agreement as of such date.”
“Benchmark means, initially, USD LIBOR; provided that if a replacement of the Benchmark has occurred pursuant to this Section titled “Benchmark Replacement Setting”, then “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate. Any reference to “Benchmark” shall include, as applicable, the published component used in the calculation thereof.”
“Daily Simple SOFR means, for any day, SOFR, with the conventions for this rate (which will include a lookback) being established by Administrative Agent in accordance with the conventions for this rate recommended by the Relevant Governmental Body for determining “Daily Simple SOFR” for syndicated business loans; provided, that if Administrative Agent decides that any such convention is not administratively feasible for Administrative Agent, then Administrative Agent may establish another convention in its reasonable discretion.”
“Early Opt-in Effective Date means, with respect to any Early Opt-in Election, the sixth (6th) Business Day after the date notice of such Early Opt-in Election is provided to Lenders, so long as Administrative Agent has not received, by 5:00 p.m. (Chicago time) on the fifth (5th) Business Day after the date notice of such Early Opt-in Election is provided to Lenders, written notice of objection to such Early Opt-in Election from Lenders comprising Required Lenders.”
“Floor means the benchmark rate floor, if any, provided in this Agreement initially (as of the execution of this Agreement, the modification, amendment or renewal of this Agreement or otherwise) with respect to USD LIBOR.”
“USD LIBOR means the London interbank offered rate for U.S. dollars.”
(c) Paragraph (iv) in the definition of “Revolving Loan Availability” in Section 1.1 of the Loan Agreement is hereby deleted in its entirety and replaced with the following:
“(iv) such other reserves as Administrative Agent elects, in its Permitted Discretion, determined in good faith, to establish from time to time, including, without limitation, (i) reserves with respect to Bank Products Obligations and Hedging Obligations, and (ii) beginning November 8, 2021 through December 31, 2022, a reserve in the amount of $5,000,000.00.
(d) Section 4.2.9 of the Loan Agreement is hereby deleted in its entirety and replaced with the following:
“4.2.9. Benchmark Replacement Setting.
Notwithstanding anything to the contrary herein or in any other Loan Document (and any Hedging Agreement shall be deemed not to be a “Loan Document” for purposes of this Section):
(a) Replacing USD LIBOR. On March 5, 2021 the Financial Conduct Authority (“FCA”), the regulatory supervisor of USD LIBOR’s administrator (“IBA”), announced in a public statement the future cessation or loss of representativeness of overnight/Spot Next, 1-month, 3-month, 6-month and 12-month USD LIBOR tenor settings. On the earlier of (i) the date that all Available Tenors of USD LIBOR have either permanently or indefinitely ceased to be provided by IBA or have been announced by the FCA pursuant to public statement or publication of information to be no longer representative and (ii) the Early Opt-in Effective Date, if the then-current Benchmark is USD LIBOR, the Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of any setting of such Benchmark on such day and all subsequent settings without any amendment to, or further action or consent of any other party to this Agreement or any other Loan Document. If the Benchmark Replacement is Daily Simple SOFR, all interest payments will be payable on a monthly basis.
(b) Replacing Future Benchmarks. Upon the occurrence of a Benchmark Transition Event, the Benchmark Replacement will replace the then-current Benchmark for all purposes hereunder and under any Loan Document in respect of any Benchmark setting at or after 5:00 p.m. on the fifth (5th) Business Day after the date notice of such Benchmark Replacement is provided to the Lenders without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document so long as Administrative Agent has not received, by such time, written notice of objection to such Benchmark Replacement from Lenders comprising the Required Lenders. At any time that the administrator of the then-current Benchmark has permanently or indefinitely ceased to provide such Benchmark or such Benchmark has been announced by the regulatory supervisor for the administrator of such Benchmark pursuant to public statement or publication of information to be no longer representative of the underlying market and economic reality that such Benchmark is intended to measure and that representativeness will not be restored, Borrower may revoke any request for a borrowing of, conversion to or continuation of Loans to be made, converted or continued that would bear interest by reference to such Benchmark until Borrower’s receipt of notice from Administrative Agent that a Benchmark Replacement has replaced such Benchmark, and, failing that, Borrower will be deemed to have converted any such request into a request for a borrowing of or conversion to ABR Loans.
(c) Benchmark Replacement Conforming Changes. In connection with the implementation and administration of a Benchmark Replacement, Administrative Agent will have the right to make Benchmark Replacement Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Benchmark Replacement Conforming Changes will become effective without any further action or consent of any other party to this Agreement.
(d) Notices; Standards for Decisions and Determinations. Administrative Agent will promptly notify Borrower and Lenders of (i) the implementation of any Benchmark Replacement and (ii) the effectiveness of any Benchmark Replacement Conforming Changes. Any determination, decision or election that may be made by Administrative Agent or, if applicable, any Lender (or group of Lenders) pursuant to this Section, including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action, will be conclusive and binding absent manifest error and may be made in its or their sole discretion and without consent from any other party hereto, except, in each case, as expressly required pursuant to this Section.
(e) Unavailability of Tenor of Benchmark. At any time (including in connection with the implementation of a Benchmark Replacement), (i) if the then-current Benchmark is a term rate (including Term SOFR or USD LIBOR), then Administrative Agent may remove any tenor of such Benchmark that is unavailable or non-representative for Benchmark (including Benchmark Replacement) settings and (ii) Administrative Agent may reinstate any such previously removed tenor for Benchmark (including Benchmark Replacement) settings.”
(e) The last sentence of Section 14.2 is hereby deleted in its entirety and replaced with the following:
“Notwithstanding the foregoing, Fixed Charge Coverage shall not be tested as of the calendar quarters ending December 31, 2021 through September 30, 2022.”
(f) Section 14.4 of the Loan Agreement is hereby deleted in its entirety and replaced with the following:
“14.4. Minimum EBITDA. Borrower shall not permit EBITDA, tested on a stand-alone basis, to be less than (a) negative One Million and No/100 Dollars (-$1,000,000.00) for the three-month period ending December 31, 2021, (b) negative Seven Hundred Fifty Thousand and No/100 Dollars (-$750,000.00) for the six-month period ending March 31, 2022, (c) Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) for the nine-month period ending June 30, 2022, (d) One Million Eight Hundred Thousand and No/100 Dollars ($1,800,000.00) for the twelve-month period ending September 30, 2022.”
3. Waiver of Covenant Default. Each Borrower acknowledges and agrees that it has been in violation of Section 14.2 of the Loan Agreement for failing to comply with the Fixed Charge Coverage covenant set forth therein as of September 30, 2021 (the “Existing Default”). Administrative Agent and Lender hereby waive the Existing Default, subject to the terms set forth herein. The foregoing waiver is a waiver of the specific Event of Default enumerated herein only and is not, nor should it be construed to be, a waiver of any other existing or future Event of Default, except as set forth herein, whether or not similar to the Event of Default enumerated herein. The foregoing waiver shall not constitute a waiver of any rights, powers or privileges of Administrative Agent and Lender other than as specifically waived herein, and Administrative Agent and Lender reserve their right to exercise all other rights, powers and privileges under the Loan Agreement and any other Loan Document.
4. Representations and Warranties. Each Borrower represents and warrants as follows: (a) the execution and delivery of and the performance under this Amendment is within such Borrower’s power and authority, has been duly authorized by all requisite action and is not in contravention of any law, any other agreement made by such Borrower or by which such Borrower’s assets are bound, except for conflicts with agreements, contracts or other documents which would not reasonably be expected to have a Material Adverse Effect; (b) this Amendment (and the Loan Agreement in its entirety) constitutes the legal, valid and binding obligations of such Borrower and are enforceable against such Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar state or federal laws from time to time in effect which affect the enforcement of creditors’ rights in general and the availability of equitable remedies; (c) the representations and warranties of such Borrower set forth in the Loan Documents are true and correct in all material respects as of the date hereof (except for representations and warranties that expressly relate to an earlier date which are true and correct in all material respects as of such earlier date); (d) there exists no Event of Default (other than the Existing Default), and no event has occurred and is continuing which, with the lapse of time or the giving of notice, or both, would constitute an Event of Default; and (e) such Borrower has no defenses to the enforcement of the Loan Agreement or the other Loan Documents.
5. Fees/Expenses. Borrowers shall pay all out-of-pocket costs and expenses incurred by Administrative Agent in connection with this Amendment, including, without limitation, reasonable attorneys’ fees and expenses, and an amendment fee in the amount of $20,000.00, which amendment fee shall be fully earned and payable on the Effective Date.
6. Reaffirmation. Except as expressly modified or amended by this Amendment, each Borrower reaffirms and reconfirms each and all of the warranties, representations, covenants and agreements of such Borrower under all Loan Documents to which such Borrower is party.
7. Release by Borrowers. Each Borrower hereby releases Administrative Agent and Lender from any and all causes of action or claims, whether known or unknown, which such Borrower may have as of the date hereof for any asserted loss or damages to such Borrower claimed to be caused by, or arising from, any act or omission to act on the part of Administrative Agent and/or Lender, or their shareholders, directors, officers, employees, agents or representatives with respect to the Loan Documents.
8. References. All references to the Loan Agreement in any future correspondence or notice shall be deemed to refer to the Loan Agreement as modified by this Amendment.
9. Ratification. Except as expressly modified or amended by this Amendment, all of the terms, covenants and conditions of the Loan Agreement are hereby ratified and confirmed.
10. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Illinois, without regard to principles of conflicts of laws.
11. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be deemed to be an original, with the same effect as if the signatures thereto and hereto were on the same instrument. Delivery of this Amendment by facsimile, pdf, or .tif signature by any party shall represent a valid and binding execution and delivery of this Amendment by such party.
12.JURISDICTION; VENUE. THE PARTIES HERETO IRREVOCABLY AGREE THAT ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS AMENDMENT, SHALL BE LITIGATED ONLY IN COURTS HAVING SITUS WITHIN CHICAGO, ILLINOIS. EACH PARTY HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED THEREIN AND WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO TRANSFER THE VENUE OF ANY SUCH LITIGATION.
13.WAIVER OF JURY TRIAL. EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AMENDMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AMENDMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY AND (D) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AMENDMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the date first written above.
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BROADWIND INC., a Delaware corporation f/k/a Broadwind Energy, Inc. By: /s/ Eric B. Blashford Its: President, CEO & Interim CFO |
CIBC BANK USA, formerly known as The PrivateBank and Trust Company, as Administrative Agent and Lender Managing Director |
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BRAD FOOTE GEAR WORKS, INC., an Illinois corporation Its: Authorized Signatory BROADWIND HEAVY FABRICATIONS, INC., a Wisconsin corporation f/k/a Broadwind Towers, Inc. Its: Authorized Signatory
BROADWIND SERVICES, LLC, a Delaware limited liability company Its: Authorized Signatory BROADWIND INDUSTRIAL SOLUTIONS, LLC, a North Carolina limited liability company f/k/a Red Wolf Company, LLC By: /s/ Eric B. Blashford Its: Authorized Signatory |
EXHIBIT 31.1
CERTIFICATION
I, Eric B. Blashford, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of Broadwind, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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November 10, 2021 |
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/s/ Eric B. Blashford |
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Eric B. Blashford |
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President, Chief Executive Officer, and Interim Chief Financial Officer |
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(Principal Executive Officer and Principal Financial Officer) |
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q of Broadwind, Inc. (the “Company”) for the period ended September 30, 2021, as filed with the Securities and Exchange Commission (the “Commission”) on the date hereof (the “Report”), I, Eric B. Blashford, President, Chief Executive Officer, and Interim Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that:
(i) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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November 10, 2021 |
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/s/ Eric B. Blashford |
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Eric B. Blashford |
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President, Chief Executive Officer, and Interim Chief Financial Officer |
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(Principal Executive Officer and Principal Financial Officer) |
This certification accompanies the Report pursuant to Section 906 and shall not be deemed filed by the Company for purposes of Section 18 of the Exchange Act.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Commission or its staff upon request.
Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
| Preferred stock, shares authorized (in shares) | 10,000,000 | 10,000,000 |
| Preferred stock, shares issued (in shares) | 0 | 0 |
| Preferred stock, shares outstanding (in shares) | 0 | 0 |
| Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
| Common stock, shares authorized (in shares) | 30,000,000 | 30,000,000 |
| Common stock, shares issued (in shares) | 19,753,256 | 17,211,498 |
| Treasury stock, common shares (in shares) | 273,937 | 273,937 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
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| Revenues | $ 40,389 | $ 54,614 | $ 119,608 | $ 158,174 |
| Cost of sales | 38,315 | 50,876 | 115,054 | 142,847 |
| Gross profit | 2,074 | 3,738 | 4,554 | 15,327 |
| OPERATING EXPENSES: | ||||
| Selling, general and administrative | 3,888 | 4,030 | 12,623 | 12,537 |
| Intangible amortization | 183 | 183 | 550 | 550 |
| Total operating expenses | 4,071 | 4,213 | 13,173 | 13,087 |
| Operating (loss) income | (1,997) | (475) | (8,619) | 2,240 |
| OTHER (EXPENSE) INCOME, net: | ||||
| Paycheck Protection Program loan forgiveness | 0 | 0 | 9,151 | 0 |
| Interest expense, net | (269) | (507) | (816) | (1,654) |
| Other, net | 185 | (1) | 7,322 | (3) |
| Total other (expense) income, net | (84) | (508) | 15,657 | (1,657) |
| Net (loss) income before provision for income taxes | (2,081) | (983) | 7,038 | 583 |
| Provision for income taxes | 24 | 20 | 101 | 103 |
| NET (LOSS) INCOME | $ (2,105) | $ (1,003) | $ 6,937 | $ 480 |
| NET (LOSS) INCOME PER COMMON SHARE—BASIC: | ||||
| Net (loss) income (in dollars per share) | $ (0.11) | $ (0.06) | $ 0.38 | $ 0.03 |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—BASIC (in shares) | 19,417,675 | 16,866,134 | 18,460,444 | 16,741,481 |
| NET (LOSS) INCOME PER COMMON SHARE—DILUTED: | ||||
| Net (loss) income (in dollars per share) | $ (0.11) | $ (0.06) | $ 0.36 | $ 0.03 |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—DILUTED (in shares) | 19,417,675 | 16,866,134 | 19,218,420 | 17,278,401 |
Note 1 - Basis of Presentation |
9 Months Ended |
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Sep. 30, 2021 | |
| Notes to Financial Statements | |
| Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies [Text Block] |
NOTE 1 — BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements presented herein include the accounts of Broadwind, Inc. (the “Company”) and its wholly-owned subsidiaries Broadwind Heavy Fabrications, Inc. (“Broadwind Heavy Fabrications”), Brad Foote Gear Works, Inc. (“Brad Foote”) and Broadwind Industrial Solutions, LLC (“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 nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the twelve months ending December 31, 2021, 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, 2020.
The December 31, 2020 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, 2020.
There have been no material changes in the Company’s significant accounting policies during the nine months ended September 30, 2021 as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
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 value products to customers with complex systems and stringent quality standards that operate in energy, mining and infrastructure 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 66% and 72% of the Company’s revenue during the first nine months of 2021 and 2020, respectively.
Liquidity
The Company typically 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/or equity markets, including the option to raise capital from the sale of our securities under the 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 September 30, 2021 totaled $10,321, which includes current outstanding debt and finance leases totaling $7,331. The Company's revolving line of credit balance is included in the “Line of credit and other notes payable” line item in the Company's condensed consolidated balance sheet. Long-term debt at December 31, 2020 included $9,151 of Payroll Protection Program loans (“PPP Loans”), which were forgiven by the U.S. Small Business Administration (“SBA”) during the quarter ended June 30, 2021. See Note 7, “Debt and Credit Agreements,” of these condensed consolidated financial statements for a complete description of the PPP Loans.
On August 18, 2020, 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 13, 2020 (the “Form S-3”) and expires on October 12, 2023. This shelf registration statement, 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.
On March 9, 2021, the Company entered into a $10,000 Equity Distribution Agreement (the “Equity Distribution Agreement”) with Craig-Hallum Capital Group, LLC. Pursuant to the terms of the Equity Distribution Agreement, the Company issued 1,897,697 shares of the Company’s common stock thereunder during the first two quarters of 2021. The net proceeds (before upfront costs) to the Company from the sale of such shares were approximately $9,725 after deducting commissions paid of approximately $275 and before deducting other expenses of $396.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law providing numerous tax provisions and other stimulus measures, including an employee retention credit (“ERC”), which is a refundable tax credit against certain employment taxes. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERC. The ERC is available for wages paid through December 31, 2021 and is equal to 70% of qualified wages (which includes employer qualified health plan expenses) paid to employees. During each quarter of 2021, a maximum of $10,000 in qualified wages for each employee is eligible for the ERC. Therefore, the maximum tax credit that can be claimed by an eligible employer in 2021 is $7,000 per employee per calendar quarter. In the first and second quarters of 2021, the Company received ERC benefits of $3,372 and $3,593, respectively, which were recorded in “Other income (expense), net” in the Company’s condensed consolidated statement of operations. The Company qualified for the ERC in the first quarter of 2021 because it experienced a reduction in gross receipts of more than 20% for the first quarter of 2021 compared to the first quarter of 2019, the relevant criteria for the ERC. Since the Company qualified for the ERC in the first quarter of 2021, it automatically qualified for the ERC in the second quarter of 2021. As a result of the Company averaging 500 or fewer full-time employees in 2019, all wages paid to employees were eligible for the ERC (rather than only wages paid to employees not providing services). During the third quarter of 2021 due to relatively higher revenues in 2021 as compared to the third quarter of 2019, the Company did not qualify for the ERC benefit. The receivable for the remaining uncollected ERC benefit is $503 as of September 30, 2021 and is included in the “Employee retention credit receivable” line item in the Company’s condensed consolidated balance sheet at September 30, 2021.
The Company anticipates that current cash resources, 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 receipt of customer deposits and revenues generated from new customer orders, are materially inconsistent with management’s expectations, particularly in light of the COVID-19 pandemic, emerging variants 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 its 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 cash flows, inventory reserves, warranty reserves, impairment of long-lived assets, allowance for doubtful accounts 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, particularly in light of the COVID-19 pandemic.
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Note 2 - Revenues |
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| Revenue from Contract with Customer [Text Block] |
NOTE 2 — REVENUES
Revenues are recognized when the promised goods or services are 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 nine months ended September 30, 2021 and 2020:
Revenue within the Company’s Gearing and Industrial Solutions segments, as well as industrial fabrication product line revenues within the Heavy Fabrications segment, are generally recognized at a point in time, typically when the promised goods or services are physically 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 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 tower sales within the Company’s 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.
During the nine months ended September 30, 2021, the Company recognized a portion of revenue within the Gearing and Heavy Fabrications segments over time, as the products had no alternative use to the Company and the Company had an enforceable right to payment, including profit, upon termination of the contracts. Since the projects are labor intensive, the Company uses labor hours as the input measure of progress for the applicable contracts. Within the Heavy Fabrications segment, the Company recognized revenue over time of $1,791 and $4,220 for the three and nine months ended September 30, 2021, respectively. Within the Gearing segment, the Company recognized revenue over time of $499 and $2,444 for the three and nine months ended September 30, 2021, respectively. Contract assets are recorded when performance obligations are satisfied but the Company is not yet entitled to payment. Contract assets represent the Company’s rights to consideration for work completed but not billed at the end of the period. During the three and nine months ended September 30, 2020, the Company recognized revenue over time of $1,475 from one customer within the Gearing segment.
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.
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Note 3 - Earnings Per Share |
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| Earnings Per Share [Text Block] |
NOTE 3 — EARNINGS PER SHARE
The following table presents a reconciliation of basic and diluted earnings per share for the three and nine months ended September 30, 2021 and 2020, as follows:
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| Inventory Disclosure [Text Block] |
NOTE 4 — INVENTORIES
The components of inventories as of September 30, 2021 and December 31, 2020 are summarized as follows:
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Note 5 - Intangible Assets |
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| Intangible Assets Disclosure [Text Block] |
NOTE 5 — INTANGIBLE ASSETS
Intangible 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, trade names and customer relationships that were part of the Company’s acquisition of Red Wolf Company, LLC completed in 2017. Intangible assets are amortized on a straight-line basis over their estimated useful lives, with a remaining life range from 1 to 6 years.
As of September 30, 2021 and December 31, 2020, the cost basis, accumulated amortization and net book value of intangible assets were as follows:
As of September 30, 2021, estimated future amortization expense was as follows:
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Note 6 - Accrued Liabilities |
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| Accounts Payable and Accrued Liabilities Disclosure [Text Block] |
NOTE 6 — ACCRUED LIABILITIES
Accrued liabilities as of September 30, 2021 and December 31, 2020 consisted of the following:
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Note 7 - Debt and Credit Agreements |
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| Debt Disclosure [Text Block] |
NOTE 7 — DEBT AND CREDIT AGREEMENTS
The Company’s outstanding debt balances as of September 30, 2021 and December 31, 2020 consisted of the following:
Credit Facility
On October 26, 2016, the Company established a -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 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, providing the Company and its subsidiaries with a $35,000 secured credit facility (as amended to date, 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.
On October 29, 2020, the Company executed the First Amendment to the Amended and Restated Loan Agreement, implementing a payoff of a syndicated lender and a pricing grid based on the Company’s trailing twelve month EBITDA under which applicable margins range from 2.25% to 2.75% for London Interbank Offering Rate (“LIBOR”) rate loans and 0.00% and 0.75% for base rate loans, and extending the term of the Credit Facility to July 31, 2023.
On February 23, 2021, the Company executed the Second Amendment to the Amended and Restated Loan Agreement, which waived testing of the fixed charge coverage covenant for the quarters ended March 31, 2021 and June 20, 2021, added a new liquidity covenant applicable to the quarter ended March 31, 2021 and new minimum EBITDA covenants applicable to the quarters ended March 31, 2021 and June 30, 2021. As of September 30, 2021, the Company transitioned back to a fixed charge coverage covenant.
On November 8, 2021, the Company executed the Third Amendment to the Amended and Restated Loan Agreement (the “Third Amendment”) which waived the fixed charge coverage ratio default for the quarter ended September 30, 2021, suspended testing of the fixed charge coverage ratio covenant through September 30, 2022, added a minimum EBITDA covenant applicable to the three-month period ending December 31, 2021, the six-month period ending March 31, 2022, the nine-month period ending June 30, 2022 and the twelve-month period ending September 30, 2022 and added a reserve of $5,000,000 to the Revolving Loan Availability through December 31, 2022. For a more detailed description of the Third Amendment, refer to Item 5 of Part II of this Form 10-Q.
The Credit Facility is an asset-based revolving credit facility, pursuant to which the CIBC advances funds against a borrowing base consisting of approximately (a) 85% of the face value of eligible receivables of the Company and the 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 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. With the exception of the balance impacted by the interest rate swap (as described 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 Credit Facility contains customary representations and warranties applicable to the Company and its subsidiaries. It also contains a requirement that the Company, on a consolidated basis, maintain a minimum quarterly fixed charge coverage ratio, along with other customary restrictive covenants, certain of which are subject to materiality thresholds, baskets and customary exceptions and qualifications.
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 September 30, 2021 and December 31, 2020.
As of September 30, 2021, there was $5,284 of outstanding indebtedness under the Credit Facility, with the ability to borrow an additional $18,743.
Other
In 2016, the Company entered into a $570 loan agreement with the Development Corporation of Abilene which is included in the “Long-term debt, less current maturities” line item of our condensed consolidated financial statements as of September 30, 2021 and December 31, 2020. The loan is forgivable upon the Company meeting and maintaining specific employment thresholds. During each of the years 2020, 2019, and 2018, $114 of the loan was forgiven. As of September 30, 2021, the loan balance was $228. In addition, the Company has outstanding notes payable for capital expenditures in the amount of $161 and $163 as of September 30, 2021 and December 31, 2020, respectively, with $161 included in the “Line of credit and other notes payable” line item of the Company’s condensed consolidated financial statements as of September 30, 2021 and December 31, 2020. The notes payable have monthly payments that range from $1 to $16 and an interest rate of approximately 4%. The equipment purchased is utilized as collateral for the notes payable. The outstanding notes payable have maturity dates that range from March 2022 to September 2024. On April 15, 2020, the Company received funds under notes and related documents with CIBC, under the Paycheck Protection Program (the “PPP”) which was established under the CARES Act enacted on March 27, 2020 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 Paycheck Protection Program Flexibility Act of 2020 enacted on June 5, 2020 (the “Flexibility Act”), the PPP Loans, and accrued interest and fees are eligible to 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 certain employee benefits (which must equal or exceed 60% of the amount requested to be forgiven), rent, mortgage interest, and utilities. The amount of loan forgiveness is reduced if the borrower terminates employees or significantly reduces salaries during such period, subject to certain exceptions. 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 consistent with the terms of the PPP and submitted its forgiveness applications to CIBC during the first quarter of 2021. During the quarter ended June 30, 2021, all loans were forgiven by the SBA and a gain of $9,151 was recorded in “Other income (expense), net” in the Company's condensed consolidated statements of operations. |
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Note 8 - Leases |
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| Lessee Operating and Finance Leases [Text Block] |
NOTE 8 — LEASES
The Company leases certain facilities and equipment. On January 1, 2019, the Company adopted Accounting Standard Update (“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 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 Topic 842 and was offset against the ROU asset balance during the adoption. 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 nine months ended September 30, 2021 and 2020, the Company had additional operating leases that resulted in right-of-use assets obtained in exchange for lease obligations of $907 and $4,380, respectively. Additionally, during the nine months ended September 30, 2021 and 2020, the Company had additional finance leases that resulted in property, plant, and equipment obtained in exchange for lease obligations of $2,444 and $2,253, respectively.
Some of the Company’s facility leases include options to renew. The exercise of the renewal options is typically at the Company’s discretion. The Company regularly evaluates the renewal options and includes them in the lease term when the Company is reasonably certain to exercise them.
Quantitative information regarding the Company’s leases is as follows:
As of September 30, 2021, future minimum lease payments under finance leases and operating leases were as follows:
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Note 9 - Fair Value Measurements |
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| Fair Value Disclosures [Text Block] |
NOTE 9 — FAIR VALUE MEASUREMENTS
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments, which include cash, 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.
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 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.
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 following tables represent the fair values of the Company’s financial liabilities as of September 30, 2021 and December 31, 2020:
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Note 10 - Income Taxes |
9 Months Ended |
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Sep. 30, 2021 | |
| Notes to Financial Statements | |
| Income Tax Disclosure [Text Block] |
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 September 30, 2021, the Company has a full valuation allowance recorded against deferred tax assets. During the nine months ended September 30, 2021, the Company recorded a provision for income taxes of $101, compared to a provision for income taxes of $103 during the nine months ended September 30, 2020.
The Company files income tax returns in U.S. federal and state jurisdictions. As of September 30, 2021, 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, 2020, the Company had federal and unapportioned state net operating loss (“NOL”) carryforwards of $260,598 of which $227,781 will generally begin to expire in 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 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 the Company’s stockholders at the Company’s 2019 Annual Meeting of Stockholders and has a term of years.
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-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 -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 September 30, 2021, 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 September 30, 2021.
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Note 11 - Share-based Compensation |
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| Share-based Payment Arrangement [Text Block] |
NOTE 11 — SHARE-BASED COMPENSATION There was no stock option activity during the nine months ended September 30, 2021 and no stock options were outstanding as of September 30, 2021.
The following table summarizes the Company’s restricted stock unit and performance award activity during the nine months ended September 30, 2021:
Under certain situations, shares are withheld from issuance to cover taxes for the vesting of restricted stock units and performance awards. For the nine months ended September 30, 2021, 233,153 of such shares were withheld to cover $1,503 of tax obligations.
The following table summarizes share-based compensation expense included in the Company’s condensed consolidated statements of operations for the nine months ended September 30, 2021 and 2020, as follows:
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Note 12 - Legal Proceedings |
9 Months Ended |
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Sep. 30, 2021 | |
| Notes to Financial Statements | |
| Legal Matters and Contingencies [Text Block] |
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 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.
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Note 13 - Recent Accounting Pronouncements |
9 Months Ended |
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Sep. 30, 2021 | |
| Notes to Financial Statements | |
| Accounting Standards Update and Change in Accounting Principle [Text Block] |
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.
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Note 14 - Segment Reporting |
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| Segment Reporting Disclosure [Text Block] |
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.
The Company’s segments and their product and service offerings are summarized below:
Heavy Fabrications
The Company provides 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 energy industry, although it has diversified into other industrial markets in order to improve capacity utilization, reduce customer concentration, 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 tower 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 megawatts 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 provides gearing and gearboxes to a broad set of customers in diverse markets including; onshore and offshore O&G fracking and drilling, surface and underground mining, wind energy, steel, material handling and other infrastructure markets. The Company has manufactured loose gearing, gearboxes and systems, and provided heat treat 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 in Neville Island, Pennsylvania.
Industrial Solutions
The Company provides supply chain solutions, light fabrication, inventory management, kitting and assembly services, primarily serving the combined cycle natural gas turbine market, as well as other clean technology markets.
Corporate
“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.
The accounting policies of 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 nine months ended September 30, 2021 and 2020 is as follows:
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Note 15 - Commitments and Contingencies |
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| Commitments and Contingencies Disclosure [Text Block] |
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.
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.
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 nine months ended September 30, 2021 and 2020 consisted of the following:
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 September 30, 2021 or December 31, 2020.
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Note 2 - Revenues (Tables) |
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| Disaggregation of Revenue [Table Text Block] |
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Note 3 - Earnings Per Share (Tables) |
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| Schedule of Earnings Per Share, Basic and Diluted [Table Text Block] |
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Note 4 - Inventories (Tables) |
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| Schedule of Inventory, Current [Table Text Block] |
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Note 5 - Intangible Assets (Tables) |
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| Schedule of Finite-Lived Intangible Assets [Table Text Block] |
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Note 6 - Accrued Liabilities (Tables) |
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| Schedule of Accrued Liabilities [Table Text Block] |
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Note 7 - Debt and Credit Agreements (Tables) |
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| Schedule of Debt [Table Text Block] |
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Note 8 - Leases (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Schedule of Lease Quantitative Disclosure [Table Text Block] |
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Note 9 - Fair Value Measurements (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Note 11 - Share-based Compensation (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Schedule of Nonvested Restricted Stock Units Activity [Table Text Block] |
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Note 14 - Segment Reporting (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Schedule of Segment Reporting Information, by Segment [Table Text Block] |
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Note 15 - Commitments and Contingencies (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Financing Receivable, Current, Allowance for Credit Loss [Table Text Block] |
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Note 2 - Revenues (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Revenue from Contract with Customer, Including Assessed Tax | $ 40,389 | $ 54,614 | $ 119,608 | $ 158,174 |
| Transferred over Time [Member] | ||||
| Revenue from Contract with Customer, Including Assessed Tax | 1,475 | 1,475 | ||
| Transferred over Time [Member] | Heavy Fabrications [Member] | ||||
| Revenue from Contract with Customer, Including Assessed Tax | 1,791 | 4,220 | ||
| Transferred over Time [Member] | Gearing [Member] | ||||
| Revenue from Contract with Customer, Including Assessed Tax | $ 499 | $ 2,444 | ||
Note 2 - Revenues - Disaggregation of Revenue (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Revenues | $ 40,389 | $ 54,614 | $ 119,608 | $ 158,174 |
| Consolidation, Eliminations [Member] | ||||
| Revenues | (61) | (32) | (346) | (39) |
| Heavy Fabrications [Member] | Operating Segments [Member] | ||||
| Revenues | 28,675 | 43,440 | 87,282 | 125,424 |
| Gearing [Member] | Operating Segments [Member] | ||||
| Revenues | 7,562 | 7,125 | 20,315 | 20,273 |
| Industrial Solutions [Member] | Operating Segments [Member] | ||||
| Revenues | $ 4,213 | $ 4,081 | $ 12,357 | $ 12,516 |
Note 3 - Earnings Per Share - Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 9 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
Sep. 30, 2021 |
Jun. 30, 2021 |
Mar. 31, 2021 |
Sep. 30, 2020 |
Jun. 30, 2020 |
Mar. 31, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Net (loss) income | $ (2,105) | $ 10,252 | $ (1,210) | $ (1,003) | $ 529 | $ 954 | $ 6,937 | $ 480 |
| Weighted average number of common shares outstanding (in shares) | 19,417,675 | 16,866,134 | 18,460,444 | 16,741,481 | ||||
| Basic net (loss) income per share (in dollars per share) | $ (0.11) | $ (0.06) | $ 0.38 | $ 0.03 | ||||
| Non-vested stock awards (in shares) | 0 | 0 | 757,976 | 536,920 | ||||
| Weighted average number of common shares outstanding (in shares) | 19,417,675 | 16,866,134 | 19,218,420 | 17,278,401 | ||||
| Diluted net (loss) income per share (in dollars per share) | $ (0.11) | $ (0.06) | $ 0.36 | $ 0.03 | ||||
Note 4 - Inventories - Inventories (Details) - USD ($) $ in Thousands |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Raw materials | $ 15,101 | $ 14,586 |
| Work-in-process | 8,814 | 12,634 |
| Finished goods | 3,525 | 2,704 |
| Inventory, Gross, Total | 27,440 | 29,924 |
| Less: Reserve for excess and obsolete inventory | (2,564) | (3,200) |
| Net inventories | $ 24,876 | $ 26,724 |
Note 5 - Intangible Assets (Details Textual) |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2021 |
Dec. 31, 2020 |
|
| Finite-Lived Intangible Assets, Remaining Amortization Period (Year) | 4 years | 4 years 7 months 6 days |
| Minimum [Member] | ||
| Finite-Lived Intangible Assets, Remaining Amortization Period (Year) | 1 year | |
| Maximum [Member] | ||
| Finite-Lived Intangible Assets, Remaining Amortization Period (Year) | 6 years |
Note 5 - Intangible Assets - Estimated Future Amortization Expense (Details) - USD ($) $ in Thousands |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| 2021 | $ 183 | |
| 2022 | 725 | |
| 2023 | 664 | |
| 2024 | 661 | |
| 2025 | 661 | |
| 2026 and thereafter | 742 | |
| Total | $ 3,636 | $ 4,186 |
Note 6 - Accrued Liabilities - Accrued Liabilities (Details) - USD ($) $ in Thousands |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Accrued payroll and benefits | $ 2,646 | $ 5,320 |
| Fair value of interest rate swap | 58 | 148 |
| Accrued property taxes | 546 | 0 |
| Income taxes payable | 57 | 78 |
| Accrued professional fees | 110 | 176 |
| Accrued warranty liability | 128 | 33 |
| Self-insured workers compensation reserve | 162 | 74 |
| Accrued other | 333 | 478 |
| Total accrued liabilities | $ 4,040 | $ 6,307 |
Note 7 - Debt and Credit Agreements - Outstanding Debt Balances (Details) - USD ($) $ in Thousands |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Long-term Debt, Total | $ 228 | $ 228 |
| Less: Current portion | (5,445) | (1,406) |
| Long-term debt, net of current maturities | 228 | 9,381 |
| Line of Credit [Member] | ||
| Long-term Debt, Total | 5,284 | 1,245 |
| Paycheck Protection Program CARES Act [Member] | ||
| Long-term Debt, Total | 0 | 9,151 |
| Notes Payable, Other Payables [Member] | ||
| Long-term Debt, Total | 161 | 163 |
| Less: Current portion | $ (161) | $ (161) |
Note 8 - Leases (Details Textual) - USD ($) $ in Thousands |
9 Months Ended | |||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Dec. 31, 2020 |
Jan. 01, 2019 |
|
| Operating Lease, Liability, Total | $ 20,595 | $ 19,508 | ||
| Operating Lease, Right-of-Use Asset | 18,462 | $ 19,321 | $ 17,613 | |
| Right-of-Use Asset Obtained in Exchange for Operating Lease Liability | 907 | $ 4,380 | ||
| Right-of-Use Asset Obtained in Exchange for Finance Lease Liability | $ 2,444 | $ 2,253 | ||
Note 8 - Leases - Leases Information (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||||
|---|---|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|||
| Amortization of finance lease assets | $ 268 | $ 150 | $ 709 | $ 435 | ||
| Interest on finance lease liabilities | 92 | 64 | 265 | 139 | ||
| Total finance lease costs | 360 | 214 | 974 | 574 | ||
| Operating lease cost | 741 | 764 | 2,260 | 2,340 | ||
| Short-term lease cost | 166 | 196 | 540 | 483 | ||
| Variable lease cost | [1] | 220 | 198 | 647 | 586 | |
| Sublease income | (47) | (45) | (140) | (136) | ||
| Total operating lease costs | 1,080 | 1,113 | 3,307 | 3,273 | ||
| Total lease cost | $ 1,440 | $ 1,327 | 4,281 | 3,847 | ||
| Operating cash outflow from operating leases | $ 2,722 | $ 2,638 | ||||
| Weighted-average remaining lease term-finance leases at end of period (in years) (Year) | 2 years | 1 year 8 months 12 days | 2 years | 1 year 8 months 12 days | ||
| Weighted-average remaining lease term-operating leases at end of period (in years) (Year) | 9 years 1 month 6 days | 10 years 2 months 12 days | 9 years 1 month 6 days | 10 years 2 months 12 days | ||
| Weighted-average discount rate-finance leases at end of period | 6.40% | 8.90% | 6.40% | 8.90% | ||
| Weighted-average discount rate-operating leases at end of period | 8.60% | 8.90% | 8.60% | 8.90% | ||
| ||||||
Note 11 - Share-based Compensation (Details Textual) - USD ($) $ in Thousands |
9 Months Ended | |
|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance (in shares) | 0 | |
| Share-based Payment Arrangement, Shares Withheld for Tax Withholding Obligation (in shares) | 233,153 | |
| Payment, Tax Withholding, Share-based Payment Arrangement | $ 1,503 | $ (0) |
Note 11 - Share-based Compensation - Restricted Stock Unit and Performance Award Activity (Details) |
9 Months Ended |
|---|---|
|
Sep. 30, 2021
$ / shares
shares
| |
| Unvested, number of shares (in shares) | shares | 1,332,884 |
| Unvested, weighted average grant-date fair value per share (in dollars per share) | $ / shares | $ 1.86 |
| Granted, number of shares (in shares) | shares | 393,592 |
| Granted, weighted average grant-date fair value per share (in dollars per share) | $ / shares | $ 4.82 |
| Vested, number of shares (in shares) | shares | (691,994) |
| Vested, weighted average grant-date fair value per share (in dollars per share) | $ / shares | $ 1.93 |
| Forfeited, number of shares (in shares) | shares | (108,144) |
| Forfeited, weighted average grant-date fair value per share (in dollars per share) | $ / shares | $ 2.95 |
| Unvested, number of shares (in shares) | shares | 926,338 |
| Unvested, weighted average grant-date fair value per share (in dollars per share) | $ / shares | $ 2.74 |
Note 11 - Share-based Compensation - Share-based Compensation Expense (Details) - USD ($) $ / shares in Units, $ in Thousands |
9 Months Ended | |
|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Share-based compensation expense | $ 857 | $ 763 |
| Basic earnings per share (in dollars per share) | $ 0.05 | $ 0.05 |
| Diluted earnings per share (in dollars per share) | $ 0.04 | $ 0.04 |
| Cost of Sales [Member] | ||
| Share-based compensation expense | $ 103 | $ 74 |
| Selling, General and Administrative Expenses [Member] | ||
| Share-based compensation expense | $ 754 | $ 689 |
Note 14 - Segment Reporting (Details Textual) - Heavy Fabrications [Member] |
9 Months Ended |
|---|---|
|
Sep. 30, 2021
MWh
| |
| Number of Facilities | 2 |
| Number of Tower Sections in Production Capacity of Turbines Total | 1,650 |
| Maximum [Member] | |
| Annual Tower Production Capacity | 550 |
| Minimum [Member] | |
| Power Generating Capacity of Turbines (Megawatt-Hour) | 1,100 |
Note 15 - Commitments and Contingencies - Allowance of Doubtful Accounts (Details) - USD ($) $ in Thousands |
9 Months Ended | |
|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Balance at beginning of period | $ 473 | $ 127 |
| Bad debt expense | 0 | 130 |
| Write-offs | (432) | (47) |
| Other adjustments | (2) | (36) |
| Balance at end of period | $ 39 | $ 174 |