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, 2023:
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, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| AMP 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, net | ||||||||
| Intangible assets, net | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Line of credit and current portion of long-term debt | $ | $ | ||||||
| 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, 2023, and December 31, 2022, respectively | ||||||||
| Treasury stock, at cost, shares as of September 30, 2023 and December 31, 2022 | ( | ) | ( | ) | ||||
| 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, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Intangible amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||||||||||
| OTHER EXPENSE, net: | ||||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Total other expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) before provision for income taxes | ( | ) | ( | ) | ||||||||||||
| Provision for income taxes | ||||||||||||||||
| NET INCOME (LOSS) | ( | ) | ( | ) | ||||||||||||
| NET INCOME (LOSS) PER COMMON SHARE—BASIC: | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—BASIC | ||||||||||||||||
| NET INCOME (LOSS) PER COMMON SHARE—DILUTED: | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| 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, 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 |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||
| BALANCE, March 31, 2022 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||
| 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 |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||
| BALANCE, June 30, 2022 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||
| 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, 2022 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||
| BALANCE, December 31, 2022 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||
| Stock issued under defined contribution 401(k) retirement savings plan |
||||||||||||||||||||||||||||
| Share-based compensation |
— | — | ||||||||||||||||||||||||||
| Net income |
— | — | ||||||||||||||||||||||||||
| BALANCE, March 31, 2023 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||
| 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 |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Net income |
— | — | ||||||||||||||||||||||||||
| BALANCE, June 30, 2023 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||
| Stock issued under defined contribution 401(k) retirement savings plan |
||||||||||||||||||||||||||||
| Share-based compensation |
— | — | ||||||||||||||||||||||||||
| Net income |
— | — | ||||||||||||||||||||||||||
| BALANCE, September 30, 2023 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||
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, |
||||||||
| 2023 |
2022 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net income (loss) |
$ | $ | ( |
) | ||||
| Adjustments to reconcile net cash used in operating activities: |
||||||||
| Depreciation and amortization expense |
||||||||
| Deferred income taxes |
( |
) | ( |
) | ||||
| Change in fair value of interest rate swap agreements |
( |
) | ||||||
| Share-based compensation |
||||||||
| Allowance for doubtful accounts |
( |
) | ||||||
| Common stock issued under defined contribution 401(k) plan |
||||||||
| Loss on disposal of assets |
||||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
( |
) | ( |
) | ||||
| AMP credit receivable |
( |
) | ||||||
| Employee retention credit receivable |
||||||||
| Contract assets |
( |
) | ( |
) | ||||
| Inventories |
( |
) | ||||||
| Prepaid expenses and other current assets |
( |
) | ( |
) | ||||
| Accounts payable |
( |
) | ||||||
| Accrued liabilities |
||||||||
| Customer deposits |
( |
) | ( |
) | ||||
| Other non-current assets and liabilities |
( |
) | ||||||
| Net cash used in operating activities |
( |
) | ( |
) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Purchases of property and equipment |
( |
) | ( |
) | ||||
| Proceeds from disposals of property and equipment |
||||||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Proceeds from line of credit, net |
||||||||
| Payments for deferred financing costs |
( |
) | ||||||
| Proceeds from long-term debt |
||||||||
| 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 |
||||||||
| Net cash provided by financing activities |
||||||||
| NET (DECREASE) INCREASE IN CASH |
( |
) | ||||||
| CASH beginning of the period |
||||||||
| 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, 2023 are not necessarily indicative of the results that may be expected for the twelve months ending December 31, 2023, 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, 2022 and as supplemented by the risk factors set forth in our other filings with the Securities and Exchange Commission (the “SEC”).
The December 31, 2022 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, 2022.
There have been no material changes in the Company’s significant accounting policies during the nine months ended September 30, 2023 as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
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, gearbox manufacturing and repair, 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 2022 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 8, “Debt and Credit Agreements,” of these condensed consolidated financial statements for a description of the 2022 Credit Facility and the Company’s other debt.
Debt and finance lease obligations at September 30, 2023 totaled $
On September 22, 2023, 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 12, 2023 (the “Form S-3”), replacing a prior shelf registration statement which expired on October 12, 2023. This shelf registration statement, which includes a base prospectus, allows the Company 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 September 12, 2022, the Company entered into a Sales Agreement (the “Sales Agreement”) with Roth Capital Partners, LLC and HC Wainwright & Co., LLC (collectively, the “Agents”). Pursuant to the terms of the Sales Agreement, the Company may sell from time to time through the Agents shares of the Company’s common stock, par value $
The Company also utilizes supply chain financing arrangements as a component of its funding for working capital, which accelerates receivable collections and helps to better manage cash flow. Under these agreements, the Company has agreed to sell certain of its accounts receivable balances to banking institutions who have agreed to advance amounts equal to the net accounts receivable balances due, less a discount as set forth in the respective agreements. The balances under these agreements are accounted for as sales of accounts receivable, as they are sold without recourse. Cash proceeds from these agreements are reflected as operating activities included in the change in accounts receivable in the Company's consolidated statements of cash flows. Fees incurred in connection with the agreements are recorded as interest expense by the Company.
During the three and nine months ended September 30, 2023, the Company sold account receivables totaling $
In January 2023, the Company announced that it had entered into a supply agreement for wind tower purchases valued at approximately $
The Company anticipates that current cash resources, amounts available under the 2022 Credit Facility, cash to be generated from operations and equipment financing, potential proceeds from the sale of Company securities under the Sales Agreement 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, the Company’s ability to finalize the terms of the remaining obligations under a supply agreement from a leading global wind turbine manufacturer, as well as receipt of customer deposits and revenues generated from new customer orders, are materially inconsistent with management’s expectations, the Company may in the future encounter cash flow and liquidity issues. If the Company’s operational performance deteriorates significantly, it may be unable to comply with existing financial covenants, and could lose access to the 2022 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.
Reclassifications
Certain prior year amounts have been reclassified to conform to current year presentation in the condensed consolidated financial statements and the notes to the condensed consolidated financial statements.
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, health insurance reserves, and valuation allowances on deferred taxes. 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.
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, 2023 and 2022:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| 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 many 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, 2023 and 2022, the Company recognized a portion of revenue within the Heavy Fabrications segment 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. 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, 2023 and 2022, as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Basic earnings per share calculation: | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Weighted average number of common shares outstanding | ||||||||||||||||
| Basic net income (loss) per share | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Diluted earnings per share calculation: | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Weighted average number of common shares outstanding | ||||||||||||||||
| Common stock equivalents: | ||||||||||||||||
| Non-vested stock awards (1) | ||||||||||||||||
| Weighted average number of common shares outstanding | ||||||||||||||||
| Diluted net income (loss) per share | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| (1) Restricted stock units granted and outstanding of |
NOTE 4 — INVENTORIES
The components of inventories as of September 30, 2023 and December 31, 2022 are summarized as follows:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| Less: Reserve for excess and obsolete inventory | ( | ) | ( | ) | ||||
| Net inventories | $ | $ | ||||||
NOTE 5 — AMP CREDITS
During the three and nine months ended September 30, 2023, the Company recognized Advanced Manufacturing Production tax credits (“AMP credits”) totaling $
NOTE 6 — 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, 2023 and December 31, 2022, the cost basis, accumulated amortization and net book value of intangible assets were as follows:
| September 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||||||||||
| 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, 2023, estimated future amortization expense was as follows:
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total | $ |
NOTE 7 — ACCRUED LIABILITIES
Accrued liabilities as of September 30, 2023 and December 31, 2022 consisted of the following:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Accrued payroll and benefits | $ | $ | ||||||
| Accrued property taxes | ||||||||
| Income taxes payable | ||||||||
| Accrued professional fees | ||||||||
| Accrued warranty liability | ||||||||
| Self-insured workers compensation reserve | ||||||||
| Long term incentive plan accrual | ||||||||
| Accrued other | ||||||||
| Total accrued liabilities | $ | $ | ||||||
NOTE 8 — DEBT AND CREDIT AGREEMENTS
The Company’s outstanding debt balances as of September 30, 2023 and December 31, 2022 consisted of the following:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Line of credit | $ | $ | ||||||
| Other notes payable | ||||||||
| Long-term debt | ||||||||
| Total debt | ||||||||
| Less: Current portion | ( | ) | ( | ) | ||||
| Long-term debt, net of current maturities | $ | $ | ||||||
Credit Facility
On August 4, 2022, the Company entered into a credit agreement (the “2022 Credit Agreement”) with Wells Fargo which replaced its prior credit facility and provided the Company and its subsidiaries with a $
On February 8, 2023, the Company executed Amendment No. 1 to Credit Agreement and Limited Waiver which waived the Company’s fourth quarter minimum EBITDA (as defined in the 2022 Credit Agreement) requirement for the period ended December 31, 2022, amended the Fixed Charge Coverage Ratio (as defined in the 2022 Credit Agreement) requirements for the twelve-month period ending January 31, 2024 through and including June 30, 2024 and each twelve-month period thereafter, and amended the minimum EBITDA requirements applicable to the twelve-month periods ending March 31, 2023, June 30, 2023, September 30, 2023, and December 31, 2023.
The 2022 Credit Agreement, as amended, contains customary covenants limiting the Company’s and its subsidiaries’ ability to, among other things, incur liens, make investments, incur indebtedness, merge or consolidate with others or dispose of assets, change the nature of its business, and enter into transactions with affiliates. The initial term of the revolving credit facility matures August 4, 2027. The term loan also matures on August 4, 2027, with monthly payments based on an 84-month amortization.
As of September 30, 2023, there was $
Other
In addition, the Company has outstanding notes payable for capital expenditures in the amount of $
NOTE 9 — LEASES
The Company leases certain facilities and equipment. The leases are accounted for under Accounting Standard Update 2016-02, Leases (“Topic 842”), and the Company elected to apply each available practical expedient. The discount rates used for the leases 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, 2023 and 2022, 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, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| 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, 2023 and 2022: | ||||||||||||||||
| 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, 2023, future minimum lease payments under finance leases and operating leases were as follows:
| Finance | Operating | |||||||||||
| Leases | Leases | Total | ||||||||||
| 2023 | $ | $ | $ | |||||||||
| 2024 | ||||||||||||
| 2025 | ||||||||||||
| 2026 | ||||||||||||
| 2027 | ||||||||||||
| 2028 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 10 — 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 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.
NOTE 11 — 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, 2023, the Company has a full valuation allowance recorded against deferred tax assets. During the nine months ended September 30, 2023, 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, 2023, 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, 2022, 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 Section 382 of the IRC 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 Section 382 of the IRC in 2010, the Company determined that aggregate changes in stock ownership 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 approved by the Company’s stockholders and extended in 2016, 2019 and 2022 for additional -year periods (as amended, the “Rights Plan”), designed to preserve the Company’s substantial tax assets associated with NOL carryforwards under Section 382 of the IRC.
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, 2023, the Company had
NOTE 12 — SHARE-BASED COMPENSATION
There was no stock option activity during the nine months ended September 30, 2023 and
The following table summarizes the Company’s restricted stock unit and performance award activity during the nine months ended September 30, 2023:
| Weighted Average | ||||||||
| Number of | Grant-Date Fair Value | |||||||
| Shares | Per Share | |||||||
| Unvested as of December 31, 2022 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Forfeited | ( | ) | $ | |||||
| Unvested as of September 30, 2023 | $ | |||||||
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, 2023,
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, 2023 and 2022, as follows:
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| 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 13 — LEGAL PROCEEDINGS AND OTHER MATTERS
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 14 — 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.
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-13, “Financial Instruments-Credit Losses (Topic 326),” which replaces the current incurred loss impairment methodology for most financial assets with the current expected credit loss (“CECL”) methodology. The series of new guidance amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables and contract assets. The guidance should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. The guidance is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company implemented CECL during the three months ended March 31, 2023. The impact on the Company's financial statements was not material. See Note 16, “Commitments and Contingencies,” of these condensed consolidated financial statements for a further discussion of CECL.
NOTE 15— 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 and gearbox repair 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, 2023 and 2022 is as follows:
| Heavy Fabrications | Gearing | Industrial Solutions | Corporate | Eliminations | Consolidated | |||||||||||||||||||
| For the Three Months Ended September 30, 2023 | ||||||||||||||||||||||||
| Revenues from external customers | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Intersegment revenues | ( | ) | ||||||||||||||||||||||
| Net revenues | ( | ) | ||||||||||||||||||||||
| Operating income (loss) | ( | ) | ||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||
| Capital expenditures | ||||||||||||||||||||||||
| Heavy Fabrications | Gearing | Industrial Solutions | Corporate | Eliminations | Consolidated | |||||||||||||||||||
| For the Three Months Ended September 30, 2022 | ||||||||||||||||||||||||
| Revenues from external customers | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Intersegment revenues | ( | ) | ||||||||||||||||||||||
| Net revenues | ( | ) | ||||||||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||
| Capital expenditures | ||||||||||||||||||||||||
| Heavy Fabrications | Gearing | Industrial Solutions | Corporate | Eliminations | Consolidated | |||||||||||||||||||
| For the Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||
| Revenues from external customers | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Intersegment revenues | ( | ) | ||||||||||||||||||||||
| Net revenues | ( | ) | ||||||||||||||||||||||
| Operating income (loss) | ( | ) | ||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||
| Capital expenditures | ||||||||||||||||||||||||
| Heavy Fabrications | Gearing | Industrial Solutions | Corporate | Eliminations | Consolidated | |||||||||||||||||||
| For the Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||
| Revenues from external customers | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Intersegment revenues | ( | ) | ||||||||||||||||||||||
| Net revenues | ( | ) | ||||||||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ( | |||||||||||||||