What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2021-02-25 compared with 2020-02-27 · 4 added, 258 removed, 19 unchanged (93% of the section changed)

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the NASDAQ Capital Market (“NASDAQ”) under the symbol “BWEN.”

The following table sets forth the high and low bid prices of our common stock traded on the NASDAQ.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the NASDAQ Capital Market (“NASDAQ”) under the symbol “BWEN.” The following table sets forth the high and low bid prices of our common stock traded on the NASDAQ.

First quarter

16 unchanged sentences

Securities Authorized for Issuance Under Equity Compensation Plans

See Part III, Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”

of this Annual Report on Form 10-K for information as of December 31, 2019 with respect to shares of our common stock that may be issued under our existing share‑based compensation plans.

SELECTED FINANCIAL DAT A

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such are not required to provide information under this item.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As used in this Annual Report, the terms “we,”

“us,”

“our,”

“Broadwind,”

and the “Company”

refer to Broadwind Energy, Inc., a Delaware corporation headquartered in Cicero, Illinois, and its Subsidiaries.

(Dollar amounts are presented in thousands, except per share data and unless otherwise stated)

On January 1, 2020, we rebranded as Broadwind Energy, Inc.

doing business as Broadwind, a reflection of our diversification progress to date and our continued strategy to diversify our product and customer mix outside of wind energy.

Effective with that rebranding, we renamed certain segments.

Our Towers and Heavy Fabrications segment was renamed as Heavy Fabrications and our Process Systems segment was renamed as Industrial Solutions.

Our Gearing segment name remained the same.

We booked $221,549 in net new orders in 2019, up sharply from $83,241 in 2018.

The significant increase in orders was driven by growth in each of our primary markets, except for the market for O&G production equipment.

We realized a $145,371 increase in tower orders within our Heavy Fabrications segment, as tower customers secured 2020 production capacity in support of an expected increase in wind turbine tower installations.

During 2018, our largest customer fulfilled orders under a three-year framework agreement in which minimum contract orders were reported in backlog at the onset of the agreement in 2016 and is now placing orders on a project-by-project basis;

this change in ordering patterns also contributed to the year-over-year increase.

Other industrial fabrication orders, also included in the Heavy Fabrications segment, increased $5,682 or 37%, reflecting an expansion of our customer base and the results of the investments we have made to broaden our manufacturing capabilities.

Gearing orders declined $16,110, primarily due to a reduction from O&G customers due to excess fracking and drilling equipment capacity.

Lower demand from aftermarket wind customers, which can fluctuate based on customer order patterns and repair activity, was partially offset by an increase in orders from other industrial customers.

Our Industrial Solutions segment had $16,426 in orders in 2019, an increase of $3,365 over 2018, primarily due to higher customer demand for gas turbine components and initial orders resulting from our entry into the market to support solar energy installation.

This was partially offset by lower customer demand for gas turbine aftermarket content.

At December 31, 2019, total backlog was $142,302, up 48% from $96,456 at December 31, 2018 due to the aforementioned surge in tower orders.

We recognized revenue of $178,220 in 2019, up 42% from revenue of $125,380 in 2018 due to the growth in orders described above.

We reported a net loss of $4,523, or $0.28 per share in 2019, compared to a net loss of $24,146 or $1.56 per share in 2018.

The improvement in earnings was primarily due to the absence of a $12,585 impairment charge recognized in the prior year, as well as higher capacity utilization in our Heavy Fabrications segment and improved margins in our other segments.

Partially offsetting these increases was the impact of increased price competition from foreign tower manufacturers which depressed tower product line margins, higher incentive compensation expense, the absence of a $2,249

gain recognized upon extinguishment of the New Markets Tax Credit (NMTC) loan and the $1,140 benefit associated with the reversal of the final Red Wolf earn-out reserve, which were both recognized in the prior year.

During 2018, we conducted a review of our business strategies and product plans given the outlook of the industries we serve and our business environment.

As a result, we executed a restructuring plan to rationalize our facility capacity and management structure, and to consolidate and increase the efficiencies in our Abilene facility operations.

We exited the market for natural gas compression units and transferred remaining operations from a leased facility in Abilene, TX into other production locations.

We vacated the leased Abilene facility in 2018 and incurred costs totaling $12 and $668 for the years ended December 31, 2019 and 2018, respectively.

In conjunction with this initiative, all costs associated with this vacated facility have been recorded as restructuring expenses within the Towers and Heavy Fabrications segment.

Our restructuring activities concluded in 2019.

We use our credit facility to fund working capital requirements and believe that our credit facility, together with the operating cash generated by our businesses, and any potential proceeds from access to the public or private debt or equity markets, are sufficient to meet all cash obligations over the next twelve months.

On December 31, 2019, we had $11,517 drawn under our $35,000 line of credit, and $2,416 of cash on hand, resulting in $18,993 of available liquidity.

For a further discussion of our capital resources and liquidity, including a description of recent amendments and waivers under our credit facility, please see the discussion under “Liquidity, Financial Position and Capital Resources”

in this Annual Report on Form 10-K.

KEY METRICS USED BY MANAGEMENT TO MEASURE PERFORMANCE

In addition to measures of financial performance presented in our consolidated financial statements in accordance with GAAP, we use certain other financial measures to analyze our performance.

These non-GAAP financial measures primarily consist of adjusted EBITDA and free cash flow which help us evaluate growth trends, establish budgets, assess operational efficiencies, oversee our overall liquidity, and evaluate our overall financial performance.

Key Financial Measures

Twelve Months Ended

Adjusted EBITDA (1)

Capital expenditures

Free cash flow (2)

Operating working capital (3)

Backlog at end of period

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.

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 business acquisitions.

We define operating working capital as accounts receivable and inventory net of accounts payable and customer deposits.

The following table reconciles our non-GAAP key financial measures to the most directly comparable GAAP measure:

Twelve Months Ended

Net loss from continuing operations

Interest expense

Income tax provision (benefit)

Depreciation and amortization

Share-based compensation and other stock payments

Restructuring costs

Impairment charges

NMTC extinguishment gain

Adjusted EBITDA

Changes in operating working capital

Capital expenditures

Proceeds from disposal of property and equipment

Free Cash Flow

RESULTS OF OPERATIONS

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

The summary of selected financial data table below should be referenced in connection with a review of the following discussion of our results of operations for the year ended December 31, 2019 compared to the year ended December 31, 2018.

Year Ended December 31,

Cost of sales

Restructuring

Operating expenses

Selling, general and administrative expenses

Impairment charges

Intangible amortization

Restructuring

Total operating expenses

Operating loss

Other expense, net

Interest expense, net

Total other expense, net

Net loss before provision (benefit) for income taxes

Provision (benefit) for income taxes

Loss from continuing operations

Income (loss) from discontinued operations, net of tax

Revenues increased by $52,840 during the year ended December 31, 2019.

This increase was driven by higher capacity utilization in the Heavy Fabrications segment as tower sections sold increased 73% in support of a strengthening wind turbine installation market, and due to $3,482 of growth in other industrial fabrications sales.

Partially offsetting this improvement was a decrease in Gearing segment revenues of $3,499 due to lower demand from O&G customers.

The Industrial Solutions segment recognized revenue of $14,664 in 2019 as compared to $12,467 in 2018 primarily due to increased demand for gas turbine components and because of our entry into the solar power generation market.

Gross profit increased by $12,347 during the year ended December 31, 2019.

The increase in gross profit reflects improved capacity utilization in the Heavy Fabrications segment and improved manufacturing efficiencies in all segments.

These benefits were partially offset by the adverse impact of margin pressure associated with lower prices driven by increased competition from foreign tower manufacturers.

As a result, our gross margin more than tripled from 2.4% for the year ended December 31, 2018, to 8.6% for the year ended December 31, 2019.

Operating expenses decreased $10,362 during the year ended December 31, primarily due to the absence of a $12,585 impairment charge recognized in the prior year.

Partially offsetting this was increased incentive compensation and the absence of a $1,140 benefit associated with the reversal of the final earn-out reserve associated with the Red Wolf acquisition, which was recorded in 2018.

As a result, operating expenses as a percentage of sales decreased from 22.4% to 10.0% in 2019.

Loss from continuing operations improved significantly from $24,002 for the year ended December 31, 2018 to $4,586 for the year ended December 31, 2019, primarily as a result of the factors described above.

Heavy Fabrications Segment

The following table summarizes the Heavy Fabrications segment operating results for the twelve months ended December 31, 2019 and 2018:

Twelve Months Ended

Tower sections sold

Operating income (loss)

Operating margin

The $151,053 increase in orders was driven primarily by tower customers securing 2020 production capacity in support of increased wind turbine installations.

this change in ordering also impacted the year-over-year comparison.

Other industrial fabrication orders increased $5,682.

Segment revenues increased by 72% during the year ended December 31, 2019 primarily due to a 73% increase in tower sections sold and a $3,482 increase in other industrial fabrication revenue, reflecting an expansion of our customer base and investments to broaden our manufacturing capabilities.

Heavy Fabrications segment operating results improved by $7,301 versus the prior year.

The improvement in capacity utilization, the expansion of other industrial fabrications and the absence of plant start-up costs incurred in the prior year were partially offset by the negative impacts from increased competitive tower pricing pressure in the current year.

Operating profit margin was 1.4% during the year ended December 31, 2019 compared to a loss of 7.3% during the year ended December 31, 2018.

Gearing Segment

The following table summarizes the Gearing segment operating results for the twelve months ended December 31, 2019 and 2018:

Twelve Months Ended

Operating income

Operating margin

Gearing segment orders decreased 39% from the year ended December 31, 2018, primarily due to a decrease in demand from O&G customers.

The prior year period included the benefit of the industry’s expansion of fracking capacity and earlier than normal receipt of customer orders due to significantly longer lead times caused by steel availability issues.

Also demand was lower from aftermarket wind customers, which can fluctuate based on customer order patterns and repair activity levels.

These reductions were partially offset by an increase in orders from other industrial customers.

Revenue decreased 9% during the year ended December 31, 2019 primarily due to a decrease in shipments to O&G customers, partially offset by an increase in sales to mining and aftermarket wind customers;

custom gearbox revenue was double the prior year.

The Gearing segment operating income improved significantly to $3,237 during the year ended December 31, 2019 primarily due to a higher margin sales mix and improved manufacturing efficiencies, including lower scrap and warranty costs.

The operating margin was 9.3% for the year ended December 31, 2019 compared to 0.1% during the year ended December 31, 2018.

Industrial Solutions Segment

The following table summarizes the Industrial Solutions segment operating results for the twelve months ended December 31, 2019 and 2018.

Twelve Months Ended

Impairment charges

Operating loss

Operating margin

Industrial Solutions segment orders increased 26% during the year ended December 31, 2019 primarily due to higher customer demand for new gas turbine content and diversification efforts linked to our solar market strategy, partially offset by lower customer demand for gas turbine aftermarket products.

The same factors resulted in an 18% increase in revenues to $14,664 for the year ended December 31, 2019.

The Industrial Solutions segment operating results improved by $14,289 during the year ended December 31, 2019 primarily due to the absence of $12,585 in impairment charges recognized during 2018, lower related amortization expense, improved labor efficiency and higher prices.

This was partially offset by accelerated amortization of $871 in 2019 associated with the Red Wolf trade name.

Operating margin decreased from a loss of 123.1% during the year ended December 30, 2018, to a loss of 7.2% during the year ended December 31, 2019.

Corporate and Other

Corporate and Other expenses increased by $2,067 during the year ended December 31, 2019.

The increase was primarily attributable to the absence of a $1,140 benefit recognized in the prior year associated with the reversal of an earn-out reserve associated with the acquisition of Red Wolf, as well as higher incentive compensation recognized in the current year.

SUMMARY OF CRITICAL ACCOUNTING POLICIES

The methods, estimates and judgments that we use in applying our critical accounting policies have a significant impact on the results that we report in our financial statements.

Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain.

We have identified the accounting policies listed below to be critical to obtain an understanding of our consolidated financial statements.

This section should also be read in conjunction with Note 1, “Description of Business and Summary of Significant Accounting Policies”

in the notes to our

consolidated financial statements for further discussion of these and other significant accounting policies.

Revenue Recognition

We recognize revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

Customer deposits and other receipts are deferred and recognized when the revenue is realized and earned.

Cash payments to customers, like those made for liquidated damages, are presumed to be classified as reductions of revenue in our statement of operations.

In many instances within our Heavy Fabrications segment, wind towers are sold under terms included in bill and hold sales arrangements that result in different timing for revenue recognition versus shipment, due to our customers’

preference to ship products in batches to support efficient construction of wind farms.

We recognize revenue under these arrangements when there is a substantive reason for the arrangement (i.e.

the buyer requests the arrangement), the ordered goods are segregated from inventory and not available to fill other orders, the goods are currently ready for physical transfer to the customer, and we do 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.

We adopted the provisions of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, for the fiscal year beginning January 1, 2018 and elected the modified retrospective approach.

Through our assessment of the ASC 606, we identified minimal changes to the assumptions utilized for the year ending December 31, 2017 and the adoption of the guidance did not result in a material impact on our consolidated financial statements.

Warranty Liability

We provide warranty terms that generally range from one to five years for various products relating to workmanship and materials supplied by us.

In certain contracts, we have recourse provisions for items that would enable us to seek recovery from third parties for amounts paid to customers under warranty provisions.

We estimate the warranty accrual based on various factors, including historical warranty costs, current trends, product mix and sales.

Inventories consist of raw materials, work-in-process and finished goods.

Raw materials consist of components and parts for general production use.

Work-in-process consists of labor and overhead, processing costs, purchased subcomponents, and materials purchased for specific customer orders.

Finished goods consist of components purchased from third parties as well as components manufactured by us.

Inventories are stated at the lower of cost or net realizable value.

Where necessary, we have recorded a reserve for the excess of cost over market value in our inventory allowance.

Market value of inventory, and management’s judgment concerning the need for reserves, encompasses consideration of many business factors including physical condition, inventory holding period, contract terms and usefulness.

Inventories are valued based either on actual cost or using a first‑in, first out method.

Long-Lived Assets

We review property and equipment and other long-lived assets (“long-lived assets”) for impairment whenever events or circumstances indicate that their carrying amounts may not be

Due to the Industrial Solutions’

segment recent operating losses, we continue to evaluate the recoverability of certain of the long-lived assets associated with that segment.

In accordance with GAAP, we compared the carrying value of the Industrial Solutions asset group to the forecast undiscounted cash flows associated with this asset group.

Based on the analysis performed, the forecast undiscounted cash flows exceeded the carrying value resulting in no indicated or recorded impairment of this group.

However, in conjunction with our rebranding initiative, during 2019 we decided we would no longer utilize the Red Wolf trade name.

As a result, we accelerated the amortization of the trade name by $871 so that it was fully amortized in 2019.

We account for income taxes based upon an asset and liability approach.

Deferred tax assets and liabilities represent the future tax consequences of the differences between the financial statement carrying amounts of assets and liabilities versus the tax basis of assets and liabilities.

Under this method, deferred tax assets are recognized for deductible temporary differences, and operating loss and tax credit carryforwards.

Deferred tax liabilities are recognized for taxable temporary differences.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The impact of tax rate changes on deferred tax assets and liabilities is recognized in the year that the change is enacted.

In connection with the preparation of our consolidated financial statements, we are required to estimate our income tax liability for each of the tax jurisdictions in which we operate.

This process involves estimating our actual current income tax expense and assessing temporary differences resulting from differing treatment of certain income or expense items for income tax reporting and financial reporting purposes.

We also recognize the expected future income tax benefits of net operating loss (“NOL”) carryforwards as deferred income tax assets.

In evaluating the realizability of deferred income tax assets associated with NOL carryforwards, we consider, among other things, expected future taxable income, the expected timing of the reversals of existing temporary reporting differences, and the expected impact of tax planning strategies that may be implemented to prevent the potential loss of future income tax benefits.

Changes in, among other things, income tax legislation, statutory income tax rates or future taxable income levels could materially impact our valuation of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reporting periods.

We also account for the uncertainty in income taxes related to the recognition and measurement of a tax position taken or expected to be taken in an income tax return.

We follow the applicable pronouncement guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition related to the uncertainty in these income tax positions.

Health Insurance Reserves

We self‑insure for our health insurance liabilities, including establishing reserves for self‑retained losses.

Historical loss experience combined with actuarial evaluation methods and the application of risk transfer programs are used to determine required health insurance reserves.

We take into account claims incurred but not reported when determining our health insurance reserves.

Health insurance reserves are included in accrued liabilities.

While we believe that we have adequately reserved for these claims, the ultimate outcome of these matters may exceed the amounts recorded and additional losses may be incurred.

LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES

As of December 31, 2019, cash and cash equivalents totaled $2,416, an increase of $1,239 from December 31, 2018.

We have in place a line of credit with CIBC Bank (the “Credit Facility”) under which we can borrow up to $35,000, depending on our borrowing base.

Debt and finance lease obligations at December 31, 2019 totaled $14,641, and we had the ability to borrow up to $16,577 under the Credit Facility.

We anticipate that we will be able to satisfy the cash requirements associated with, among other things, working capital needs, capital expenditures and lease commitments through at least the next twelve months primarily through cash generated from operations, available cash balances, our Credit Facility, additional equipment financing, and access to the public or private debt equity markets, including under a “shelf”

registration statement on Form S-3, which was declared effective by the SEC on October 10, 2017.

We also utilize supply chain financing arrangements as a component of our funding for working capital, which accelerates receivable collections and helps to better manage cash flow.

Under these agreements, we have agreed to sell certain of our 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 consolidated statements of cash flows.

Fees incurred in connection with the agreements are recorded as interest expense.

On January 16, 2019, we executed the Sixth Amendment to Loan and Security Agreement which increased our capability to issue letters of credit under the Credit Facility.

On February, 25, 2019, we executed an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan Agreement”) which expanded our Credit Facility to $35,000 and extended the term to February 25, 2022.

The Amended and Restated Loan Agreement included minimum EBITDA covenants through September 30, 2019 which has been replaced by a Fixed Charge Coverage Ratio.

We are in compliance with all covenants under the Credit Facility as of December 31, 2019.

While we believe that we will continue to have sufficient cash available to operate our businesses and to meet our financial obligations and amended debt covenants, there can be no assurance that our operations will generate sufficient cash, that we will be able to comply with applicable loan covenants or that credit facilities will be available in an amount sufficient to enable us to repay our indebtedness or to fund our other liquidity needs.

Sources and Uses of Cash

The following table summarizes our cash flows from operating, investing, and financing activities for the years ended December 31, 2019 and 2018:

Twelve Months Ended

Total cash provided by (used in):

Operating activities

Investing activities

Financing activities

Discontinued operations

Net increase in cash

Operating Cash Flows

During the year ended December 31, 2019, net cash provided by operations was $4,521 compared to net cash provided by operating activities of $2,045 for the year ended December 31, 2018.

The operating cash flow improvement was due primarily to the improved capacity utilization in the current year which resulted in a significantly improved operating results.

Partially offsetting this was a build of working capital in response to the higher production levels within the Heavy Fabrications segment, versus the prior year when working capital decreased primarily as a result of the significant collections of deposits related to new tower orders.

Investing Cash Flows

During the year ended December 31, 2019, net cash used in investing activities was $1,843 compared to net cash used in investing activities of $1,648 for the year ended December 31, 2018.

The increase was primarily due to the absence of proceeds from property disposals in the prior year period.

Financing Cash Flows

During the year ended December 31, 2019, net cash used in financing activities totaled $1,444 compared to net cash provided by financing activities of $807 for the year ended December 31, 2018.

The decrease in net cash provided by financing activities was primarily due to the absence of financing activity resulting in $2,060 of proceeds on long-term debt that occurred in the prior year.

In 2016, we entered into a $570 loan agreement with the Development Corporation of Abilene which is included in long-term debt, less current maturities.

The loan is forgivable upon us meeting and maintaining specific employment thresholds.

During each of the years ended December 31, 2019 and 2018, $114 of the loan was forgiven.

As of December 31, 2019, the loan balance was $342.

In addition, we have outstanding notes payable for capital expenditures in the amount of $1,563 and $1,882 as of December 31, 2019 and 2018, respectively, with $1,400 and $930 included in the “Line of credit and other notes payable”

line item of our consolidated financial statements as of December 31, 2019 and 2018, respectively.

The notes payable have monthly payments that range from $1 to $36 and an interest rate of 5%.

The equipment purchased is utilized as collateral for the notes payable.

The outstanding notes payable have maturity dates that range from April 2020 to August 2022.

Contractual Obligations

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such are not required to provide information under this item.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Part III, Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report on Form 10-K for information as of December 31, 2020 with respect to shares of our common stock that may be issued under our existing share-based compensation plans.

SELECTED FINANCIAL DATA

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such are not required to provide information under this item.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity