What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-07 compared with 2020-11-04 · 99 added, 158 removed, 125 unchanged (67% of the section changed)

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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.

(Dollars are presented in thousands except per share data or unless otherwise stated)

(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 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.

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,

Net (loss) income

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Operating working capital (3)

Total debt (4)

Backlog at end of period (5)

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

Total debt at March 31, 2021 includes PPP loans totaling $9,151.

Our backlog at March 31, 2021 is net of revenue recognized over time.

We define the book-to-bill as the ratio of new orders we received, net of cancellations, to revenue during a period.

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Three Months Ended

Nine Months Ended

September 30,

Net (loss) income

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Share-based compensation and other stock payments

Restructuring costs

Adjusted EBITDA

Changes in operating working capital

Employee retention credit receivable

Capital expenditures

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Free Cash Flow

Third Quarter Overview

We booked $39,555 in new orders in the third quarter of 2020 , down from $76,517 in the third quarter of 2019 driven primarily by a $34,168 decrease in Heavy Fabrication orders as certain tower customers secured production capacity in the prior year in advance of historical lead times due to surging wind tower installation expectations in 2020.

Industrial fabrication product line orders within the Heavy Fabrication segment decreased quarter-over-quarter primarily due to weaker mining and construction demand as customers deferred or reduced inventory purchases due to economic uncertainty stemming from the COVID-19 pandemic.

Gearing segment orders decreased 45% from the third quarter of 2019 primarily due to reduced global demand for oil and gas (“O&G”) caused by the COVID-19 pandemic.

Other markets within the Gearing segment, primarily mining, realized lower new order demand in the third quarter of 2020 compared to the third quarter of 2019 as customers delayed or reduced capital purchases due to economic uncertainty.

Orders within our Industrial Solutions segment remained relatively flat as increased orders for aftermarket content were more than offset by decreases in orders for new gas turbine content.

We recognized revenue of $54,614 in the third quarter of 2020 , up 18% compared to the third quarter of 2019 , primarily due to growth in the Heavy Fabrications segment as tower sections sold increased 28% compared to the prior year quarter driven primarily by increased customer demand to support the expected increase of wind tower installations.

Within the Heavy Fabrications segment, industrial fabrication product line revenues decreased from the prior year quarter primarily due to decreases in demand from the construction end market.

Gearing revenue was down $864 from the third quarter of 2019 , driven primarily by lower order intake in recent quarters, primarily in O&G and mining end markets, partially offset by increased demand in other industrial markets.

Industrial Solutions revenue was down $236, representing a 5% decrease compared to the prior year quarter, primarily due to supply chain constraints and customer project delays.

We reported a net loss of $1,003 or $0.06 per share in the third quarter of 2020 , compared to a net loss of $898 or $0.06 per share in the third quarter of 2019 primarily due to decreased profitability in our Gearing segment due to decreased sales, a lower margin sales mix and manufacturing inefficiencies associated with lower activity levels, partially offset by higher capacity utilization in towers.

First Quarter Overview

We booked $34,214 in new orders in the first quarter of 2021 , up from $33,809 in the first quarter of 2020 .

Within our Heavy Fabrication segment, wind tower orders doubled as compared to last year as multiple customers secured 2021 production capacity.

Industrial fabrication product line orders within the Heavy Fabrication segment decreased quarter-over-quarter primarily due to weaker industrial demand, which is largely driven by the timing of projects.

Industrial Fabrications orders increased on a sequential basis from $ 3,526 in the fourth quarter of 2020 to $ 6,680 in the first quarter of 2021, a reflection of recovery in cyclical end markets.

Gearing segment orders decreased 20% compared to the first quarter of 2020 primarily due to the timing of aftermarket wind gearing orders, which can fluctuate based on customer order patterns and decreased mining demand.

Gearing orders increased on a sequential basis from $5,741 in the fourth quarter of 2020 to $9,921 in the first quarter of 2021, a reflection of recovery in cyclical end markets and an improving commercial environment.

Orders within our Industrial Solutions segment decreased by 40% primarily due to the timing of orders associated with new gas turbine projects.

We recognized revenue of $32,728 in the first quarter of 2021, down 33% compared to the first quarter of 2020 , primarily due to a decrease i n the Heavy Fabrications segment as tower sections sold decreased 46% compared to the prior year quarter.

The segment was adversely impacted by continued supply chain disruptions , a temporary shut-down of our Abilene, Texas plant due to a weather-related event, a customer driven project delay and less demand in the current year.

Gearing revenue was down $878 from the first quarter of 2020, driven by lower order intake in recent quarters from oil and gas (“O&G”) and mining customers, partially offset by increased revenue from aftermarket wind customers.

Industrial Solutions revenue increased $565, representing a 14% increase compared to the prior year quarter, primarily due to the timing of new gas turbine customer installations.

We reported a net loss of $1,210 or $0.07 per share in the first quarter of 2021 , compared to net income of $954 or $0.06 per share in the first quarter of 2020 primarily due to lower sales, supply chain disruptions, manufacturing inefficiencies associated with lower activity levels and the temporary shut-down of our Abilene, Texas Heavy Fabrications plant due to a weather-related event.

This was partially offset by a $3,372 employee retention credit (described below) that has been recognized in Other Income (expense), net in our condensed consolidated statement of operations for the three months ended March 31, 2021.

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 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 2021 because we had a gross receipts decrease of more than 20% from the first quarter of 2019, the relevant criteria for the ERC.

As a result of us averaging 500 or fewer full-time employees in 2019, all wages paid to employees were eligible for the ERC (rather than just wages paid to employees not providing services).

During the three months ended March 31, 2021, we recorded a benefit of $3,372 in Other income (expense), net in our condensed consolidated statement of operations which is included in the line titled Employee retention credit receivable in our condensed consolidated balance sheet at March 31, 2021.

COVID-19 Pandemic

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and global economies, including in the regions in which we operate.

Overall, through September 30, 2020 , we have experienced an adverse impact to our business, operations and financial results as a result of this pandemic due in part to the significant decline in order activity levels for Gearing and Heavy Fabrications, and due to customers’ postponement of scheduled purchases and project timing delays.

Additionally, in the third quarter, we incurred manufacturing inefficiencies associated with supply chain disruptions and realized employee staffing constraints due to the spread of the COVID-19 pandemic.

Overall, through March 31, 2021 , we have experienced an adverse impact to our business, operations and financial results as a result of this pandemic due in part to the decline in order activity levels for Gearing and Heavy Fabrications.

Additionally, in the first quarter of 2021, we continued to incur manufacturing inefficiencies associated with supply chain disruptions and realized employee staffing constraints due to the spread of the COVID-19 pandemic.

Our facilities have continued operations as essential businesses in light of the customers and markets served.

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RESULTS OF OPERATIONS

Three months ended September 30, 2020 , Compared to Three months ended September 30, 2019

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, 2020 , compared to the three months ended September 30, 2019 .

Three Months Ended September 30,

Three months ended March 31, 2021 , Compared to Three months ended March 31, 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 March 31, 2021 , compared to the three months ended March 31, 2020 .

Three Months Ended March 31,

Cost of sales

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Total operating expenses

Operating loss

Other expense, net

Operating (loss) income

Other income (expense), net

Interest expense, net

Total other expense, net

Net loss before provision for income taxes

Total other income (expense), net

Net (loss) income before provision for income taxes

Provision for income taxes

Revenues increased by $8,476, primarily due to higher capacity utilization levels in the Heavy Fabrications segment as tower sections sold increased 28% compared to the third quarter of 2019 and a higher average sales price on the product mix sold.

Industrial fabrication product line revenues within the Heavy Fabrication segment decreased from the prior year quarter primarily due to decreased demand from construction customers.

Gearing segment revenue decreased by $864 from the prior year quarter due primarily to lower order intake in recent quarters primarily within the O&G and mining markets.

Customer purchasing levels continue to be impacted by the level of oil prices and delaying capital purchases in response to the COVID-19 pandemic.

Industrial Solutions revenue was down $236 compared to the third quarter of 2019, primarily due to a delay of customer projects and supply chain disruptions associated with the COVID-19 pandemic.

Gross profit decreased by $256 due primarily to the impact of decreased sales, a lower margin sales mix and increased manufacturing inefficiencies within our Gearing segment.

This decrease was partially offset by higher capacity utilization and an increase in average selling prices within our Heavy Fabrication segment.

Gross margins were negatively impacted by a more complex tower product mix sold and new product introductions during the current year quarter.

Additionally, supply chain constraints and other impacts associated with the COVID-19 pandemic led to higher manufacturing variances.

As a result, gross margin decreased to 6.8% during the three months ended September 30, 2020 , from 8.7% during the three months ended September 30, 2019 .

Due to higher revenue levels, operating expenses as a percentage of sales improved to 7.7% in the current-year quarter from 9.2% in the prior year quarter.

Net loss increased to $1,003 during the three months ended September 30, 2020 compared a net loss of $898 during the three months ended September 30, 2019 due to the factors described above and lower interest expense associated with reduced usage of our revolving credit line.

Net (loss) income

Revenues decreased by $15,906, primarily due to a 46% decrease in tower sections sold compared to the first quarter of 2020 .

Heavy Fabrications was adversely impacted by continued supply chain disruptions, the temporary shut-down of our Abilene, Texas plant due to a weather-related event, a customer driven project delay and lower demand in the current year.

Gearing revenue was down $878 from the first quarter of 2020, primarily driven by lower order intake in recent quarters from O&G and mining customers, partially offset by increased revenue from aftermarket wind customers.

Industrial Solutions revenue increased $565, representing a 14% increase compared to the prior year quarter, primarily due to the timing of new gas turbine customer installations.

Gross profit decreased by $5,890 primarily due to lower sales, a less profitable customer mix, increased manufacturing inefficiencies associated with lower volumes, the temporary shut-down of our Abilene, Texas Heavy Fabrications plant and continued supply chain disruptions.

As a result, gross margin decreased to 0.9% during the three months ended March 31, 2021 , from 12.7% during the three months ended March 31, 2020 .

Due to lower revenue levels, operating expenses as a percentage of sales increased to 14.0% in the current-year quarter from 9.2% in the prior year quarter.

Net loss was $1,210 during the three months ended March 31, 2021 , compared to net income of $954 during the three months ended March 31, 2020 due to the factors described above, partially offset by the $3,372 employee retention credit recognized in Other Income (expense), net in our condensed consolidated statements of operations.

Heavy Fabrications Segment

Three Months Ended

September 30,

Tower sections sold

Operating income

Operating (loss) income

Operating margin

The decrease in Heavy Fabrications segment orders was primarily attributable to certain tower customers securing production capacity in the prior year in advance of historical lead times due to surging wind tower installation expectations in 2020.

Industrial fabrication product line orders within the Heavy Fabrication segment decreased primarily due to weaker mining and construction demand as customers reduced inventory purchases in response to economic uncertainty stemming from the COVID-19 pandemic.

Segment revenues increased by $9,606 due to a 28% increase in tower sections sold and higher average selling prices on the product mix sold compared to the prior year quarter.

Industrial fabrication revenues decreased by 19% from the prior year quarter to $4,143, primarily as a result of decreased construction revenues and several large product deliveries scheduled to occur early in the fourth quarter.

Heavy Fabrications segment operating results improved by $1,327 compared to the prior year.

The quarter-over-quarter improvement reflected the higher capacity utilization associated with increased tower production and higher average selling prices on the product mix sold.

Operating income was negatively impacted by a more complex product mix sold and new product introductions during the current-year quarter.

Additionally, supply chain constraints and other impacts associated with the COVID-19 pandemic led to higher manufacturing variances.

Operating margin was 4.7% during the three months ended September 30, 2020 , an increase from 2.0% during the three months ended September 30, 2019 .

Heavy Fabrications segment wind tower orders doubled compared to last year, as multiple customers secured 2021 production capacity.

Segment revenues decreased by $15,591 due to a 46% decrease in tower sections sold.

The segment was negatively impacted by continued supply chain disruptions, a temporary shut-down of our Abilene, Texas plant due to a weather-related event, a customer driven project delay and lower demand in the current year.

Heavy Fabrications segment operating results decreased by $5,241 compared to the prior year.

The quarter-over-quarter degradation in operating performance reflects the adverse volume impacts described previously.

Operating margin was (7.5)% during the three months ended March 31, 2021 , a decrease from 9.2% during the three months ended March 31, 2020 .

Gearing Segment

Three Months Ended

September 30,

Operating (loss) income

Operating loss

Operating margin

Gearing segment orders decreased 45% primarily due to reduced demand for O&G driven by reduced global demand for oil and gas caused by the COVID-19 pandemic.

Other markets within the Gearing segment, particularly mining, realized lower new order demand as customers delayed or reduced capital purchases as the COVID-19 pandemic led to economic uncertainty.

Gearing revenue was down 11% driven primarily by lower order intake in recent quarters, primarily in O&G and mining end markets partially offset by increased order intake in industrial markets.

Gearing segment operating results decreased $1,519 from the prior year period.

The decrease was primarily attributable to decreased plant utilization, a lower margin sales mix and manufacturing inefficiencies associated with the lower activity levels.

Operating margin was (14.4%) during the three months ended September 30, 2020 , down from 6.2% during the three months ended September 30, 2019 , driven primarily by the items identified above.

Gearing segment orders decreased 20% primarily due to the timing of aftermarket wind gearing orders, which can fluctuate based on customer order patterns and decreased mining demand, partially offset by increased demand for O&G.

Gearing revenue was down 14%, a reflection of lower order intake in recent quarters primarily within the O&G and mining markets, partially offset by increased revenue from aftermarket wind customers.

Gearing segment operating loss increased $728 from the prior year period.

This was primarily attributable to lower sales levels and manufacturing inefficiencies associated with the lower activity levels.

Operating margin was (18.5)% during the three months ended March 31, 2021 , down from (4.2)% during the three months ended March 31, 2020 , driven primarily by the items identified above.

Industrial Solutions Segment

Three Months Ended

September 30,

Operating income

Operating margin

Industrial Solutions segment orders decreased by 3% from the prior year period primarily due to lower orders for new gas turbine content.

Segment revenue declined by 5%, primarily due to customer project delays and supply chain delays associated with the COVID-19 pandemic.

The decrease in operating income versus the prior-year quarter was primarily a result of the revenue decrease, partially offset by cost reductions.

Corporate and Other

Corporate and Other expenses during the three months ended September 30, 2020 were in line with the expenses from the prior year period.

Nine months ended September 30, 2020 , Compared to Nine months ended September 30, 2019

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, 2020 , compared to the nine months ended September 30, 2019 .

Nine Months Ended September 30,

Cost of sales

Restructuring

Operating expenses

Selling, general and administrative expenses

Intangible amortization

Total operating expenses

Operating income (loss)

Other expense, net

Interest expense, net

Total other expense, net

Net income (loss) before provision for income taxes

Provision for income taxes

Net income (loss)

Revenues increased by $29,207 from the prior year period, primarily due to higher production levels in the Heavy Fabrications segment as towers sections sold increased 49% compared to the first nine months of 2019 and an increase in industrial fabrications revenue primarily as a result of our ongoing diversification efforts.

Gearing segment revenue decreased $7,009 due primarily to lower order intake in recent quarters primarily within the O&G and mining markets driven by reduced global demand for oil and gas and general market uncertainty caused by the COVID-19 pandemic.

Industrial Solutions revenue increased by $1,927 from the first nine months of 2019, primarily due to stronger near-term demand for new gas turbine content.

Gross profit increased by $3,904 primarily due to higher capacity utilization within our Heavy Fabrication segment.

Partially offsetting this were the negative impacts of a more complex tower product mix sold and new product introductions during the current year quarter.

Additionally, supply chain constraints and other impacts associated with the COVID-19 pandemic led to higher manufacturing variances.

Utilizing the PPP Loans proceeds to retain personnel, decreased sales, a lower margin sales mix and increased manufacturing inefficiencies associated with lower sales in our Gearing segment all further impacted our gross margins negatively.

As a result, gross margin increased to 9.7% during the nine months ended September 30, 2020 , from 8.9% during the nine months ended September 30, 2019 .

Due to higher revenue levels, operating expenses as a percentage of sales decreased to 8.3% compared to 9.6% during the first nine months of the prior year.

Profitability improved as we reported net income o f $480 during the nine months ended September 30, 2020 compared to a net loss of $2,958 during the nine months ended September 30, 2019 due to the factors described above.

Heavy Fabrications Segment

Nine Months Ended

September 30,

Tower sections sold

Operating income

Operating margin

The decrease in Heavy Fabrications segment orders was primarily driven by certain tower customers securing production capacity in advance of historical lead times in the prior year due to surging wind tower installation expectations in 2020.

Industrial fabrication orders decreased by $5,018, a 29% reduction from the prior year period, primarily due to decreases in mining and construction demand.

Segment revenues increased by $34,326 primarily due t o a 49 % increase in tower sections sold compared to the prior year period and a higher average selling price on the product mix sold.

Heavy Fabrications segment operating results improved by $7,971 compared to the prior year period.

The year-over-year improvement primarily reflected the higher segment capacity utilization and a higher average selling price on the product mix sold.

Operating results were negatively impacted by a more complex product mix sold and new product introductions during the current-year quarter.

Additionally, supply chain constraints and other impacts associated with the COVID-19 pandemic led to higher manufacturing variances.

Operating margin was 7.0% during the nine months ended September 30, 2020 , an increase from 0.9% during the nine months ended September 30, 2019 .

Gearing Segment

Nine Months Ended

September 30,

Operating (loss) income

Operating margin

Gearing segment orders increased 4% compared to the prior year period primarily due to an increase in aftermarket wind gearing, steel and other industrial customer orders, partially offset by a decrease in O&G and mining demand.

Revenue decreased 26% from the prior year period due primarily to lower order intake in the past two quarters due to low oil prices and general market uncertainty stemming from the COVID-19 pandemic.

Gearing segment operating results decreased $4,732 from the prior year period.

The decrease was primarily attributable to a decrease in sales across a majority of our core markets, a lower margin sales mix and manufacturing inefficiencies associated with lower activity levels.

Operating margin was (9.5%) during the nine months ended September 30, 2020 , down from 10.3% during the nine months ended September 30, 2019 .

Industrial Solutions Segment

Nine Months Ended

September 30,

Operating income (loss)

Operating margin

Industrial Solutions segment orders and revenues increased from the prior year period primarily due to stronger near-term demand for new gas turbine content.

The operating income improvement of $612 was a result of the revenue growth and general operating efficiencies.

The operating margin improved to 4.0% during the nine months ended September 30, 2020 from (1.1%) during the nine months ended September 30, 2019 .

Industrial Solutions segment orders decreased by 40% from the prior year period primarily due to the timing of orders associated with new gas turbine projects.

Segment revenue increased by 14% primarily due to the timing of new gas turbine installations.

The decrease in operating income versus the prior-year quarter was primarily a result of a lower margin sales mix sold during the quarter.

Corporate and Other

Corporate and Other expenses increased by $653 during the nine months ended September 30, 2020 primarily due to increased professional service expenses in the current year.

Corporate and Other expenses during the three months ended March 31, 2021 decreased from the prior year period due to lower salaries and benefits and a reduction in incentive compensation.

LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES

As of September 30, 2020 , cash and cash equivalents totaled $2,541 an increase of $125 from December 31, 2019 .

As of March 31, 2021 , cash and cash equivalents totaled $2,929, a decrease of $443 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, 2020 totaled $20,703.

As of September 30, 2020 , we had the ability to borrow up to an additional $19,214 un der the Credit Facility.

On July 31, 2018, we entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with Roth Capital Partners, LLC (the “Agent”).

Pursuant to the terms of the ATM Agreement, we may sell from time to time through the Agent shares of the Company's common stock, par value $0.001 per share with an aggregate sales price of up to $10,000.

The Company will pay a commission to the Agent of 3% of the gross proceeds of the sale of the shares sold under the ATM Agreement and reimburse the Agent for the expenses of their counsel.

We did not issue any shares of our common stock under the ATM Agreement in 2019.

During the quarter ended September 30, 2020, we reinstated the ATM agreement and issued 91,481 shares of the Company's common stock thereunder.

The net proceeds (before upfront costs) to such shares were approximately $321 after deducting commissions paid of approximately $10.

The ATM Agreement was terminated in accordance with its terms on October 12, 2020.

We anticipate that we will be able to satisfy the cash requirements associated with, among other things, working capital needs, capital expenditures and lease commitments through at least the next twelve months primarily through cash generated from operations, available cash balances, the Credit Facility, additional equipment financing, and access to the public or private debt equity markets, including the option to raise capital from the sale of our securities under the Form S-3.

On Octob er 29, 20 20, we executed the First Amendment to the Amended and Restated Loan Agreement, implementing a payoff of a syndicated lender and a pricing grid based on our trailing twelve month EBITDA under which applicable margins range from 2.25% to 2.75% for 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.

In April 2020, the Company received funds under the U.S.

Paycheck Protection Program.

Refer to the discussion below under the heading “Sources and Uses of Cash - Other” for more information.

Debt and finance lease obligations at March 31, 2021 totaled $17,803.

As of March 31, 2021 , we had the ability to borrow up to an additional $18,640 un der the Credit Facility.

On March 9, 2021, we entered into an 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 may sell from time to time through the Manager shares of the Company’s common stock, par value $0.001 per share with an aggregate sales price of up to $10,000.

The Company will pay a commission to the Manager of 2.75% of the gross proceeds of the sale of the shares sold under the Equity Distribution Agreement and reimburse the Manager for all expenses incident to the performance of its obligations under the Equity Distribution Agreement.

During the quarter ended March 31, 2021, we issued 1,100,000 shares of the Company's common stock thereunder.

The net proceeds (before upfront costs) to the Company from the sales of such shares were approximately $6,436 after deducting commissions paid of approximately $182 and before deducting other expense of $335.

We anticipate that we will be able to satisfy the cash requirements associated with, among other things, working capital needs, capital expenditures and lease commitments through at least the next twelve months primarily through cash generated from operations, available cash balances, the Credit Facility, additional equipment financing, expected cash proceeds or savings from the ERC, and access to the public or private debt equity markets, including the option to raise capital from the sale of our securities under the Form S-3.

If assumptions regarding our production, sales and subsequent collections from certain of our large customers, as well as customer deposits and revenues generated from new customer orders, are materially inconsistent with management’s expectations, particularly in light of the COVID-19 pandemic and its effects on domestic and global economies, we may encounter cash flow and liquidity issues.

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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, 2020 and 2019 :

Nine Months Ended

September 30,

The following table summarizes our cash flows from operating, investing, and financing activities for the three months ended March 31, 2021 and 2020 :

Three Months Ended

Total cash (used in) provided by:

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Financing activities

Net increase (decrease) in cash

Net (decrease) increase in cash

Operating Cash Flows

During the nine months ended September 30, 2020 , net cash used in operating activities totale d $2,475, com pared to net cash provided by operating activities of $4,334 for the nine months ended September 30, 2019 .

This increase in net cash used was primarily due to a reduction in customer deposits, which was driven by a surge in deposits in orders placed in the prior year, partially offset by a decrease in inventory levels in the current year.

During the three months ended March 31, 2021 , net cash used in operating activities totale d $8,437 com pared to net cash used in operating activities of $1,025 for the three months ended March 31, 2020 .

This increase in net cash used was primarily due to our operating performance and an increase in operating working capital in the Heavy Fabrications segment.

Investing Cash Flows

During the nine months ended September 30, 2020 , net cash used in investing activities tot aled $1,597, comp ared to net cash used in investing activities of $1,775 during the nine months ended September 30, 2019 .

The decrease in net cash used in investing activities as compared to the prior-year period was due to a decrease in net purchases of property and equipment, as we deferred purchases to subsequent periods.

During the three months ended March 31, 2021 , net cash used in investing activities tot aled $589, comp ared to net cash used in investing activities of $670 during the three months ended March 31, 2020 .

The decrease in net cash used in investing activities as compared to the prior-year period was due to a decrease in net purchases of property and equipment.

Financing Cash Flows

During the nine months ended September 30, 2020 , net cash provided by financing activities tot aled $4,197, co mpared to net cash used in financing activities of $3,721 for the nine months ended September 30, 2019 .

The increase versus the prior-year period was primarily due to PPP Loans proceeds received in the current year, partially offset by increased net repayments on our Credit Facility in the current year.

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, 2020 and December 31, 2019 .

During the three months ended March 31, 2021 , net cash provided by financing activities tot aled $8,583, co mpared to net cash provided by financing activities of $2,022 for the three months ended March 31, 2020 .

The increase versus the prior-year period was primarily due to proceeds from the sale of securities under the Equity Distribution Agreement received in the current year and increased net borrowings on our Credit Facility in the current year.

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, 2020 , the loan balance was $342.

In addition, we have outstanding notes payable for capital expenditures in the amount of $531 and $1,563 as of September 30, 2020 and December 31, 2019 , respectively, with $527 and $1,400 included in the “Line of Credit and other notes payable” line item of our condensed consolidated financial statements as of September 30, 2020 and December 31, 2019 , respectively.

As of March 31, 2021 , the loan balance was $228.

In addition, we have outstanding notes payable for capital expenditures in the amount of $609 and $163 as of March 31, 2021 and December 31, 2020 , respectively, with $609 and $161 included in the “Line of Credit and other notes payable” line item of our condensed consolidated financial statements as of March 31, 2021 and December 31, 2020 , respectively.

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

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

The outstanding notes payable have maturity dates that range from February 2021 to August 2022.

The outstanding notes payable have maturity dates that range from May 2021 to August 2022.

On April 15, 2020, we received funds under notes and related documents (“PPP Loans”) with CIBC Bank, USA under the Paycheck Protection Program (the “PPP”) which was established under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) enacted on March 27, 2020 in response to the COVID-19 pandemic and is administered by the U.S.

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Subject to the terms and conditions applicable to loans administered by the SBA under the PPP, as amended by the Flexibility Act, the unforgiven portion of a PPP Loan is payable over a two year period at an interest rate of 1.00%, with a deferral of payments of principal, interest and fees until the date on which the SBA remits the loan forgiveness amount to the lender (or notifies the lender that no loan forgiveness is allowed), provided that the borrower applies for forgiveness within 10 months after the last day of the covered period (and if not, payment of principal and interest shall commence 10 months after the last day of the covered period).

We used at least 60% of the amount of the PPP Loans proceeds to pay for payroll costs and the balance on other eligible qualifying expenses that we believe to be consistent with the terms of the PPP and plan to submit its forgiveness applications to CIBC Bank, USA during the fourth quarter of 2020.

We used at least 60% of the amount of the PPP Loans proceeds to pay for payroll costs and the balance on other eligible qualifying expenses that we believe to be consistent with the terms of the PPP and submitted our forgiveness applications to CIBC Bank, USA during the first quarter of 2021.

While we currently believe that our use of the loan proceeds will meet the conditions for forgiveness of the PPP Loans, we cannot provide assurance that we have not taken and will not take actions that could cause us to be ineligible for forgiveness of the PPP Loans, in whole or in part.

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 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 2021 because we had a gross receipts decrease of more than 20% from the first quarter of 2019, the relevant criteria for the ERC.

As a result of us averaging 500 or fewer full-time employees in 2019, all wages paid to employees were eligible for the ERC (rather than just wages paid to employees not providing services).

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.

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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, 2019 , as supplemented by our Current Report on Form 8-K filed April 17, 2020 and our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020.

We are under no duty to update any of these statements.

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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 305(e) of Regulation S-K.

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-Q

Item 2. Management’s Discussion and Analysis