Broadwind Energy, Inc. (NASDAQ:BWEN) reported sales of $42.6 million in Q3 2016, down 14% compared to $49.8 million in Q3 2015 as a result of lower Towers and Weldments segment revenue, due to lower steel and other material costs which are generally passed through to the customer, and reduced Gearing segment revenue due to lower demand from oil & gas and mining customers.
The Company reported income from continuing operations of $1.2 million, or $.08 per share, in Q3 2016, compared to net loss from continuing operations of $2.4 million, or $.16 per share, in Q3 2015. The $.24 per share improvement was due to significant operational improvements in the Towers and Weldments segment and successful cost management actions across the Company.
The Company reported a net loss from discontinued operations of $.4 million, or $.03 per share, in Q3 2016, compared to a net loss from discontinued operations of $5.2 million, or $.36 per share, in Q3 2015.
The Company reported non-GAAP adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, share-based payments and restructuring costs) of $3.3 million in Q3 2016, compared to $1.4 million in Q3 2015 (please refer to the reconciliation of GAAP measures to non-GAAP measures at the end of this release). The $1.9 million increase was mainly attributable to the factors described above.
Broadwind CEO Stephanie Kushner stated, “Broadwind had a strong third quarter. The investments we’ve made to systematize our production processes have significantly improved the operations and raised productivity and margins in our tower plants. Our Gearing business was cash neutral in a weak revenue environment. Our Company-wide cost management efforts are ahead of plan. Employees at all levels are contributing their ideas to our cost reduction program. It’s exciting to see the creativity of our workforce.”
Ms. Kushner continued, “The expansion of our Abilene tower facility is progressing on target. When this project is completed in mid-2017, our capacity at this plant will increase by 30%. We are focused on securing remaining orders for 2017, continued cost management efforts and making additional gains in operational efficiencies. For the fourth – quarter, our production mix is less favorable, and we expect to earn approximately $500,000 on revenue of $44-46 million.”
For the nine months ended September 30, 2016, revenue totaled $132.7 million, compared to $161.6 million for the nine months ended September 30, 2015. The 18% reduction was due primarily to lower Towers and Weldments revenue attributable to lower steel and other material costs and 2% lower volumes and lower Gearing revenue related to reduced demand from oil & gas and mining customers.
Net income from continuing operations for the nine months ended September 30, 2016 was $.9 million, or $.06 per share, compared with net loss from continuing operations of $1.5 million, or $.10 per share, for the nine months ended September 30, 2015. The increase was due to significantly improved operating efficiencies in the Towers and Weldments segment and successful cost containment efforts Company-wide which more than offset the reduction in revenue. Net loss from discontinued operations for the nine months ended September 30, 2016 totaled $.9 million, or $.06 per share, compared to net loss from discontinued operations of $9.5 million, or $.65 per share, for the nine months ended September 30, 2015. The Company reported non-GAAP adjusted EBITDA of $7.1 million for the nine months ended September 30, 2016 (please refer to the reconciliation of GAAP measures to non-GAAP measures at the end of this release).
Orders and Backlog
The Company booked $27.5 million of net new orders in Q3 2016, more than double Q3 2015 orders which totaled $12.2 million. Towers and Weldments orders, which vary considerably from quarter to quarter, totaled $25.3 million in Q3 2016, up substantially from $3.2 million in Q3 2015. Gearing orders totaled $2.2 million in Q3 2016, compared to $9.0 million in Q3 2015, (which included a multi-year buy from a wind gearing customer). At September 30, 2016, total backlog was $204.2 million, up significantly from backlog of $130.7 million at September 30, 2015.
Segment Results
Towers and Weldments
Broadwind Energy produces fabrications for wind, oil and gas, mining and other industrial applications, specializing in the production of wind turbine towers.
Towers and Weldments segment sales totaled $38.0 million in Q3 2016, compared to $42.9 million in Q3 2015, due mainly to $5.5 million in lower steel and other material costs, which are generally passed through to customers.
Towers and Weldments segment operating income in Q3 2016 totaled $4.1 million, compared to $2.2 million in Q3 2015. The $1.9 million increase was due to significantly improved operating efficiencies, including higher labor productivity and better cost management which more than offset the reduction in revenue described above. Towers and Weldments segment net income in Q3 2016 totaled $2.8 million, compared to $1.4 million in Q3 2015. Non-GAAP adjusted EBITDA totaled $5.1 million in Q3 2016, compared to non-GAAP adjusted EBITDA of $3.5 million in Q3 2015, as a result of the factors described above (please refer to the reconciliation of GAAP measures to non-GAAP measures at the end of this release).
Gearing
Broadwind Energy engineers, builds and remanufactures precision gears and gearboxes for oil and gas, mining, steel and wind applications.
Gearing segment sales totaled $4.6 million in Q3 2016, compared to $7.2 million in Q3 2015. The 36% reduction in sales was due to weaker demand from oil & gas and mining customers.
Despite the lower revenue, Gearing segment operating loss narrowed to $.7 million in Q3 2016, compared to an operating loss of $2.6 million in Q3 2015. The improvement was due to the absence of a $.9 million environmental remediation expense incurred in Q3 2015, successful cost management which led to an overall reduction in manufacturing overhead and operating expenses, and a $.6 million reduction in depreciation expense. Net loss for the Gearing segment declined to $.7 million in Q3 2016 compared to $2.6 million in Q3 2015. The Gearing segment reported breakeven non-GAAP adjusted EBITDA for Q3 2016, compared to a non-GAAP adjusted EBITDA loss of $.5 million in Q3 2015 (please refer to the reconciliation of GAAP measures to non-GAAP measures at the end of this release). The change was primarily due to strong cost management efforts as described above.
Corporate
Corporate and other expenses totaled $2.0 million in Q3 2016, compared to $1.7 million in Q3 2015. The increase was due mainly to higher incentive compensation in the current year period, partially offset by lower professional fees and other successful cost reductions.
Cash and Liquidity
During Q3 2016, operating working capital (accounts receivable and inventory, net of accounts payable and customer deposits) decreased $12.2 million due to the timing of customer receipts. Operating working capital is expected to normalize before 2016 year-end, and increase by $9-10 million in the fourth quarter.
Capital expenditures, net of disposals, in Q3 2016 totaled $2.2 million, bringing year-to-date expenditures to $3.5 million. Expenditures included investments to upgrade the coatings systems in the tower plants, and initial outlays associated with the expansion of the Abilene tower plant.
Cash assets (cash and short-term investments) increased sharply to $24.3 million at September 30, 2016, compared to $11.1 million at June 30, 2016, due to the temporary reduction in operating working capital described above. Debt and capital leases totaled $3.2 million, including the $2.6 million New Markets Tax Credit loan which is expected to be substantially forgiven when it matures in 2018.
The Company’s credit line with AloStar Bank of Commerce was undrawn at September 30, 2016.
Subsequent to quarter-end, the Company retired the credit line with AloStar and entered into a new three-year $20 million asset-based credit line with The PrivateBank. Under the terms of the new credit line, the Company may elect, with the lender’s consent, to increase the size of the commitment by up to $5 million if it achieves minimum EBITDA of $7 million for fiscal year 2016. The new credit line provides enhanced borrowing availability and more favorable terms overall, including a lower borrowing cost.
About Broadwind Energy, Inc.
Broadwind Energy (NASDAQ:BWEN) applies decades of deep industrial expertise to innovate integrated solutions for customers in the energy and infrastructure markets. From gears and gearing systems for wind, oil and gas and mining applications, to wind towers and industrial weldments, we have solutions for the energy needs of the future. With facilities throughout the central U.S., Broadwind Energy’s talented team is committed to helping customers maximize performance of their investments—quicker, easier and smarter. Find out more at www.bwen.com.