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TPI Composites (TPIC)

Filed: 5 Aug 21, 4:09pm

 

06

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-37839

 

img143929527_0.jpg

TPI Composites, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-1590775

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

8501 N. Scottsdale Rd.

Gainey Center II, Suite 100

Scottsdale, AZ 85253

(480305-8910

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01

 TPIC

NASDAQ Global Market

 

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 12 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.    Yes  ☒    No  ☐

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 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the 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

 

Non-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 for complying 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      No  ☒

As of July 30, 2021, there were 37,248,140 shares of common stock outstanding.

 

 


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

INDEX

 

 

 

 

 

Page

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Condensed Consolidated Financial Statements (Unaudited)

 

4

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2021 and 2020

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2021 and 2020

 

7

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020

 

8

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

10

 

 

 

 

 

ITEM 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

21

 

 

 

 

 

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

31

 

 

 

 

 

ITEM 4.

 

Controls and Procedures

 

32

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Legal Proceedings

 

33

 

 

 

 

 

ITEM 1A.

 

Risk Factors

 

33

 

 

 

 

 

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

33

 

 

 

 

 

ITEM 3.

 

Defaults Upon Senior Securities

 

33

 

 

 

 

 

ITEM 4.

 

Mine Safety Disclosures

 

33

 

 

 

 

 

ITEM 5.

 

Other Information

 

33

 

 

 

 

 

ITEM 6.

 

Exhibits

 

34

 

 

 

 

 

SIGNATURES

 

35

 

 

1


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities law. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. In many cases, you can identify forward-looking statements by terms such as “may,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

the potential impact of the COVID-19 pandemic on our business and results of operations;
competition from other wind blade and wind blade turbine manufacturers;
our ability to procure adequate supplies of raw materials and components in a cost-effective manner to fulfill our volume commitments to our customers;
the discovery of defects in our products and our ability to estimate the future cost of warranty campaigns;
growth of the wind energy and electric vehicle markets and our addressable markets for our products and services;
the potential impact of the increasing prevalence of auction-based tenders in the wind energy market and increased competition from solar energy on our gross margins and overall financial performance;
our future financial performance, including our net sales, cost of goods sold, gross profit or gross margin, operating expenses, ability to generate positive cash flow, and ability to achieve or maintain profitability;
changes in domestic or international government or regulatory policy, including without limitation, changes in trade policy and a potential extension of the Production Tax Credit in the United States;
the sufficiency of our cash and cash equivalents to meet our liquidity needs;
our ability to attract and retain customers for our products, and to optimize product pricing;
our ability to effectively manage our growth strategy and future expenses, including our startup and transition costs;
our ability to successfully expand in our existing wind energy markets and into new international wind energy markets, including our ability to expand our field service inspection and repair services business and manufacture wind blades for offshore wind energy projects;
our ability to successfully open new manufacturing facilities, take over existing facilities of our customers and expand our existing facilities on time and on budget;
the impact of the accelerated pace of new product and wind blade model introductions on our business and our results of operations;
our ability to successfully expand our transportation business and execute upon our strategy of entering new markets outside of wind energy;
worldwide economic conditions and their impact on customer demand;
our ability to maintain, protect and enhance our intellectual property;
our ability to comply with existing, modified or new laws and regulations applying to our business, including the imposition of new taxes, duties or similar assessments on our products;
the attraction and retention of qualified employees and key personnel;
our ability to maintain good working relationships with our employees, and avoid labor disruptions, strikes and other disputes with labor unions that represent certain of our employees; and
the potential impact of one or more of our customers becoming bankrupt or insolvent, or experiencing other financial problems.

These forward-looking statements are only predictions. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, levels of activity, performance or achievements to materially differ from any future results, levels of activity, performance or achievements expressed or

2


 

implied by these forward-looking statements. We have described in the “Risk Factors” section of our Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on February 25, 2021 the principal risks and uncertainties that we believe could cause actual results to differ from these forward-looking statements. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as guarantees of future events.

The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we undertake no obligation to update any forward-looking statement to reflect events or developments after the date on which the statement is made or to reflect the occurrence of unanticipated events except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date after the date of this Quarterly Report on Form 10-Q. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

 

3


 

PART I. FINANCIAL INFORMATION

ITEM l. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands, except par value data)

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

123,107

 

 

$

129,857

 

Restricted cash

 

 

154

 

 

 

339

 

Accounts receivable

 

 

147,827

 

 

 

132,768

 

Contract assets

 

 

231,780

 

 

 

216,928

 

Prepaid expenses

 

 

21,019

 

 

 

29,507

 

Other current assets

 

 

20,520

 

 

 

27,921

 

Inventories

 

 

13,168

 

 

 

10,839

 

Total current assets

 

 

557,575

 

 

 

548,159

 

Property, plant and equipment, net

 

 

205,716

 

 

 

209,001

 

Operating lease right of use assets

 

 

148,991

 

 

 

158,827

 

Other noncurrent assets

 

 

28,232

 

 

 

40,270

 

Total assets

 

$

940,514

 

 

$

956,257

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

310,320

 

 

$

295,992

 

Accrued warranty

 

 

47,462

 

 

 

50,852

 

Current maturities of long-term debt

 

 

56,137

 

 

 

32,551

 

Current operating lease liabilities

 

 

23,100

 

 

 

26,099

 

Contract liabilities

 

 

2,258

 

 

 

614

 

Total current liabilities

 

 

439,277

 

 

 

406,108

 

Long-term debt, net of current maturities

 

 

180,138

 

 

 

184,316

 

Noncurrent operating lease liabilities

 

 

152,059

 

 

 

155,925

 

Other noncurrent liabilities

 

 

8,143

 

 

 

8,873

 

Total liabilities

 

 

779,617

 

 

 

755,222

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common shares, $0.01 par value, 100,000 shares authorized, 37,248
   shares issued and
37,040 shares outstanding at June 30, 2021
   and
100,000 shares authorized, 36,771 shares issued and 36,564
   shares outstanding at December 31, 2020

 

 

372

 

 

 

368

 

Paid-in capital

 

 

359,527

 

 

 

349,472

 

Accumulated other comprehensive loss

 

 

(41,559

)

 

 

(32,990

)

Accumulated deficit

 

 

(151,310

)

 

 

(109,716

)

Treasury stock, at cost, 208 shares at June 30, 2021 and 207 shares at
  December 31, 2020

 

 

(6,133

)

 

 

(6,099

)

Total stockholders’ equity

 

 

160,897

 

 

 

201,035

 

Total liabilities and stockholders’ equity

 

$

940,514

 

 

$

956,257

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

4


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(in thousands, except per share data)

 

Net sales

 

$

458,841

 

 

$

373,817

 

 

$

863,521

 

 

$

730,453

 

Cost of sales

 

 

440,416

 

 

 

367,644

 

 

 

823,472

 

 

 

716,119

 

Startup and transition costs

 

 

10,099

 

 

 

10,920

 

 

 

24,453

 

 

 

22,954

 

Total cost of goods sold

 

 

450,515

 

 

 

378,564

 

 

 

847,925

 

 

 

739,073

 

Gross profit (loss)

 

 

8,326

 

 

 

(4,747

)

 

 

15,596

 

 

 

(8,620

)

General and administrative expenses

 

 

6,712

 

 

 

6,887

 

 

 

15,634

 

 

 

16,383

 

Loss on sale of assets and asset impairments

 

 

1,451

 

 

 

1,440

 

 

 

2,748

 

 

 

3,358

 

Restructuring charges, net

 

 

2,196

 

 

 

181

 

 

 

2,454

 

 

 

298

 

Loss from operations

 

 

(2,033

)

 

 

(13,255

)

 

 

(5,240

)

 

 

(28,659

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(2,691

)

 

 

(2,545

)

 

 

(5,395

)

 

 

(4,316

)

Foreign currency loss

 

 

(6,504

)

 

 

(1,928

)

 

 

(10,231

)

 

 

(968

)

Miscellaneous income

 

 

321

 

 

 

939

 

 

 

1,060

 

 

 

1,634

 

Total other expense

 

 

(8,874

)

 

 

(3,534

)

 

 

(14,566

)

 

 

(3,650

)

Loss before income taxes

 

 

(10,907

)

 

 

(16,789

)

 

 

(19,806

)

 

 

(32,309

)

Income tax provision

 

 

(28,890

)

 

 

(49,312

)

 

 

(21,788

)

 

 

(34,284

)

Net loss

 

$

(39,797

)

 

$

(66,101

)

 

$

(41,594

)

 

$

(66,593

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

36,881

 

 

 

35,299

 

 

 

36,742

 

 

 

35,256

 

Diluted

 

 

36,881

 

 

 

35,299

 

 

 

36,742

 

 

 

35,256

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.08

)

 

$

(1.87

)

 

$

(1.13

)

 

$

(1.89

)

Diluted

 

$

(1.08

)

 

$

(1.87

)

 

$

(1.13

)

 

$

(1.89

)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

5


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Net loss

 

$

(39,797

)

 

$

(66,101

)

 

$

(41,594

)

 

$

(66,593

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(4

)

 

 

(2,289

)

 

 

(5,295

)

 

 

(11,513

)

Unrealized gain (loss) on hedging derivatives, net of taxes of
  $
85, $(939), $736 and $1,100, respectively

 

 

(239

)

 

 

3,549

 

 

 

(3,274

)

 

 

(4,120

)

Comprehensive income (loss)

 

$

(40,040

)

 

$

(64,841

)

 

$

(50,163

)

 

$

(82,226

)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

6


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

Six Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Paid-in

 

 

other comprehensive

 

 

Accumulated

 

 

Treasury stock,

 

 

Total stockholders'

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

loss

 

 

deficit

 

 

at cost

 

 

equity

 

 

 

(in thousands)

 

Balance at December 31, 2020

 

 

36,771

 

 

$

368

 

 

$

349,472

 

 

$

(32,990

)

 

$

(109,716

)

 

$

(6,099

)

 

$

201,035

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,797

)

 

 

 

 

 

(1,797

)

Share-based compensation expense

 

 

 

 

 

 

 

 

2,494

 

 

 

 

 

 

 

 

 

 

 

 

2,494

 

Issuances under share-based
   compensation plan

 

 

149

 

 

 

1

 

 

 

1,235

 

 

 

 

 

 

 

 

 

 

 

 

1,236

 

Common stock repurchased for treasury

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(34

)

 

 

(34

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(8,326

)

 

 

 

 

 

 

 

 

(8,326

)

Balance at March 31, 2021

 

 

36,920

 

 

 

369

 

 

 

353,201

 

 

 

(41,316

)

 

 

(111,513

)

 

 

(6,133

)

 

 

194,608

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(39,797

)

 

 

 

 

 

(39,797

)

Share-based compensation expense

 

 

 

 

 

 

 

 

2,836

 

 

 

 

 

 

 

 

 

 

 

��

2,836

 

Issuances under share-based
   compensation plan

 

 

328

 

 

 

3

 

 

 

3,490

 

 

 

 

 

 

 

 

 

 

 

 

3,493

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(243

)

 

 

 

 

 

 

 

 

(243

)

Balance at June 30, 2021

 

 

37,248

 

 

$

372

 

 

$

359,527

 

 

$

(41,559

)

 

$

(151,310

)

 

$

(6,133

)

 

$

160,897

 

 

 

 

 

Six Months Ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Paid-in

 

 

other comprehensive

 

 

Accumulated

 

 

Treasury stock,

 

 

Total stockholders'

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

loss

 

 

deficit

 

 

at cost

 

 

equity

 

 

 

(in thousands)

 

Balance at December 31, 2019

 

 

35,326

 

 

$

353

 

 

$

322,906

 

 

$

(23,612

)

 

$

(90,689

)

 

$

(3,908

)

 

$

205,050

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(492

)

 

 

 

 

 

(492

)

Share-based compensation expense

 

 

 

 

 

 

 

 

2,970

 

 

 

 

 

 

 

 

 

 

 

 

2,970

 

Issuances under share-based
   compensation plan

 

 

109

 

 

 

1

 

 

 

861

 

 

 

 

 

 

 

 

 

 

 

 

862

 

Common stock repurchased for treasury

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(459

)

 

 

(459

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(16,893

)

 

 

 

 

 

 

 

 

(16,893

)

Balance at March 31, 2020

 

 

35,435

 

 

 

354

 

 

 

326,737

 

 

 

(40,505

)

 

 

(91,181

)

 

 

(4,367

)

 

 

191,038

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(66,101

)

 

 

 

 

 

(66,101

)

Share-based compensation expense

 

 

 

 

 

 

 

 

2,186

 

 

 

 

 

 

 

 

 

 

 

 

2,186

 

Issuances under share-based
   compensation plan

 

 

81

 

 

 

1

 

 

 

510

 

 

 

 

 

 

 

 

 

 

 

 

511

 

Common stock repurchased for treasury

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(49

)

 

 

(49

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

1,260

 

 

 

 

 

 

 

 

 

1,260

 

Balance at June 30, 2020

 

 

35,516

 

 

$

355

 

 

$

329,433

 

 

$

(39,245

)

 

$

(157,282

)

 

$

(4,416

)

 

$

128,845

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

7


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(41,594

)

 

$

(66,593

)

Adjustments to reconcile net loss to net cash used in
   operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

24,110

 

 

 

22,644

 

Loss on sale of assets and asset impairments

 

 

2,748

 

 

 

3,358

 

Restructuring charges, net

 

 

2,454

 

 

 

298

 

Share-based compensation expense

 

 

5,324

 

 

 

5,316

 

Amortization of debt issuance costs

 

 

228

 

 

 

122

 

Deferred income taxes

 

 

13,221

 

 

 

28,134

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(19,465

)

 

 

44,864

 

Contract assets and liabilities

 

 

(16,007

)

 

 

(53,089

)

Operating lease right of use assets and operating lease liabilities

 

 

2,971

 

 

 

5,749

 

Inventories

 

 

(2,488

)

 

 

(5,899

)

Prepaid expenses

 

 

8,232

 

 

 

(6,272

)

Other current assets

 

 

7,151

 

 

 

3,396

 

Other noncurrent assets

 

 

(1,767

)

 

 

(957

)

Accounts payable and accrued expenses

 

 

15,747

 

 

 

(19,117

)

Accrued warranty

 

 

(3,390

)

 

 

9,133

 

Other noncurrent liabilities

 

 

(730

)

 

 

1,908

 

Net cash used in operating activities

 

 

(3,255

)

 

 

(27,005

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(27,059

)

 

 

(42,030

)

Net cash used in investing activities

 

 

(27,059

)

 

 

(42,030

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from revolving and term loans

 

 

2,106

 

 

 

80,000

 

Net repayments of accounts receivable financing

 

 

 

 

 

(3,829

)

Proceeds from working capital loans

 

 

6,383

 

 

 

 

Principal repayments of finance leases

 

 

(2,803

)

 

 

(2,837

)

Net proceeds from other debt

 

 

13,362

 

 

 

23,788

 

Debt issuance costs

 

 

 

 

 

(730

)

Proceeds from exercise of stock options

 

 

4,688

 

 

 

1,371

 

Repurchase of common stock including shares withheld in lieu of income taxes

 

 

(34

)

 

 

(508

)

Net cash provided by financing activities

 

 

23,702

 

 

 

97,255

 

Impact of foreign exchange rates on cash, cash equivalents and restricted cash

 

 

(323

)

 

 

(2,525

)

Net change in cash, cash equivalents and restricted cash

 

 

(6,935

)

 

 

25,695

 

Cash, cash equivalents and restricted cash, beginning of year

 

 

130,196

 

 

 

71,749

 

Cash, cash equivalents and restricted cash, end of period

 

$

123,261

 

 

$

97,444

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

8


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Supplemental cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

5,255

 

 

$

3,976

 

Cash paid for income taxes, net of refunds

 

 

14,866

 

 

 

7,393

 

Noncash investing and financing activities:

 

 

 

 

 

 

Right of use assets obtained in exchange for new operating lease liabilities

 

 

5,384

 

 

 

54,326

 

Property, plant, and equipment obtained in exchange for new finance lease liabilities

 

 

136

 

 

 

0

 

Accrued capital expenditures in accounts payable

 

 

3,682

 

 

 

7,970

 

 

 

Reconciliation of Cash, Cash Equivalents and Restricted Cash:

 

June 30,

 

 

December 31,

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

2020

 

 

2019

 

 

 

(in thousands)

 

  Cash and cash equivalents

 

$

123,107

 

 

$

129,857

 

 

$

96,657

 

 

$

70,282

 

  Restricted cash

 

 

154

 

 

 

339

 

 

 

312

 

 

 

992

 

Restricted cash included within other noncurrent assets

 

 

0

 

 

 

0

 

 

 

475

 

 

 

475

 

Total cash, cash equivalents and restricted cash shown in
  the condensed consolidated statements of cash flows

 

$

123,261

 

 

$

130,196

 

 

$

97,444

 

 

$

71,749

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

9


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by us without audit, pursuant to the rules and regulations of the SEC and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2020 included in our Annual Report on Form 10-K. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted, as permitted by the SEC, although we believe the disclosures that are made are adequate to make the information presented herein not misleading. The accompanying condensed consolidated financial statements reflect, in the opinion of our management, all normal recurring adjustments necessary to present fairly our financial position at June 30, 2021, and the results of our operations, comprehensive income (loss) and cash flows for the periods presented. Interim results for the three and six months ended June 30, 2021 and 2020 are not necessarily indicative of the results to be expected for the full years. Certain prior period amounts in the condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation.

The preparation of these condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The accompanying condensed consolidated financial statements include the accounts of TPI Composites, Inc. and all of our majority owned subsidiaries. All significant intercompany transactions and balances have been eliminated.

References to TPI Composites, Inc, the “Company,” “we,” “us” or “our” in these notes refer to TPI Composites, Inc. and its consolidated subsidiaries.

Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Convertible Instruments

In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU is intended to simplify the accounting for certain convertible instruments with characteristics of both liability and equity. This ASU removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. As a result, after the adoption of this guidance, an entity’s convertible debt instrument will be wholly accounted for as debt. This ASU also expands disclosure requirements for convertible instruments and simplifies areas of the guidance for diluted earnings-per-share calculations by requiring the use of the if-converted method.

This ASU is effective for all public business entities (other than smaller reporting companies) for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020 and can be adopted on either a fully retrospective or modified retrospective basis. An entity should adopt the guidance at the beginning of its annual fiscal year. We adopted this standard on January 1, 2021 on a modified retrospective basis and it did not have a material effect on our condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This ASU only applies to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. This ASU is effective for all entities beginning on March 12, 2020 and entities may elect to apply the ASU prospectively through December 31, 2022. The FASB later issued ASU 2021-01, Reference Rate

10


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Reform (Topic 848): Scope, to clarify the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848. We are currently evaluating the impact this guidance may have on our condensed consolidated financial statements and related disclosures. 

Note 2. Revenue From Contracts with Customers

For a detailed discussion of our revenue recognition policy, refer to the discussion in Note 1, Summary of Operations and Summary of Significant Accounting Policies – (c) Revenue Recognition, to the Notes to Consolidated Financial Statements within our Annual Report on Form 10-K.

The following tables represents the disaggregation of our net sales revenue by product for each of our reportable segments:

 

 

 

Three Months Ended June 30, 2021

 

 

 

U.S.

 

 

Asia

 

 

Mexico

 

 

EMEA

 

 

India

 

 

Total

 

 

 

(in thousands)

 

Wind blade sales

 

$

39,427

 

 

$

82,491

 

 

$

131,188

 

 

$

103,201

 

 

$

62,397

 

 

$

418,704

 

Precision molding and
   assembly systems sales

 

 

0

 

 

 

7,634

 

 

 

5,969

 

 

 

0

 

 

 

0

 

 

 

13,603

 

Transportation sales

 

 

12,227

 

 

 

0

 

 

 

2,688

 

 

 

0

 

 

 

0

 

 

 

14,915

 

Other sales

 

 

5,107

 

 

 

981

 

 

 

3,325

 

 

 

2,149

 

 

 

57

 

 

 

11,619

 

Total net sales

 

$

56,761

 

 

$

91,106

 

 

$

143,170

 

 

$

105,350

 

 

$

62,454

 

 

$

458,841

 

 

 

 

 

Three Months Ended June 30, 2020

 

 

 

U.S.

 

 

Asia

 

 

Mexico

 

 

EMEA

 

 

India

 

 

Total

 

 

 

(in thousands)

 

Wind blade sales

 

$

26,309

 

 

$

141,540

 

 

$

78,193

 

 

$

87,162

 

 

$

14,859

 

 

$

348,063

 

Precision molding and
   assembly systems sales

 

 

0

 

 

 

3,576

 

 

 

3,318

 

 

 

0

 

 

 

0

 

 

 

6,894

 

Transportation sales

 

 

14,539

 

 

 

0

 

 

 

363

 

 

 

0

 

 

 

0

 

 

 

14,902

 

Other sales

 

 

1,231

 

 

 

802

 

 

 

1,546

 

 

 

379

 

 

 

0

 

 

 

3,958

 

Total net sales

 

$

42,079

 

 

$

145,918

 

 

$

83,420

 

 

$

87,541

 

 

$

14,859

 

 

$

373,817

 

 

 

 

 

Six Months Ended June 30, 2021

 

 

 

U.S.

 

 

Asia

 

 

Mexico

 

 

EMEA

 

 

India

 

 

Total

 

 

 

(in thousands)

 

Wind blade sales

 

$

79,054

 

 

$

154,994

 

 

$

239,630

 

 

$

214,228

 

 

$

109,977

 

 

$

797,883

 

Precision molding and
   assembly systems sales

 

 

0

 

 

 

11,598

 

 

 

10,932

 

 

 

0

 

 

 

0

 

 

 

22,530

 

Transportation sales

 

 

18,651

 

 

 

0

 

 

 

4,395

 

 

 

0

 

 

 

0

 

 

 

23,046

 

Other sales

 

 

8,342

 

 

 

1,442

 

 

 

6,672

 

 

 

3,488

 

 

 

118

 

 

 

20,062

 

Total net sales

 

$

106,047

 

 

$

168,034

 

 

$

261,629

 

 

$

217,716

 

 

$

110,095

 

 

$

863,521

 

 

 

 

Six Months Ended June 30, 2020

 

 

 

U.S.

 

 

Asia

 

 

Mexico

 

 

EMEA

 

 

India

 

 

Total

 

 

 

(in thousands)

 

Wind blade sales

 

$

62,242

 

 

$

227,416

 

 

$

193,379

 

 

$

175,643

 

 

$

25,720

 

 

$

684,400

 

Precision molding and
   assembly systems sales

 

 

0

 

 

 

8,637

 

 

 

5,020

 

 

 

0

 

 

 

0

 

 

 

13,657

 

Transportation sales

 

 

21,218

 

 

 

0

 

 

 

573

 

 

 

0

 

 

 

0

 

 

 

21,791

 

Other sales

 

 

6,050

 

 

 

1,002

 

 

 

2,698

 

 

 

855

 

 

 

0

 

 

 

10,605

 

Total net sales

 

$

89,510

 

 

$

237,055

 

 

$

201,670

 

 

$

176,498

 

 

$

25,720

 

 

$

730,453

 

 

For a further discussion regarding our operating segments, see Note 14, Segment Reporting. The geography of Europe, the Middle East and Africa comprises the EMEA segment.

11


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Contract Assets and Liabilities

Contract assets consist of the amount of revenue recognized over time for performance obligations in production where control has transferred to the customer but the contract does not yet allow for the customer to be billed. Typically, customers are billed when the product finishes production and meets the technical specifications contained in the contract. The majority of the contract asset balance relates to materials procured based on customer specifications. The contract assets are recorded as current assets in the condensed consolidated balance sheets. Contract liabilities consist of advance payments in excess of revenue earned. These amounts primarily represent progress payments received as precision molding and assembly systems are being manufactured. The contract liabilities are recorded as current liabilities in the condensed consolidated balance sheets and are reduced as we record revenue over time.

These contract assets and liabilities are reported on the condensed consolidated balance sheets net on a contract-by-contract basis at the end of each reporting period.

Contract assets and contract liabilities consisted of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

 

 

 

2021

 

 

2020

 

 

$ Change

 

 

 

(in thousands)

 

Gross contract assets

 

$

234,045

 

 

$

223,428

 

 

$

10,617

 

Less: reclassification from contract liabilities

 

 

(2,265

)

 

 

(6,500

)

 

 

4,235

 

Contract assets

 

$

231,780

 

 

$

216,928

 

 

$

14,852

 

 

 

 

 

June 30,

 

 

December 31,

 

 

 

 

 

 

2021

 

 

2020

 

 

$ Change

 

 

 

(in thousands)

 

Gross contract liabilities

 

$

4,523

 

 

$

7,114

 

 

$

(2,591

)

Less: reclassification to contract assets

 

 

(2,265

)

 

 

(6,500

)

 

 

4,235

 

Contract liabilities

 

$

2,258

 

 

$

614

 

 

$

1,644

 

 

 

Contract assets increased by $14.9 million from December 31, 2020 to June 30, 2021 due to an increase in customer specific material purchases and incremental unbilled production during the six months ended June 30, 2021. Contracts liabilities increased by $1.6 million from December 31, 2020 to June 30, 2021 primarily due to amounts billed to a customer in advance of the production of precision molding and assembly systems during the six months ended June 30, 2021.

For the three and six months ended June 30, 2021, we recognized $0.1 million and $0.1 million, respectively, of revenue related to precision molding and assembly systems and wind blades, which was included in the corresponding contract liability balance at the beginning of the period.

Performance Obligations

Remaining performance obligations represent the transaction price for which work has not been performed and excludes any unexercised contract options. The transaction price includes estimated variable consideration as determined based on the estimated production output within the range of the contractual guaranteed minimum volume obligations and production capacity.

As of June 30, 2021, the aggregate amount of the transaction price allocated to the remaining performance obligations to be satisfied in future periods was approximately $3.2 billion. We estimate that we will recognize the remaining performance obligations as revenue as follows:

 

 

 

$

 

 

% of Total

 

 

 

 

(in thousands)

 

 

 

 

 

Year Ending December 31,

 

 

 

 

 

 

 

Remainder of 2021

 

$

874,559

 

 

 

27.3

 

%

2022

 

 

1,492,816

 

 

 

46.7

 

 

2023

 

 

712,885

 

 

 

22.3

 

 

2024

 

 

118,962

 

 

 

3.7

 

 

  Total remaining performance obligations

 

$

3,199,222

 

 

 

100.0

 

%

 

12


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

For the three and six months ended June 30, 2021, net revenue recognized from our performance obligations satisfied in previous periods decreased by $4.0 million and $12.5 million, respectively, as compared to increases of $5.8 million and $0.6 million, respectively, in the same periods in 2020. The current year decreases primarily relates to changes in certain of our estimated total contract values and related direct costs to complete the performance obligations.

Note 3. Significant Risks and Uncertainties

Our revenues and receivables are earned from a small number of customers. As such, our production levels are dependent on these customers’ orders. See Note 13, Concentration of Customers.

We may be required to reinstate temporary production suspensions or volume reductions at our manufacturing facilities to the extent there are new resurgences of COVID-19 cases in the regions where we operate or there is an outbreak of positive COVID-19 cases in any of our manufacturing facilities. In addition, our global supply chain may in the future be adversely affected if the COVID-19 pandemic persists.

 

In 2021, there have been both significant price increases and supply constraints with respect to resin and carbon fiber, which are key raw materials that we use to manufacture our products, as well as increases in logistics costs to obtain raw materials. We expect that the price of resin and carbon fiber will remain at elevated levels for the remainder of 2021. Approximately 55% of the resin and resin systems we use are purchased under contracts either controlled or borne by 2 of our customers and therefore these customers receive/bear 100% of any increase in resin prices. With respect to our other customer supply agreements, our customers typically bear 70% of any raw material price increases. If the supply of resin feedstocks and carbon fiber continue to be constrained for an extended period of time, such shortages could impact our ability to meet our customers’ forecasted demand for our products for the remainder of 2021 and have a further material adverse impact on our results of operations. 

We maintain our U.S. cash in bank deposit and money market accounts that, at times, exceed U.S. federally insured limits. U.S. bank accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) in an amount up to $250,000 during 2021 and 2020. U.S. money market accounts are not guaranteed by the FDIC. At June 30, 2021 and December 31, 2020, we had $55.2 million and $68.9 million, respectively, of cash in bank deposit and money market accounts in high quality U.S. banks, which was in excess of FDIC limits. We have not experienced losses in any such accounts.

We also maintain cash in bank deposit accounts outside the U.S. with no insurance. At June 30, 2021, this included $58.7 million in China, $5.1 million in Turkey, $2.3 million in Mexico, $1.5 million in India and $0.3 million in other countries. As of December 31, 2020, this included $47.4 million in China, $6.0 million in Turkey, $5.0 million in India, $2.1 million in Mexico and $0.5 million in other countries. We have not experienced losses in these accounts. In addition, at June 30, 2021 and December 31, 2020, we had short-term deposits in interest bearing accounts in China of $0.2 million and $0.3 million, respectively, which are reported as restricted cash in our condensed consolidated balance sheets.

Certain of our debt agreements are either tied to LIBOR or the Euro Interbank Offered Rate (EURIBOR) and certain of them have associated interest rate hedges. Due to the relatively low LIBOR and EURIBOR rates in effect as of June 30, 2021, a 10% change in the LIBOR or EURIBOR rate would not have had a material impact on our future earnings, fair values or cash flows.

Note 4. Accrued Warranty

The warranty accrual activity for the periods noted consisted of the following:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

2020

 

 

 

(in thousands)

 

Warranty accrual at beginning of period

 

$

45,956

 

 

$

51,528

 

 

$

50,852

 

$

47,639

 

Accrual during the period

 

 

5,400

 

 

 

4,509

 

 

 

10,247

 

 

8,374

 

Cost of warranty services provided during the period

 

 

(3,781

)

 

 

(5,267

)

 

 

(11,352

)

 

(8,482

)

Changes in estimate for pre-existing warranties,
    including expirations during the period

 

 

(113

)

 

 

6,002

 

 

 

(2,285

)

 

9,241

 

Warranty accrual at end of period

 

$

47,462

 

 

$

56,772

 

 

$

47,462

 

$

56,772

 

 

13


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 5. Long-Term Debt, Net of Current Maturities

Long-term debt, net of current maturities, consisted of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Senior revolving loan—U.S.

 

$

171,154

 

 

$

171,154

 

Unsecured financing—EMEA

 

 

45,913

 

 

 

30,040

 

Equipment financing—EMEA

 

 

2,101

 

 

 

4,335

 

Secured and unsecured working capital—India

 

 

6,383

 

 

 

0

 

Unsecured term loan—India

 

 

2,106

 

 

 

0

 

Equipment finance lease—Mexico

 

 

6,261

 

 

 

8,038

 

Equipment finance lease—EMEA

 

 

3,012

 

 

 

4,119

 

Other equipment finance leases

 

 

168

 

 

 

232

 

Total debt—principal

 

 

237,098

 

 

 

217,918

 

Less: Debt issuance costs

 

 

(823

)

 

 

(1,051

)

Total debt, net of debt issuance costs

 

 

236,275

 

 

 

216,867

 

Less: Current maturities of long-term debt

 

 

(56,137

)

 

 

(32,551

)

Long-term debt, net of debt issuance costs and
current maturities

 

$

180,138

 

 

$

184,316

 

 

Note 6. Share-Based Compensation Plans

During the six months ended June 30, 2021, we issued to certain employees and non-employee directors an aggregate of 168,993 timed-based restricted stock units (RSUs), 58,396 performance-based restricted stock units (PSUs) that vest upon achievement of a cumulative, three-year Adjusted EBITDA target measured from January 1, 2021 through December 31, 2023, and 79,784 PSUs that vest upon achievement of certain stock price hurdles for the period of the grant date through December 31, 2023. All of the time-based RSUs vest on the third anniversary date of the grant date. Each of the time-based and performance-based awards are subject to the recipient’s continued service with us, the terms and conditions of our stock option and incentive plan and the applicable award agreement.

The share-based compensation expense recognized in the condensed consolidated statements of operations was as follows:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Cost of goods sold

 

$

1,129

 

 

$

465

 

 

$

1,332

 

 

$

636

 

General and administrative expenses

 

 

1,796

 

 

 

1,909

 

 

 

3,992

 

 

 

4,680

 

Total share-based compensation expense

 

$

2,925

 

 

$

2,374

 

 

$

5,324

 

 

$

5,316

 

 

The share-based compensation expense recognized by award type was as follows:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

RSUs

 

$

1,772

 

 

$

1,181

 

 

$

3,027

 

 

$

2,137

 

Stock options

 

 

573

 

 

 

599

 

 

 

1,191

 

 

 

2,252

 

PSUs

 

 

580

 

 

 

594

 

 

 

1,106

 

 

 

927

 

Total share-based compensation expense

 

$

2,925

 

 

$

2,374

 

 

$

5,324

 

 

$

5,316

 

 

14


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 7. Leases

We have operating and finance leases for our manufacturing facilities, warehouses, offices, automobiles and certain of our machinery and equipment. Our leases have remaining lease terms of between one and 15 years, some of which may include options to extend the leases up to five years.

The components of lease cost were as follows:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Total operating lease cost

 

$

9,645

 

 

$

9,148

 

 

$

19,361

 

 

$

17,719

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance lease cost

 

 

 

 

 

 

 

 

 

 

 

 

  Amortization of assets under finance leases

 

$

906

 

 

$

1,413

 

 

$

1,806

 

 

$

2,960

 

  Interest on finance leases

 

 

169

 

 

 

256

 

 

 

358

 

 

 

535

 

Total finance lease cost

 

$

1,075

 

 

$

1,669

 

 

$

2,164

 

 

$

3,495

 

 

Total lease assets and liabilities were as follows:

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Operating Leases

 

 

 

 

 

 

Operating lease right of use assets

 

$

148,991

 

 

$

158,827

 

 

 

 

 

 

 

 

Current operating lease liabilities

 

$

23,100

 

 

$

26,099

 

Noncurrent operating lease liabilities

 

 

152,059

 

 

 

155,925

 

   Total operating lease liabilities

 

$

175,159

 

 

$

182,024

 

 

 

 

 

 

 

 

Finance Leases

 

 

 

 

 

 

Property, plant and equipment, gross

 

$

27,069

 

 

$

28,462

 

Less: accumulated depreciation

 

 

(13,341

)

 

 

(12,461

)

   Total property, plant and equipment, net

 

$

13,728

 

 

$

16,001

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

6,104

 

 

$

6,018

 

Long-term debt, net of debt issuance costs and current maturities

 

 

3,337

 

 

 

6,371

 

   Total finance lease liabilities

 

$

9,441

 

 

$

12,389

 

 

Future minimum lease payments under noncancelable leases as of June 30, 2021 were as follows:

 

 

 

Operating

 

 

Finance

 

 

 

 Leases

 

 

 Leases

 

 

 

(in thousands)

 

Year Ending December 31,

 

 

 

 

 

 

Remainder of 2021

 

$

18,046

 

 

$

2,955

 

2022

 

 

33,175

 

 

 

5,824

 

2023

 

 

31,374

 

 

 

904

 

2024

 

 

27,381

 

 

 

254

 

2025

 

 

27,076

 

 

 

37

 

Thereafter

 

 

100,393

 

 

 

7

 

  Total future minimum lease payments

 

 

237,445

 

 

 

9,981

 

Less: interest

 

 

(62,286

)

 

 

(540

)

  Total lease liabilities

 

$

175,159

 

 

$

9,441

 

 

15


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Supplemental cash flow information related to leases was as follows:

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Cash paid for amounts included in the measurement of lease
   liabilities:

 

 

 

 

 

 

  Operating cash flows from operating leases

 

$

18,297

 

 

$

14,651

 

  Operating cash flows from finance leases

 

 

358

 

 

 

535

 

  Financing cash flows from finance leases

 

 

2,803

 

 

 

2,837

 

 

Other information related to leases was as follows:

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Weighted-Average Remaining Lease Term (In Years):

 

 

 

 

 

 

  Operating leases

 

 

7.3

 

 

 

7.7

 

  Finance leases

 

 

1.8

 

 

 

2.2

 

 

 

 

 

 

 

 

Weighted-Average Discount Rate:

 

 

 

 

 

 

  Operating leases

 

 

8.0

%

 

 

7.9

%

  Finance leases

 

 

6.3

%

 

 

6.4

%

 

As of June 30, 2021, there were 0 material additional leases related to our manufacturing facilities, warehouses, offices, automobiles or our machinery and equipment which have not yet commenced.

Note 8. Financial Instruments

Interest Rate Swap

We use interest rate swap contracts to mitigate our exposure to interest rate fluctuations associated with our U.S. senior revolving credit agreement (the Credit Agreement). We do not use such swap contracts for speculative or trading purposes.

As of June 30, 2021, 0 interest rate swaps originally designated for hedge accounting were de-designated or terminated. No ineffectiveness on our interest rate swaps was recognized as of June 30, 2021, and none is anticipated over the remaining term of the agreement.

Foreign Exchange Forward Contracts

We use foreign exchange forward contracts to mitigate our exposure to fluctuations in exchange rates between the functional currencies of our subsidiaries and the other currencies in which they transact. We do not use such forward contracts for speculative or trading purposes.

Mexican Peso

All of our remaining outstanding foreign exchange forward contracts (excluding those with call options) expired during the three months ended March 31, 2021. As of December 31, 2020, the notional values associated with our foreign exchange forward contracts qualifying as cash flow hedges were approximately 0.3 billion Mexican Pesos (approximately $14.0 million).

With regards to our foreign exchange call option contracts, for the three and six months ended June 30, 2021, $0.7 million and $1.4 million, respectively, of premium amortization was recorded through cost of sales within our condensed consolidated statements of operations. The net income (loss) recognized in accumulated other comprehensive loss in our condensed consolidated statements of changes in stockholders’ equity for our foreign exchange call option contracts is expected to be recognized in cost of sales in our condensed consolidated statements of operations during the next nine months.

16


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

As of June 30, 2021 and December 31, 2020, the notional values associated with our foreign exchange call option contracts qualifying as cash flow hedges were approximately 1.6 billion Mexican Pesos (approximately $79.7 million) and approximately 0.4 billion Mexican Pesos (approximately $17.3 million), respectively.

Chinese Renminbi

With regards to our foreign exchange forward contracts, for which hedge accounting does not apply, for the three and six months ended June 30, 2021, $0.5 million and $0.6 million, respectively, in gains were recorded through foreign currency loss within our condensed consolidated statements of operations.

India Rupee

With regards to our foreign exchange forward contracts and our foreign exchange call option contracts, for which hedge accounting does not apply, for the three and six months ended June 30, 2021, $0.5 million and $1.2 million, respectively, in gains were recorded through foreign currency loss within our condensed consolidated statements of operations. Additionally, with regards to our foreign exchange call option contracts, for the three and six months ended June 30, 2021, $0.3 million and $0.3 million, respectively, of premium amortization was recorded as losses through foreign currency loss within our condensed consolidated statements of operations.

The fair values and location of our financial instruments in our condensed consolidated balance sheets were as follows:

 

 

 

Condensed Consolidated

 

June 30,

 

 

December 31,

 

Financial Instrument

 

Balance Sheet Line Item

 

2021

 

 

2020

 

 

 

 

 

(in thousands)

 

Foreign exchange forward contracts

 

Other current assets

 

$

1,706

 

 

$

5,832

 

Foreign exchange forward contracts

 

Accounts payable and accrued
   expenses

 

 

1,218

 

 

 

2,096

 

Interest rate swap

 

Other noncurrent liabilities

 

 

3,365

 

 

 

4,414

 

 

The following table presents the pretax amounts reclassified from accumulated other comprehensive loss into our condensed consolidated statements of operations:

 

Accumulated

 

Condensed Consolidated

 

Three Months Ended

 

 

Six Months Ended

 

Other Comprehensive

 

Statement of Operations

 

June 30,

 

 

June 30,

 

 Loss Component

 

 Line Item

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

(in thousands)

 

Foreign exchange forward
  contracts

 

Cost of sales

 

$

(1,035

)

 

$

2,738

 

 

$

(3,037

)

 

$

2,516

 

 

Note 9. Income Taxes

 

The income tax provisions for the three and six months ended June 30, 2021 were lower than for the corresponding periods in 2020 primarily due to the change in the mix of earnings of foreign jurisdictions and U.S. tax on foreign earnings in the comparable periods, partially offset by the recording of a full U.S. valuation allowance during the three months ended June 30, 2021 and an increase in our uncertain tax positions for the three and six months ended June 30, 2021 as compared to the same periods in 2020.

No changes in tax law occurred during the six months ended June 30, 2021, which had a material impact on our income tax provision. We do not record a deferred tax liability related to unremitted foreign earnings as we maintain our assertion to indefinitely reinvest our unremitted foreign earnings. 

17


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 10. Net Income (Loss) Per Common Share

The following table sets forth the computation of basic and diluted net income (loss) per common share:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(in thousands, except per share data)

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(39,797

)

 

$

(66,101

)

 

$

(41,594

)

 

$

(66,593

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average shares outstanding

 

 

36,881

 

 

 

35,299

 

 

 

36,742

 

 

 

35,256

 

Effect of dilutive awards

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Diluted weighted-average shares outstanding

 

 

36,881

 

 

 

35,299

 

 

 

36,742

 

 

 

35,256

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net loss per common share

 

$

(1.08

)

 

$

(1.87

)

 

$

(1.13

)

 

$

(1.89

)

Diluted net loss per common share

 

$

(1.08

)

 

$

(1.87

)

 

$

(1.13

)

 

$

(1.89

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Potentially dilutive shares excluded from the calculation
  due to net losses in the period

 

 

1,607

 

 

 

1,154

 

 

 

1,864

 

 

 

1,117

 

Anti dilutive share-based compensation awards excluded
  from the calculation

 

 

0

 

 

 

6

 

 

 

0

 

 

 

55

 

Performance-based restricted stock units excluded from
  the calculation because the performance conditions had
  not been met

 

 

196

 

 

 

98

 

 

 

196

 

 

 

98

 

 

Note 11. Stockholders’ Equity

Accumulated Other Comprehensive Loss

The following tables presents the changes in accumulated other comprehensive loss (AOCL) by component:

 

 

 

Six Months Ended June 30, 2021

 

 

 

Foreign

 

 

 

 

 

Foreign

 

 

 

 

 

 

currency

 

 

 

 

 

exchange

 

 

 

 

 

 

translation

 

 

Interest rate

 

 

forward

 

 

Total

 

 

 

 adjustments

 

 

swap

 

 

contracts

 

 

AOCL

 

 

 

(in thousands)

 

Balance at December 31, 2020

 

$

(30,111

)

 

$

(3,443

)

 

$

564

 

 

$

(32,990

)

Other comprehensive income (loss) before reclassifications

 

 

(5,291

)

 

 

597

 

 

 

(2,281

)

 

 

(6,975

)

Amounts reclassified from AOCL

 

 

0

 

 

 

0

 

 

 

(2,002

)

 

 

(2,002

)

Net tax effect

 

 

0

 

 

 

(139

)

 

 

790

 

 

 

651

 

   Net current period other comprehensive income (loss)

 

 

(5,291

)

 

 

458

 

 

 

(3,493

)

 

 

(8,326

)

Balance at March 31, 2021

 

 

(35,402

)

 

 

(2,985

)

 

 

(2,929

)

 

 

(41,316

)

Other comprehensive income (loss) before reclassifications

 

 

(4

)

 

 

452

 

 

 

259

 

 

 

707

 

Amounts reclassified from AOCL

 

 

0

 

 

 

0

 

 

 

(1,035

)

 

 

(1,035

)

Net tax effect

 

 

0

 

 

 

(105

)

 

 

190

 

 

 

85

 

   Net current period other comprehensive income (loss)

 

 

(4

)

 

 

347

 

 

 

(586

)

 

 

(243

)

Balance at June 30, 2021

 

$

(35,406

)

 

$

(2,638

)

 

$

(3,515

)

 

$

(41,559

)

 

18


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

 

 

Six Months Ended June 30, 2020

 

 

 

Foreign

 

 

 

 

 

Foreign

 

 

 

 

 

 

currency

 

 

 

 

 

exchange

 

 

 

 

 

 

translation

 

 

Interest rate

 

 

forward

 

 

Total

 

 

 

 adjustments

 

 

swap

 

 

contracts

 

 

AOCL

 

 

 

(in thousands)

 

Balance at December 31, 2019

 

$

(22,012

)

 

$

(2,145

)

 

$

545

 

 

$

(23,612

)

Other comprehensive income (loss) before reclassifications

 

 

(9,223

)

 

 

(2,550

)

 

 

(6,936

)

 

 

(18,709

)

Amounts reclassified from AOCL

 

 

0

 

 

 

0

 

 

 

(222

)

 

 

(222

)

Net tax effect

 

 

0

 

 

 

535

 

 

 

1,503

 

 

 

2,038

 

   Net current period other comprehensive income (loss)

 

 

(9,223

)

 

 

(2,015

)

 

 

(5,655

)

 

 

(16,893

)

Balance at March 31, 2020

 

 

(31,235

)

 

 

(4,160

)

 

 

(5,110

)

 

 

(40,505

)

Other comprehensive income (loss) before reclassifications

 

 

(2,290

)

 

 

0

 

 

 

1,750

 

 

 

(540

)

Amounts reclassified from AOCL

 

 

0

 

 

 

0

 

 

 

2,738

 

 

 

2,738

 

Net tax effect

 

 

0

 

 

 

0

 

 

 

(938

)

 

 

(938

)

   Net current period other comprehensive income (loss)

 

 

(2,290

)

 

 

0

 

 

 

3,550

 

 

 

1,260

 

Balance at June 30, 2020

 

$

(33,525

)

 

$

(4,160

)

 

$

(1,560

)

 

$

(39,245

)

 

Note 12. Commitments and Contingencies

Legal Proceedings

From time to time, we are party to various lawsuits, claims, and other legal proceedings that arise in the ordinary course of business, some of which may not be covered by insurance. Upon resolution of any pending legal matters, we may incur charges in excess of presently established reserves. Our management does not believe that any such charges would, individually or in the aggregate, have a material adverse effect on our financial condition, results of operations or cash flows.

Note 13. Concentration of Customers

Net sales from certain customers (in thousands) in excess of 10 percent of our total consolidated net sales are as follows:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Customer

 

Net sales

 

 

% of Total

 

 

Net sales

 

 

% of Total

 

 

Net sales

 

 

% of Total

 

 

Net sales

 

 

% of Total

 

Vestas

 

$

208,787

 

 

 

45.5

%

 

$

193,426

 

 

 

51.7

%

 

$

378,005

 

 

 

43.8

%

 

$

350,838

 

 

 

48.0

%

GE

 

 

105,937

 

��

 

23.1

%

 

 

71,176

 

 

 

19.0

%

 

 

210,789

 

 

 

24.4

%

 

 

171,308

 

 

 

23.5

%

Nordex

 

 

81,505

 

 

 

17.8

%

 

 

62,258

 

 

 

16.7

%

 

 

158,048

 

 

 

18.3

%

 

 

115,515

 

 

 

15.8

%

 

Trade accounts receivable from certain customers in excess of 10 percent of our total consolidated trade accounts receivable are as follows:

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Customer

 

% of Total

 

 

% of Total

 

Nordex

 

 

36.5

%

 

 

40.8

%

Vestas

 

 

32.9

%

 

 

35.0

%

Siemens Gamesa

 

 

10.8

%

 

 

5.9

%

 

Note 14. Segment Reporting

Our operating segments are defined geographically into 5 geographic operating segments—(1) the United States (U.S.), (2) Asia, (3) Mexico, (4) EMEA and (5) India. For a detailed discussion of our operating segments, refer to the discussion in Note 19, Segment Reporting, to the Notes to Consolidated Financial Statements within our Annual Report on Form 10-K.

All of our segments operate in their local currency except for the Mexico and Asia segments, which both include a U.S. parent company, and India and Switzerland, which operate in the U.S. dollar.

19


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following tables set forth certain information regarding each of our segments:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Net sales by segment:

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

56,761

 

 

$

42,079

 

 

$

106,047

 

 

$

89,510

 

Asia

 

 

91,106

 

 

 

145,918

 

 

 

168,034

 

 

 

237,055

 

Mexico

 

 

143,170

 

 

 

83,420

 

 

 

261,629

 

 

 

201,670

 

EMEA

 

 

105,350

 

 

 

87,541

 

 

 

217,716

 

 

 

176,498

 

India

 

 

62,454

 

 

 

14,859

 

 

 

110,095

 

 

 

25,720

 

Total net sales

 

$

458,841

 

 

$

373,817

 

 

$

863,521

 

 

$

730,453

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales by geographic location (1):

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

56,761

 

 

$

42,079

 

 

$

106,047

 

 

$

89,510

 

China

 

 

91,106

 

 

 

145,918

 

 

 

168,034

 

 

 

237,055

 

Mexico

 

 

143,170

 

 

 

83,420

 

 

 

261,629

 

 

 

201,670

 

Turkey

 

 

105,350

 

 

 

87,541

 

 

 

217,716

 

 

 

176,498

 

India

 

 

62,454

 

 

 

14,859

 

 

 

110,095

 

 

 

25,720

 

Total net sales

 

$

458,841

 

 

$

373,817

 

 

$

863,521

 

 

$

730,453

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. (2)

 

$

148

 

 

$

(12,045

)

 

$

(11,472

)

 

$

(27,631

)

Asia

 

 

8,105

 

 

 

18,492

 

 

 

10,814

 

 

 

23,564

 

Mexico

 

 

(25,256

)

 

 

(11,324

)

 

 

(29,280

)

 

 

(13,092

)

EMEA

 

 

10,782

 

 

 

(1,145

)

 

 

20,570

 

 

 

1,519

 

India

 

 

4,188

 

 

 

(7,233

)

 

 

4,128

 

 

 

(13,019

)

Total loss from operations

 

$

(2,033

)

 

$

(13,255

)

 

$

(5,240

)

 

$

(28,659

)

 

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Property, plant and equipment, net:

 

 

 

 

 

 

U.S.

 

$

33,246

 

 

$

31,811

 

Asia (China)

 

 

41,143

 

 

 

46,075

 

Mexico

 

 

78,839

 

 

 

78,813

 

EMEA (Turkey)

 

 

22,154

 

 

 

28,312

 

India

 

 

30,334

 

 

 

23,990

 

Total property, plant and equipment, net

 

$

205,716

 

 

$

209,001

 

 

(1) Net sales are attributable to countries based on the location where the product is manufactured or the services are performed.

(2) The losses from operations in our U.S. segment includes corporate general and administrative costs of $6.7 million and $6.9 million for the three months ended June 30, 2021 and 2020, respectively, and $15.6 million and $16.4 million for the six months ended June 30, 2021 and 2020, respectively.

20


 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q (Form 10-Q). Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those described in or implied by these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Form 10-Q or in our previously filed Annual Report on Form 10-K, particularly those under “Risk Factors.”

OVERVIEW

Our Company

We are the only independent manufacturer of composite wind blades for the wind energy market with a global manufacturing footprint. We deliver high-quality, cost-effective composite solutions through long term relationships with leading original equipment manufacturers (OEM) in the wind and transportation markets. We also provide field service inspection and repair services to our OEM customers and wind farm owners and operators, and supply high strength, lightweight and durable composite products to the transportation market. We are headquartered in Scottsdale, Arizona and operate factories throughout the U.S., China, Mexico, Turkey, and India. We operate additional engineering development centers in Denmark and Germany.

Our business operations are defined geographically into five geographic operating segments—(1) the United States (U.S.), (2) Asia, (3) Mexico, (4) Europe, the Middle East and Africa (EMEA) and (5) India. See Note 14, Segment Reporting, to our condensed consolidated financial statements for more details about our operating segments.

KEY TRENDS AND RECENT DEVELOPMENTS AFFECTING OUR BUSINESS

The COVID-19 pandemic did not materially adversely affect our business and operations during the three and six months ended June 30, 2021. Although all of our manufacturing facilities currently are operating at or near normal production levels, we may be required to reinstate temporary production suspensions or volume reductions at our manufacturing facilities to the extent there are new resurgences of COVID-19 cases in the regions where we operate or there is an outbreak of positive COVID-19 cases in any of our manufacturing facilities. For example, India and Turkey recently experienced significant increases in positive COVID-19 cases although these resurgences did not have a material impact on our operations during the three months ended June 30, 2021. In addition, although we currently have not experienced any significant disruptions in our global supply chain due to the COVID-19 pandemic, our global supply chain may in the future be adversely affected if the COVID-19 pandemic persists.

 

We expect decreased demand for our wind blades from our customers during the remainder of 2021, in particular during the fourth quarter. We believe this decrease in demand is short term and due to the continued global renewable energy regulatory and policy uncertainty and raw material cost increases mentioned below. The result is an expected adverse impact to our Adjusted EBITDA in 2021 of approximately $28 million. We believe that general optimism around potential legislation in the U.S. to extend the Production Tax Credit (PTC) on a long-term basis is causing developers to reevaluate project timelines in anticipation of being able to build projects at higher PTC levels once the expected extensions are in place and therefore are not purchasing wind blades or turbines to satisfy current PTC safe harbor requirements.

 

In 2021, there have been both significant price increases and supply constraints with respect to resin and carbon fiber, which are key raw materials that we use to manufacture our products, as well as increases in logistics costs to obtain raw materials. The resin price increases and supply constraints are due to a multitude of factors, including the extreme cold weather in Texas in February 2021, fires at resin manufacturing facilities in China and unplanned maintenance outages at resin manufacturing facilities in Europe.  Carbon fiber prices have increased primarily due to the cost of raw material inputs as well as increased global demand for carbon fiber across multiple industries. These raw material price increases adversely affected our results of operations by approximately $4.4 million for both the three and six months ended June 30, 2021. We expect that the price of resin and carbon fiber will remain at elevated levels for the remainder of 2021. Approximately 55% of the resin and resin systems we use are purchased under contracts either controlled or borne by two of our customers and therefore these customers receive/bear 100% of any increase in resin prices. With respect to our other customer supply agreements, our customers typically bear 70% of any raw material price increases. After taking into account our contractual share of any price increases for resin and carbon fiber, we estimate that the impact of these raw materials price increases, together with increased logistics costs, will adversely impact our results of operations by approximately $20 million for 2021. If the supply of resin feedstocks and carbon fiber continue to be constrained for an extended period of time, such shortages could impact our ability to meet our customers’ forecasted demand for our products for the remainder of 2021 and have a further material adverse impact on our results of operations for the remainder of 2021.   

21


 

 

We are forecasting to incur a total of between $22 million and $37 million of restructuring charges associated with our global footprint alignment and consolidation in 2021 and 2022 relating to our China and North America operations. Between $15 million and $22 million of the total is forecasted to be incurred in 2021, with the remainder in 2022. We are forecasting that between 20% to 30% of the restructuring charges will be non-cash.

 

In July 2021, we commenced supplying wind blades to one of our customers at a manufacturing facility in Matamoros, Mexico pursuant to a 3-year supply agreement.  In connection with the supply agreement, we will, among other things, (1) operate the manufacturing facility, and (2) utilize our workforce, procure raw materials and manufacture blades for the customer. The customer will resume management and operation of the wind blade manufacturing facility at the end of the 3-year term if the supply agreement is not extended and we will cease to operate and supply blades from the customer’s manufacturing facility.   

KEY METRICS USED BY MANAGEMENT TO MEASURE PERFORMANCE

For a detailed discussion of our key financial measures and our key operating metrics, refer to the discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Key Metrics Used By Management To Measure Performance” included in Part II, Item 7 of our Annual Report on Form 10-K.

KEY FINANCIAL MEASURES

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Net sales

 

$

458,841

 

 

$

373,817

 

 

$

863,521

 

 

$

730,453

 

Net loss

 

$

(39,797

)

 

$

(66,101

)

 

$

(41,594

)

 

$

(66,593

)

EBITDA (1)

 

$

4,285

 

 

$

(2,628

)

 

$

9,699

 

 

$

(5,349

)

Adjusted EBITDA (1)

 

$

17,361

 

 

$

3,295

 

 

$

30,456

 

 

$

4,591

 

Capital expenditures

 

 

 

 

 

 

 

$

27,059

 

 

$

42,030

 

Free cash flow (1)

 

 

 

 

 

 

 

$

(30,314

)

 

$

(69,035

)

 

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Total debt, net of debt issuance costs

 

$

236,275

 

 

$

216,867

 

Net debt (1)

 

$

(113,991

)

 

$

(88,061

)

 

 

(1)
See below for a reconciliation of EBITDA, adjusted EBITDA, free cash flow and net debt to net income (loss), net income (loss), net cash provided by (used in) operating activities and total debt, net of debt issuance costs, respectively, the most directly comparable financial measures calculated and presented in accordance with GAAP.

22


 

The following tables reconcile our non-GAAP key financial measures to the most directly comparable GAAP measures:

EBITDA and adjusted EBITDA are reconciled as follows:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Net loss

 

$

(39,797

)

 

$

(66,101

)

 

$

(41,594

)

 

$

(66,593

)

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

12,501

 

 

 

11,616

 

 

 

24,110

 

 

 

22,644

 

Interest expense, net

 

 

2,691

 

 

 

2,545

 

 

 

5,395

 

 

 

4,316

 

Income tax provision

 

 

28,890

 

 

 

49,312

 

 

 

21,788

 

 

 

34,284

 

EBITDA

 

 

4,285

 

 

 

(2,628

)

 

 

9,699

 

 

 

(5,349

)

Share-based compensation expense

 

 

2,925

 

 

 

2,374

 

 

 

5,324

 

 

 

5,316

 

Foreign currency loss

 

 

6,504

 

 

 

1,928

 

 

 

10,231

 

 

 

968

 

Loss on sale of assets and asset
  impairments

 

 

1,451

 

 

 

1,440

 

 

 

2,748

 

 

 

3,358

 

Restructuring charges, net

 

 

2,196

 

 

 

181

 

 

 

2,454

 

 

 

298

 

Adjusted EBITDA

 

$

17,361

 

 

$

3,295

 

 

$

30,456

 

 

$

4,591

 

 

Free cash flow is reconciled as follows:

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Net cash used in operating activities

 

$

(3,255

)

 

$

(27,005

)

Less capital expenditures

 

 

(27,059

)

 

 

(42,030

)

Free cash flow

 

$

(30,314

)

 

$

(69,035

)

 

Net debt is reconciled as follows:

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Cash and cash equivalents

 

$

123,107

 

 

$

129,857

 

Less total debt, net of debt issuance costs

 

 

(236,275

)

 

 

(216,867

)

Less debt issuance costs

 

 

(823

)

 

 

(1,051

)

Net debt

 

$

(113,991

)

 

$

(88,061

)

KEY OPERATING METRICS

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Sets

 

 

843

 

 

 

788

 

 

 

1,657

 

 

 

1,519

 

Estimated megawatts

 

 

3,303

 

 

 

2,655

 

 

 

6,375

 

 

 

4,984

 

Utilization

 

 

82

%

 

 

70

%

 

 

80

%

 

 

70

%

Dedicated manufacturing lines

 

 

50

 

 

 

52

 

 

 

50

 

 

 

52

 

Manufacturing lines installed

 

 

51

 

 

 

54

 

 

 

52

 

 

 

54

 

 

 

23


 

RESULTS OF OPERATIONS

The following table summarizes our operating results as a percentage of net sales for the three and six months ended June 30, 2021 and 2020 that have been derived from our condensed consolidated statements of operations:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

 

June 30,

 

 

June 30,

 

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

Net sales

 

 

100.0

 

%

 

100.0

 

%

 

100.0

 

%

 

100.0

 

%

Cost of sales

 

 

96.0

 

 

 

98.4

 

 

 

95.4

 

 

 

98.0

 

 

Startup and transition costs

 

 

2.2

 

 

 

2.9

 

 

 

2.8

 

 

 

3.2

 

 

Total cost of goods sold

 

 

98.2

 

 

 

101.3

 

 

 

98.2

 

 

 

101.2

 

 

Gross profit (loss)

 

 

1.8

 

 

 

(1.3

)

 

 

1.8

 

 

 

(1.2

)

 

General and administrative expenses

 

 

1.5

 

 

 

1.8

 

 

 

1.8

 

 

 

2.2

 

 

Loss on sale of assets and asset impairments

 

 

0.3

 

 

 

0.4

 

 

 

0.3

 

 

 

0.5

 

 

Restructuring charges, net

 

 

0.5

 

 

 

0.1

 

 

 

0.3

 

 

 

0.0

 

 

Loss from operations

 

 

(0.5

)

 

 

(3.6

)

 

 

(0.6

)

 

 

(3.9

)

 

Total other expense

 

 

(1.9

)

 

 

(0.9

)

 

 

(1.7

)

 

 

(0.5

)

 

Loss before income taxes

 

 

(2.4

)

 

 

(4.5

)

 

 

(2.3

)

 

 

(4.4

)

 

Income tax provision

 

 

(6.3

)

 

 

(13.2

)

 

 

(2.5

)

 

 

(4.7

)

 

Net loss

 

 

(8.7

)

%

 

(17.7

)

%

 

(4.8

)

%

 

(9.1

)

%

 

Net sales

Consolidated discussion

The following table summarizes our net sales by product/service for the three and six months ended June 30, 2021 and 2020:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

June 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

Wind blade sales

 

$

418,704

 

 

$

348,063

 

 

$

70,641

 

 

 

20.3

%

 

$

797,883

 

 

$

684,400

 

 

$

113,483

 

 

 

16.6

%

Precision molding and
  assembly systems sales

 

 

13,603

 

 

 

6,894

 

 

 

6,709

 

 

 

97.3

%

 

 

22,530

 

 

 

13,657

 

 

 

8,873

 

 

 

65.0

%

Transportation sales

 

 

14,915

 

 

 

14,902

 

 

 

13

 

 

 

0.1

%

 

 

23,046

 

 

 

21,791

 

 

 

1,255

 

 

 

5.8

%

Other sales

 

 

11,619

 

 

 

3,958

 

 

 

7,661

 

 

 

193.6

%

 

 

20,062

 

 

 

10,605

 

 

 

9,457

 

 

 

89.2

%

Total net sales

 

$

458,841

 

 

$

373,817

 

 

$

85,024

 

 

 

22.7

%

 

$

863,521

 

 

$

730,453

 

 

$

133,068

 

 

 

18.2

%

 

The increase in net sales of wind blades during the three and six months ended June 30, 2021 as compared to the same periods in 2020 was primarily driven by a 7% and 9% increase in the number of wind blades produced, respectively, primarily as a result of increased production at our Mexico, India, Turkey and Iowa facilities. The increase was also due to a higher average sales price due to the mix of wind blade models produced during the three and six months ended June 30, 2021 as compared to the same periods in 2020 and foreign currency fluctuations. Additionally, when comparing our net sales during the three and six months ended June 30, 2021 against the comparable prior year periods, our net sales were negatively impacted by the removal of five contracted manufacturing lines that expired in China at the end of 2020, which was partially offset by the adverse impact that the COVID-19 pandemic had on our net sales in the prior year periods. Finally, the net sales increases in both periods were partially offset by a decrease in the year over year number of wind blades still in the production process at the end of the periods. The fluctuating U.S. dollar against the Euro in our Turkey operations and the Chinese Renminbi in our China operations had a favorable impact of 1.8% and 1.7% on consolidated net sales for the three and six months ended June 30, 2021, respectively, as compared to the 2020 periods.

24


 

Segment discussion

The following table summarizes our net sales by our five geographic operating segments for the three and six months ended June 30, 2021 and 2020:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

June 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

U.S.

 

$

56,761

 

 

$

42,079

 

 

$

14,682

 

 

 

34.9

%

 

$

106,047

 

 

$

89,510

 

 

$

16,537

 

 

 

18.5

%

Asia

 

 

91,106

 

 

 

145,918

 

 

 

(54,812

)

 

 

-37.6

%

 

 

168,034

 

 

 

237,055

 

 

 

(69,021

)

 

 

-29.1

%

Mexico

 

 

143,170

 

 

 

83,420

 

 

 

59,750

 

 

 

71.6

%

 

 

261,629

 

 

 

201,670

 

 

 

59,959

 

 

 

29.7

%

EMEA

 

 

105,350

 

 

 

87,541

 

 

 

17,809

 

 

 

20.3

%

 

 

217,716

 

 

 

176,498

 

 

 

41,218

 

 

 

23.4

%

India

 

 

62,454

 

 

 

14,859

 

 

 

47,595

 

 

NM

 

 

 

110,095

 

 

 

25,720

 

 

 

84,375

 

 

NM

 

Total net sales

 

$

458,841

 

 

$

373,817

 

 

$

85,024

 

 

 

22.7

%

 

$

863,521

 

 

$

730,453

 

 

$

133,068

 

 

 

18.2

%

NM - not meaningful

U.S. Segment

The following table summarizes our net sales by product/service for the U.S. segment for the three and six months ended June 30, 2021 and 2020:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

June 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

Wind blade sales

 

$

39,427

 

 

$

26,309

 

 

$

13,118

 

 

 

49.9

%

 

$

79,054

 

 

$

62,242

 

 

$

16,812

 

 

 

27.0

%

Transportation sales

 

 

12,227

 

 

 

14,539

 

 

 

(2,312

)

 

 

-15.9

%

 

 

18,651

 

 

 

21,218

 

 

 

(2,567

)

 

 

-12.1

%

Other sales

 

 

5,107

 

 

 

1,231

 

 

 

3,876

 

 

NM

 

 

 

8,342

 

 

 

6,050

 

 

 

2,292

 

 

 

37.9

%

Total net sales

 

$

56,761

 

 

$

42,079

 

 

$

14,682

 

 

 

34.9

%

 

$

106,047

 

 

$

89,510

 

 

$

16,537

 

 

 

18.5

%

 

The increase in the U.S. segment’s net sales of wind blades during the three and six months ended June 30, 2021 as compared to the same periods in 2020 was primarily due to a 35% and 17% increase in the number of wind blades produced, respectively, primarily due to the adverse impact of the COVID-19 pandemic in the prior year periods, as well as a higher average sales price of wind blade models produced in the two comparative periods.

Asia Segment

The following table summarizes our net sales by product/service for the Asia segment for the three and six months ended June 30, 2021 and 2020:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

June 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

Wind blade sales

 

$

82,491

 

 

$

141,540

 

 

$

(59,049

)

 

 

-41.7

%

 

$

154,994

 

 

$

227,416

 

 

$

(72,422

)

 

 

-31.8

%

Precision molding and
   assembly systems sales

 

 

7,634

 

 

 

3,576

 

 

 

4,058

 

 

 

113.5

%

 

 

11,598

 

 

 

8,637

 

 

 

2,961

 

 

 

34.3

%

Other sales

 

 

981

 

 

 

802

 

 

 

179

 

 

 

22.3

%

 

 

1,442

 

 

 

1,002

 

 

 

440

 

 

 

43.9

%

Total net sales

 

$

91,106

 

 

$

145,918

 

 

$

(54,812

)

 

 

-37.6

%

 

$

168,034

 

 

$

237,055

 

 

$

(69,021

)

 

 

-29.1

%

 

The decrease in the Asia segment’s net sales of wind blades during the three months ended June 30, 2021 as compared to the same period in 2020 was primarily due to a 52% decrease in the number of wind blades produced, primarily due to the removal of five contracted manufacturing lines that expired in China at the end of 2020. The sales decrease during the three months ended June 30, 2021 was partially offset by an increase in the average sales price of wind blades due to a change in the mix of wind blades produced in the two comparative periods. Additionally, for the three months ended June 30, 2021, there was an increase in the period over period number of wind blades still in the production process at the end of the period. The fluctuating U.S. dollar against the Chinese Renminbi in our China operations had a favorable impact of 0.1% on consolidated net sales for the three months ended June 30, 2021 as compared to the 2020 period.

 

25


 

The decrease in the Asia segment’s net sales of wind blades during the six months ended June 30, 2021 as compared to the same period in 2020 was primarily due to a 35% decrease in the number of wind blades produced, primarily due to the removal of five contracted manufacturing lines that expired in China at the end of 2020, partially offset by the adverse impact that the COVID-19 pandemic had on our net sales in the prior year period. In addition, for the six months ended June 30, 2021, there was a decrease in the period over period number of wind blades still in the production process at the end of the period. The sales decreases during the six months ended June 30, 2021 was partially offset by an increase in the average sales price of wind blades due to a change in the mix of wind blades produced in the two comparative periods. The fluctuating U.S. dollar against the Chinese Renminbi in our China operations had a favorable impact of 0.2% on consolidated net sales for the six months ended June 30, 2021 as compared to the 2020 period.

Mexico Segment

The following table summarizes our net sales by product/service for the Mexico segment for the three and six months ended June 30, 2021 and 2020:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

June 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

Wind blade sales

 

$

131,188

 

 

$

78,193

 

 

$

52,995

 

 

 

67.8

%

 

$

239,630

 

 

$

193,379

 

 

$

46,251

 

 

 

23.9

%

Precision molding and
   assembly systems sales

 

 

5,969

 

 

 

3,318

 

 

 

2,651

 

 

 

79.9

%

 

 

10,932

 

 

 

5,020

 

 

 

5,912

 

 

 

117.8

%

Transportation sales

 

 

2,688

 

 

 

363

 

 

 

2,325

 

 

NM

 

 

 

4,395

 

 

 

573

 

 

 

3,822

 

 

NM

 

Other sales

 

 

3,325

 

 

 

1,546

 

 

 

1,779

 

 

 

115.1

%

 

 

6,672

 

 

 

2,698

 

 

 

3,974

 

 

 

147.3

%

Total net sales

 

$

143,170

 

 

$

83,420

 

 

$

59,750

 

 

 

71.6

%

 

$

261,629

 

 

$

201,670

 

 

$

59,959

 

 

 

29.7

%

 

The increase in the Mexico segment’s net sales of wind blades during the three and six months ended June 30, 2021 as compared to the same periods in 2020 reflects a 76% and 24% net increase in overall wind blade volume, respectively, primarily due to the adverse impact of the COVID-19 pandemic in the prior year periods, as well as an increase in the average sales price of wind blades due to the mix of wind blades produced in the two comparative periods.

EMEA Segment

The following table summarizes our net sales by product/service for the EMEA segment for the three and six months ended June 30, 2021 and 2020:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

June 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

Wind blade sales

 

$

103,201

 

 

$

87,162

 

 

$

16,039

 

 

 

18.4

%

 

$

214,228

 

 

$

175,643

 

 

$

38,585

 

 

 

22.0

%

Other sales

 

 

2,149

 

 

 

379

 

 

 

1,770

 

 

NM

 

 

 

3,488

 

 

 

855

 

 

 

2,633

 

 

NM

 

Total net sales

 

$

105,350

 

 

$

87,541

 

 

$

17,809

 

 

 

20.3

%

 

$

217,716

 

 

$

176,498

 

 

$

41,218

 

 

 

23.4

%

 

The increase in the EMEA segment’s net sales of wind blades during the three and six months ended June 30, 2021 as compared to the same periods in 2020 was driven by a 19% and 14% increase in wind blade production at our two Turkey plants, respectively, primarily due to transitions and the adverse impact of the COVID-19 pandemic in the prior year, as well as an increase in the average sales price of wind blades produced in the two comparative periods and foreign currency fluctuations. The sales increases for three months ended June 30, 2021 were partially offset by a decrease in the year over year number of wind blades still in the production process at the end of the period. The fluctuating U.S. dollar relative to the Euro had a favorable impact of 7.9% and 6.5% on net sales during the three and six months ended June 30, 2021, respectively, as compared to the 2020 periods.

26


 

India Segment

The following table summarizes our net sales by product/service for the India segment for the three and six months ended June 30, 2021 and 2020:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

June 30,

 

 

Change

 

June 30,

 

 

Change

 

 

2021

 

 

2020

 

 

$

 

 

%

 

2021

 

 

2020

 

 

$

 

 

%

 

 

(in thousands)

 

 

 

 

(in thousands)

 

 

 

Wind blade sales

 

$

62,397

 

 

$

14,859

 

 

$

47,538

 

 

NM

 

$

109,977

 

 

$

25,720

 

 

$

84,257

 

 

NM

Other sales

 

 

57

 

 

 

 

 

 

57

 

 

NM

 

 

118

 

 

 

 

 

 

118

 

 

NM

Total net sales

 

$

62,454

 

 

$

14,859

 

 

$

47,595

 

 

NM

 

$

110,095

 

 

$

25,720

 

 

$

84,375

 

 

NM

 

The increase in the India segment’s net sales of wind blades during the three and six months ended June 30, 2021 as compared to the same period in 2020 was driven by the commencement of production in 2020, and the ramp up of such production in 2021.

 

Total cost of goods sold

The following table summarizes our total cost of goods sold for the three and six months ended June 30, 2021 and 2020:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

June 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

 Cost of sales

 

$

440,416

 

 

$

367,644

 

 

$

72,772

 

 

 

19.8

%

 

$

823,472

 

 

$

716,119

 

 

$

107,353

 

 

 

15.0

%

 Startup costs

 

 

4,504

 

 

 

6,897

 

 

 

(2,393

)

 

 

-34.7

%

 

 

9,056

 

 

 

14,753

 

 

 

(5,697

)

 

 

-38.6

%

 Transition costs

 

 

5,595

 

 

 

4,023

 

 

 

1,572

 

 

 

39.1

%

 

 

15,397

 

 

 

8,201

 

 

 

7,196

 

 

 

87.7

%

 Total startup and transition
   costs

 

 

10,099

 

 

 

10,920

 

 

 

(821

)

 

 

-7.5

%

 

 

24,453

 

 

 

22,954

 

 

 

1,499

 

 

 

6.5

%

 Total cost of goods sold

 

$

450,515

 

 

$

378,564

 

 

$

71,951

 

 

 

19.0

%

 

$

847,925

 

 

$

739,073

 

 

$

108,852

 

 

 

14.7

%

 % of net sales

 

 

98.2

%

 

 

101.3

%

 

 

 

 

 

-3.1

%

 

 

98.2

%

 

 

101.2

%

 

 

 

 

 

-3.0

%

 

Total cost of goods sold as a percentage of net sales decreased by approximately three percentage points during the three and six months ended June 30, 2021 as compared to the same periods in 2020, driven primarily by a decrease in warranty costs and direct labor costs, partially offset by an increase in direct material costs and foreign currency fluctuations. The fluctuating U.S. dollar against the Euro, Turkish Lira, Chinese Renminbi and Mexican Peso had an unfavorable impact of 2.2% and 1.7% on consolidated cost of goods sold for the three and six months ended June 30, 2021, respectively, as compared to the 2020 periods.

General and administrative expenses

The following table summarizes our general and administrative expenses for the three and six months ended June 30, 2021 and 2020:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

June 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

 General and
  administrative expenses

 

$

6,712

 

 

$

6,887

 

 

$

(175

)

 

 

-2.5

%

 

$

15,634

 

 

$

16,383

 

 

$

(749

)

 

 

-4.6

%

 % of net sales

 

 

1.5

%

 

 

1.8

%

 

 

 

 

 

-0.3

%

 

 

1.8

%

 

 

2.2

%

 

 

 

 

 

-0.4

%

 

The decreases in general and administrative expenses as a percentage of net sales for the three and six months ended June 30, 2021 as compared to the same periods in 2020 were primarily driven by our continued focus on reducing costs.

Restructuring costs, net

 

The increases in restructuring costs, net for the three and six months ended June 30, 2021 as compared to the same periods in 2020 were associated with the optimization of our global footprint, comprised of $2.2 million and $2.5 million, respectively, of severance benefits to terminated employees. All severance benefits were paid to the terminated employees by the end of July 2021.

27


 

Income (loss) from operations

Segment discussion

The following table summarizes our income (loss) from operations by our five geographic operating segments for the three and six months ended June 30, 2021 and 2020:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

June 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

U.S.

 

$

148

 

 

$

(12,045

)

 

$

12,193

 

 

 

101.2

%

 

$

(11,472

)

 

$

(27,631

)

 

$

16,159

 

 

 

58.5

%

Asia

 

 

8,105

 

 

 

18,492

 

 

 

(10,387

)

 

 

-56.2

%

 

 

10,814

 

 

 

23,564

 

 

 

(12,750

)

 

 

-54.1

%

Mexico

 

 

(25,256

)

 

 

(11,324

)

 

 

(13,932

)

 

 

-123.0

%

 

 

(29,280

)

 

 

(13,092

)

 

 

(16,188

)

 

 

-123.6

%

EMEA

 

 

10,782

 

 

 

(1,145

)

 

 

11,927

 

 

NM

 

 

 

20,570

 

 

 

1,519

 

 

 

19,051

 

 

NM

 

India

 

 

4,188

 

 

 

(7,233

)

 

 

11,421

 

 

 

157.9

%

 

 

4,128

 

 

 

(13,019

)

 

 

17,147

 

 

 

131.7

%

Total loss from operations

 

$

(2,033

)

 

$

(13,255

)

 

$

11,222

 

 

 

84.7

%

 

$

(5,240

)

 

$

(28,659

)

 

$

23,419

 

 

 

81.7

%

 % of net sales

 

 

-0.4

%

 

 

-3.5

%

 

 

 

 

 

3.1

%

 

 

-0.6

%

 

 

-3.9

%

 

 

 

 

 

3.3

%

 

U.S. Segment

The decrease in the loss from operations in the U.S. segment for the three and six months ended June 30, 2021 as compared to the same periods in 2020 was primarily due to the increase in wind blade volume, an increase in the average sales price of wind blades and a decrease in direct labor costs, partially offset by an increase in direct material costs at our Newton, Iowa blade facility.

Asia Segment

The decrease in the income from operations in the Asia segment for the three and six months ended June 30, 2021 as compared to the same periods in 2020 was primarily due to the decrease in the net sales of wind blades and foreign currency fluctuations, partially offset by an increase in the average sales price of wind blades. In addition, for the six months ended June 30, 2021, there was a decrease in startup and transition costs. The fluctuating U.S. dollar against the Chinese Renminbi had an unfavorable impact of 6.7% and 6.5% on cost of goods sold for the three and six months ended June 30, 2021, respectively, as compared to the 2020 periods.

Mexico Segment

The increase in the loss from operations in the Mexico segment for the three and six months ended June 30, 2021 as compared to the same periods in 2020 was primarily due to an increase in direct material costs and startup and transition costs, partially offset by the increase in wind blade volume and an increase in the average sales price of wind blades. In addition, for the three and six months ended June 30, 2021, there was an increase and a decrease, respectively, in warranty costs as compared to the 2020 periods. The fluctuating U.S. dollar relative to the Mexican Peso had an unfavorable impact of 2.1% and 1.1% on cost of goods sold for the three and six months ended June 30, 2021, respectively, as compared to the 2020 periods.

EMEA Segment

The increase in the income from operations in the EMEA segment for the three and six months ended June 30, 2021 as compared to the same periods in 2020 was primarily driven by increased wind blade production at our two Turkey manufacturing facilities, an increase in the average sales price of wind blades, and a decrease in warranty costs. In addition, for the three months ended June 30, 2021, there was a decrease in startup and transition costs as compared to the 2020 period. Additionally, for the six months ended June 30, 2021, there was an increase in direct material costs as compared to the 2020 period. The fluctuating U.S. dollar relative to the Turkish Lira and Euro had an unfavorable impact of 1.1% and 0.4% on cost of goods sold for the three and six months ended June 30, 2021, respectively, as compared to the 2020 periods.

India Segment

The increase in the income from operations in the India segment for the three and six months ended June 30, 2021 as compared to the same periods in 2020 was driven by the commencement of production in 2020, and the ramp up of such production in 2021.

28


 

Other income (expense)

The following table summarizes our total other income (expense) for the three and six months ended June 30, 2021 and 2020:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

June 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

 Interest expense, net

 

$

(2,691

)

 

$

(2,545

)

 

$

(146

)

 

 

-5.7

%

 

$

(5,395

)

 

$

(4,316

)

 

$

(1,079

)

 

 

-25.0

%

 Foreign currency loss

 

 

(6,504

)

 

 

(1,928

)

 

 

(4,576

)

 

NM

 

 

 

(10,231

)

 

 

(968

)

 

 

(9,263

)

 

NM

 

 Miscellaneous income

 

 

321

 

 

 

939

 

 

 

(618

)

 

 

-65.8

%

 

 

1,060

 

 

 

1,634

 

 

 

(574

)

 

 

-35.1

%

 Total other expense

 

$

(8,874

)

 

$

(3,534

)

 

$

(5,340

)

 

 

-151.1

%

 

$

(14,566

)

 

$

(3,650

)

 

$

(10,916

)

 

NM

 

 

The increase in the total other expense for the three and six months ended June 30, 2021 as compared to the same periods in 2020 were primarily due to an increase in the foreign currency loss primarily due to net Euro liability exposure against the Turkish Lira in the current year periods as compared to the same periods in 2020.

Income taxes

The following table summarizes our income taxes for the three and six months ended June 30, 2021 and 2020:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

June 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

 Income tax provision

 

$

(28,890

)

 

$

(49,312

)

 

$

20,422

 

 

 

41.4

%

 

$

(21,788

)

 

$

(34,284

)

 

$

12,496

 

 

 

36.4

%

 Effective tax rate

 

 

-264.9

%

 

 

-293.7

%

 

 

 

 

 

 

 

 

-110.0

%

 

 

-106.1

%

 

 

 

 

 

 

 

See Note 9, Income Taxes, to our condensed consolidated financial statements for more details about our income taxes for the three and six months ended June 30, 2021 and 2020.

 

Net loss

The following table summarizes our net loss for the three and six months ended June 30, 2021 and 2020:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

June 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

 Net loss

 

$

(39,797

)

 

$

(66,101

)

 

$

26,304

 

 

 

39.8

%

 

$

(41,594

)

 

$

(66,593

)

 

$

24,999

 

 

 

37.5

%

The decrease in the net loss for the three and six months ended June 30, 2021 as compared to the same periods in 2020 was primarily due to the reasons set forth above. The diluted net loss per share was $1.08 for the three months ended June 30, 2021, compared to a diluted net loss per share of $1.87 for the three months ended June 30, 2020. The diluted net loss per share was $1.13 for the six months ended June 30, 2021, compared to a diluted net loss per share of $1.89 for the six months ended June 30, 2020.

LIQUIDITY AND CAPITAL RESOURCES

As a result of the uncertainty relating to: (i) the evolving nature, magnitude and duration of the COVID-19 pandemic, (ii) the variety of measures implemented by governments around the world to address its effects and (iii) the impact on our manufacturing operations, we have and will continue to manage our liquidity to ensure our long-term viability until the COVID-19 pandemic abates. 

Our primary needs for liquidity have been, and in the future will continue to be, capital expenditures, new facility startup costs, the impact of transitions, working capital, debt service costs, warranty costs and restructuring costs associated with the optimization of our global footprint. Our capital expenditures have been primarily related to machinery and equipment at our new facilities and expansion and improvements at our existing facilities. Historically, we have funded our working capital needs through cash flows from operations, the proceeds received from our credit facilities and from proceeds received from the issuance of stock. We had net proceeds under our financing arrangements of $19.0 million for the six months ended June 30, 2021 as compared to net proceeds under our financing arrangements of $97.1 million in the comparable period of 2020. As of June 30, 2021 and December 31, 2020, we had $237.1 million and $217.9 million in outstanding indebtedness, excluding debt issuance costs, respectively. As of June 30, 2021,

29


 

we had an aggregate of $115.9 million of remaining capacity and $91.1 million of remaining availability under our various credit facilities. Working capital requirements have increased as a result of our overall growth and the need to fund higher accounts receivable and inventory levels as our business volumes have increased, as well as increased raw material costs primarily related to resin, carbon fiber and logistics. Based upon current and anticipated levels of operations, we believe that cash on hand, available credit facilities and cash flows from operations will be adequate to fund our working capital and capital expenditure requirements and to make required payments of principal and interest on our indebtedness over the next twelve months.

We anticipate that any new facilities and future facility expansions will be funded through cash flows from operations, the incurrence of other indebtedness and other potential sources of liquidity. At June 30, 2021 and December 31, 2020, we had unrestricted cash, cash equivalents and short-term investments totaling $123.1 million and $129.9 million, respectively. The June 30, 2021 balance includes $67.9 million of cash located outside of the United States, including $58.7 million in China, $5.1 million in Turkey, $2.3 million in Mexico, $1.5 million in India, and $0.3 million in other countries.

Our ability to repatriate funds from China is subject to a number of restrictions imposed by the Chinese government. We repatriate funds through several technology license and corporate/administrative service agreements. We are compensated quarterly based on agreed upon royalty rates for such intellectual property licenses and quarterly fees for those services. Certain of our subsidiaries are limited in their ability to declare dividends without first meeting statutory restrictions of China, including retained earnings as determined under Chinese-statutory accounting requirements. Until 50% ($26.6 million as of June 30, 2021 and December 31, 2020) of registered capital is contributed to a surplus reserve, our China operations can only pay dividends equal to 90% of after-tax profits (10% must be contributed to the surplus reserve). Once the surplus reserve fund requirement is met, our China operations can pay dividends equal to 100% of after-tax profit assuming other conditions are met. At June 30, 2021 and December 31, 2020, the amount of the surplus reserve fund was $9.4 million and $7.0 million, respectively. In July 2021, China paid a dividend of approximately $19.5 million, net of withholding taxes, to our subsidiary in Switzerland.

Financing Facilities

Our total principal amount of debt outstanding as of June 30, 2021 was $237.1 million, including our Credit Agreement, secured and unsecured financing agreements and equipment finance leases. See Note 5, Long-Term Debt, Net of Current Maturities, to our condensed consolidated financial statements for more details on our debt balances.

Cash Flow Discussion

The following table summarizes our key cash flow activity for the six months ended June 30, 2021 and 2020:

 

 

 

Six Months Ended

 

 

 

 

 

 

June 30,

 

 

 

 

 

 

2021

 

 

2020

 

 

$ Change

 

 

 

(in thousands)

 

Net cash used in operating activities

 

$

(3,255

)

 

$

(27,005

)

 

$

23,750

 

Net cash used in investing activities

 

 

(27,059

)

 

 

(42,030

)

 

 

14,971

 

Net cash provided by financing activities

 

 

23,702

 

 

 

97,255

 

 

 

(73,553

)

Impact of foreign exchange rates on cash, cash equivalents
   and restricted cash

 

 

(323

)

 

 

(2,525

)

 

 

2,202

 

Net change in cash, cash equivalents and restricted cash

 

$

(6,935

)

 

$

25,695

 

 

$

(32,630

)

Operating Cash Flows

Net cash used in operating activities decreased by $23.8 million for the six months ended June 30, 2021 as compared to the same period in 2020 primarily as a result of higher operating results and favorable working capital usage.

Investing Cash Flows

Net cash used in investing activities decreased by $15.0 million for the six months ended June 30, 2021 as compared to the same period in 2020 as a result of a decrease in capital expenditures.

We anticipate fiscal year 2021 capital expenditures of between $55 million to $65 million and we estimate that the cost that we will incur after June 30, 2021 to complete our current projects in process will be approximately $8.5 million. We have used, and will

30


 

continue to use, cash flows from operations, the proceeds received from our credit facilities and the proceeds received from the issuance of stock for major projects currently being undertaken, which include new manufacturing facilities in Chennai, India and the continued investment in our existing Tukey, Mexico, China and U.S. facilities.

Financing Cash Flows

Net cash provided by financing activities decreased by $73.6 million for the six months ended June 30, 2021 as compared to the same period in 2020 primarily as a result of decreased net borrowings on our revolving loans.

OFF-BALANCE SHEET TRANSACTIONS

We are not presently involved in any off-balance sheet arrangements, including transactions with unconsolidated special-purpose or other entities that would materially affect our financial position, results of operations, liquidity or capital resources, other than our accounts receivable assignment agreements described below. Furthermore, we do not have any relationships with special-purpose or other entities that provide off-balance sheet financing; liquidity, market risk or credit risk support; or engage in leasing or other services that may expose us to liability or risks of loss that are not reflected in the condensed consolidated financial statements and related notes.

Our segments enter into accounts receivable assignment agreements with various financial institutions. Under these agreements, the financial institution buys, on a non-recourse basis, the accounts receivable amounts related to our segment’s customers at an agreed-upon discount rate.

The following table summarizes certain key details of each of the accounts receivable assignment agreements in place as of June 30, 2021:

 

Year Of Initial Agreement

 

Segment(s) Related To

 

Current Annual Interest Rate

2014

 

 Mexico

 

 LIBOR plus 0.75%

2019

 

 Asia and Mexico

 

 LIBOR plus 1.00%

2019

 

 Asia

 

 Fixed rate of 3.85%

2020

 

 EMEA

 

 EURIBOR plus 1.95%

2020

 

 India

 

 LIBOR plus 1.00%

2020

 

 U.S.

 

 LIBOR plus 1.25%

2021

 

 Mexico

 

 LIBOR plus 1.25%

 

As the receivables are purchased by the financial institutions under the agreements noted above, the receivables are removed from our condensed consolidated balance sheet. During the three months ended June 30, 2021 and 2020, $360.8 million and $235.7 million, respectively, and during the six months ended June 30, 2021 and 2020, $654.9 million and $459.9 million, respectively, of receivables were sold under the accounts receivable assignment agreements described above.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no significant changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 1, Basis of Presentation, under the heading “Accounting Pronouncements” to our condensed consolidated financial statements for a discussion of recent accounting pronouncements.

CONTRACTUAL OBLIGATIONS

During the six months ended June 30, 2021, there have been no material changes to the contractual obligations reported in our Annual Report on Form 10-K, other than in the ordinary course of business.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk in the ordinary course of our business. These market risks are principally limited to changes in foreign currency exchange rates and commodity prices.

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Foreign Currency Risk. We conduct international operations in China, Mexico, Turkey and India. Our results of operations are subject to both currency transaction risk and currency translation risk. We incur currency transaction risk whenever we enter into either a purchase or sale transaction using a currency other than the local currency of the transacting entity. With respect to currency translation risk, our financial condition and results of operations are measured and recorded in the relevant domestic currency and then translated into U.S. dollars for inclusion in our condensed consolidated financial statements. In recent years, exchange rates between these foreign currencies and the U.S. dollar have fluctuated significantly and may do so in the future. A hypothetical change of 10% in the exchange rates for the countries above would have resulted in a change to income from operations of approximately $15.7 million for the six months ended June 30, 2021.

Commodity Price Risk. We are subject to commodity price risk under agreements for the supply of our raw materials. We have not hedged our commodity price exposure. We generally lock in pricing for most of our key raw materials for 12 months which protects us from price increases within that period, which we believe helps to mitigate the impact of raw material price increases. As many of our raw material supply agreements have meet or release clauses, if raw materials prices decrease, we are able to benefit from the reductions in price.

Resin and resin systems are the primary commodities for which we do not have fixed pricing. Approximately 55% of the resin and resin systems we use are purchased under contracts either controlled or borne by two of our customers and therefore they receive/bear 100% of any increase or decrease in resin costs further limiting our exposure to price fluctuations.

Prior to taking into account any contractual obligations of our customers to share with us the cost savings or increases resulting from a change in the current forecasted price of resin and resin systems, we believe that a 10% change in the current forecasted price of resin and resin systems for the customers in which we are exposed to fluctuating prices would have had an impact to income from operations of approximately $11.8 million for the full year 2021. Under our customer supply agreements, our customers typically receive 70% of the cost savings or increases resulting from a change in the price of resin and resin systems.  

Interest Rate Risk. As of June 30, 2021, our Credit Agreement includes interest on the unhedged principal amount of $96.2 million which is tied to the London Interbank Offered Rate (LIBOR), our India segment has two credit agreements outstanding which are tied to LIBOR, and our EMEA segment has one general credit agreement outstanding which is tied to the Euro Interbank Offered Rate (EURIBOR). For a discussion of the interest rate swap arrangement we entered into related to our Credit Agreement, see Note 13, Financial Instruments, to the notes to the consolidated financial statements within our 2020 Annual Report on Form 10-K. The India credit agreements had secured and unsecured working capital financing of $6.4 million and unsecured term loan financing of $2.1 million outstanding as of June 30, 2021. The two EMEA credit agreements had unsecured financing of $5.9 million and financing of capital expenditures of $2.1 million outstanding as of June 30, 2021. Our Credit Agreement, the two India credit agreements, and the one EMEA general credit agreement are the only variable rate debt agreements that we had outstanding as of June 30, 2021 as all remaining working capital loans, secured and unsecured financing and finance lease obligations are fixed rate instruments and are not subject to fluctuations in interest rates. Due to the relatively low LIBOR and EURIBOR rates in effect as of June 30, 2021, a 10% change in the LIBOR or EURIBOR rate would not have had a material impact on our future earnings, fair values or cash flows.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(b) promulgated under the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the design and operating effectiveness as of June 30, 2021 of our disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2021.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

See Note 12, Commitments and Contingencies, under the heading “Legal Proceedings” to our condensed consolidated financial statements for a discussion of legal proceedings and other related matters.

 

Item 1A. RISK FACTORS

Except as noted below, there have been no material changes to the Risk Factors (Part I, Item 1A) in our Annual Report on Form 10-K, which could materially affect our business, financial condition, and/or future results.

Our business, operations and financial condition during the six months ended June 30, 2021 were not materially adversely affected by the COVID-19 pandemic however we cannot estimate the duration of the COVID-19 pandemic and our business may be adversely affected in the future if the COVID-19 pandemic persists.

 

The COVID-19 pandemic did not materially adversely affect our business and operations during the six months ended June 30, 2021. Although all of our manufacturing facilities currently are operating at or near normal production levels, we may be required to reinstate temporary production suspensions or volume reductions at our manufacturing facilities to the extent there are new resurgences of COVID-19 cases in the regions where we operate or there is an outbreak of positive COVID-19 cases in any of our manufacturing facilities. For example, India and Turkey recently experienced significant increases in positive COVID-19 cases although these resurgences did not have a material impact on our operations during the six months ended June 30, 2021. In addition, although we are not currently experiencing any significant disruptions in our global supply chain due to the COVID-19 pandemic, our global supply chain may in the future be adversely affected if the COVID-19 pandemic persists.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

Not applicable.

Use of Proceeds

Not applicable.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

None.

 

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Item 6. EXHIBITS

 

Exhibit

Number

  

Exhibit Description

 

 

 

  31.1*

  

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

  31.2*

  

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

  32.1**

  

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

  32.2**

  

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

101.INS*

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document

101.SCH*

  

Inline XBRL Taxonomy Extension Schema Document

101.CAL*

  

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

  

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

  

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

  

Inline XBRL Taxonomy Extension Presentation Linkbase Document

  104*

 

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*)

 

* Filed herewith.

** The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

TPI COMPOSITES, INC.

 

 

 

 

 

 

 

 

 

 

Date: August 5, 2021

 

By:

 

/s/ Adan Gossar

 

 

 

 

Adan Gossar

 

 

 

 

Chief Accounting Officer

 

 

 

 

(Principal Accounting Officer)

 

35