06
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172021
OR
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☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-37839
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, AZ85253
(480) (480) 305-8910
(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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or 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 | ☐ | |||
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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 7(a)(2)(B)13(a) of the SecuritiesExchange 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 November 3, 2017,July 30, 2021, there were 34,010,01537,248,140 shares of common stock outstanding.
TPI COMPOSITES, INC. AND SUBSIDIARIES
INDEX
Page | ||||
ITEM 1. | 4 | |||
Condensed Consolidated Balance Sheets as of |
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7 | ||||
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Notes to |
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ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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ITEM 3. |
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ITEM 4. | 32 | |||
ITEM 1. | 33 | |||
ITEM 1A. | 33 | |||
ITEM 2. |
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ITEM 3. |
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ITEM 4. |
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ITEM 5. |
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ITEM 6. |
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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 laws.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;
the potential impact of General Electric’s acquisitionthe increasing prevalence of LM Wind Power uponauction-based tenders in the wind energy market and increased competition from solar energy on our business;
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;
our ability to attract and retain customers for our products, and to optimize product pricing;
competition from other wind blade and wind blade turbine manufacturers;
the discovery of defects in our products;
our ability to successfully expand in our existing markets and into new international markets;
worldwide economic conditions and their impact on customer demand;
our ability to effectively manage our growth strategy and future expenses;
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 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; and
changes in domesticour 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
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 March 17, 2017 (the Annual Report on Form 10-K) and in subsequent periodic and current reports filed with the SECFebruary 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.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.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—FINANCIALI. FINANCIAL INFORMATION
ITEM l. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TPI COMPOSITES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance SheetsCONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value data)(Unaudited)
|
| September 30, |
|
| December 31, |
|
| June 30, |
| December 31, |
| |||||
|
| 2017 |
|
| 2016 |
|
| 2021 |
| 2020 |
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|
| (Unaudited) |
|
|
|
|
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| (in thousands, except par value data) |
| ||||||
Assets |
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|
|
|
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Current assets: |
|
|
|
|
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|
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Cash and cash equivalents |
| $ | 139,065 |
|
| $ | 119,066 |
|
| $ | 123,107 |
|
| $ | 129,857 |
|
Restricted cash |
|
| 3,802 |
|
|
| 2,259 |
|
|
| 154 |
|
|
| 339 |
|
Accounts receivable (Note 3) |
|
| 134,458 |
|
|
| 67,842 |
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Accounts receivable |
|
| 147,827 |
|
|
| 132,768 |
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Contract assets |
|
| 231,780 |
|
|
| 216,928 |
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Prepaid expenses |
|
| 21,019 |
|
|
| 29,507 |
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Other current assets |
|
| 20,520 |
|
|
| 27,921 |
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Inventories |
|
| 60,593 |
|
|
| 53,095 |
|
|
| 13,168 |
|
|
| 10,839 |
|
Inventories held for customer orders |
|
| 69,788 |
|
|
| 52,308 |
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Prepaid expenses and other current assets |
|
| 29,776 |
|
|
| 30,657 |
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Total current assets |
|
| 437,482 |
|
|
| 325,227 |
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|
| 557,575 |
|
|
| 548,159 |
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Property, plant, and equipment, net |
|
| 119,635 |
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| 91,166 |
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Property, plant and equipment, net |
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| 205,716 |
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| 209,001 |
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Operating lease right of use assets |
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| 148,991 |
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| 158,827 |
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Other noncurrent assets |
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| 19,244 |
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| 20,813 |
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|
| 28,232 |
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|
| 40,270 |
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Total assets |
| $ | 576,361 |
|
| $ | 437,206 |
|
| $ | 940,514 |
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| $ | 956,257 |
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Liabilities and Shareholders’ Equity |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable and accrued expenses |
| $ | 160,858 |
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| $ | 112,281 |
|
| $ | 310,320 |
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| $ | 295,992 |
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Accrued warranty |
|
| 28,150 |
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|
| 19,912 |
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|
| 47,462 |
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|
| 50,852 |
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Deferred revenue (Note 3) |
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| 87,294 |
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| 69,568 |
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Customer deposits and customer advances |
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| 10,409 |
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| 1,390 |
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Current maturities of long-term debt |
|
| 44,498 |
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|
| 33,403 |
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|
| 56,137 |
|
|
| 32,551 |
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Current operating lease liabilities |
|
| 23,100 |
|
|
| 26,099 |
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Contract liabilities |
|
| 2,258 |
|
|
| 614 |
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Total current liabilities |
|
| 331,209 |
|
|
| 236,554 |
|
|
| 439,277 |
|
|
| 406,108 |
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Long-term debt, net of debt issuance costs and current maturities |
|
| 89,139 |
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|
| 89,752 |
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Long-term debt, net of current maturities |
|
| 180,138 |
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| 184,316 |
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Noncurrent operating lease liabilities |
|
| 152,059 |
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| 155,925 |
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Other noncurrent liabilities |
|
| 4,245 |
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|
| 4,393 |
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|
| 8,143 |
|
|
| 8,873 |
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Total liabilities |
|
| 424,593 |
|
|
| 330,699 |
|
|
| 779,617 |
|
|
| 755,222 |
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Commitments and contingencies (Note 10) |
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Shareholders’ equity: (Note 3) |
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Preferred shares, $0.01 par value, 5,500 shares authorized, no shares issued or outstanding at September 30, 2017 and December 31, 2016 |
|
| — |
|
|
| — |
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Common shares, $0.01 par value, 100,000 shares authorized and 34,046 shares issued and 33,994 shares outstanding at September 30, 2017 and 100,000 shares authorized and 33,737 shares issued and outstanding at December 31, 2016 |
|
| 340 |
|
|
| 337 |
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Commitments and contingencies (Note 12) |
|
|
|
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Stockholders’ equity: |
|
|
|
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Common shares, $0.01 par value, 100,000 shares authorized, 37,248 |
|
| 372 |
|
|
| 368 |
| ||||||||
Paid-in capital |
|
| 299,532 |
|
|
| 292,833 |
|
|
| 359,527 |
|
|
| 349,472 |
|
Accumulated other comprehensive loss |
|
| (1,054 | ) |
|
| (3,862 | ) |
|
| (41,559 | ) |
|
| (32,990 | ) |
Accumulated deficit |
|
| (146,087 | ) |
|
| (182,801 | ) |
|
| (151,310 | ) |
|
| (109,716 | ) |
Treasury stock, at cost, 52 shares at September 30, 2017 |
|
| (963 | ) |
|
| — |
| ||||||||
Total shareholders’ equity |
|
| 151,768 |
|
|
| 106,507 |
| ||||||||
Total liabilities and shareholders’ equity |
| $ | 576,361 |
|
| $ | 437,206 |
| ||||||||
Treasury stock, at cost, 208 shares at June 30, 2021 and 207 shares at |
|
| (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 Income StatementsCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)(Unaudited)
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||||||||
| September 30, |
|
| September 30, |
|
| Three Months Ended |
| Six Months Ended |
| |||||||||||||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| June 30, |
| June 30, |
| |||||||||||||||
| (Unaudited) |
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||||||||||||||||||
Net sales (Note 3) | $ | 243,354 |
|
| $ | 198,938 |
|
| $ | 683,142 |
|
| $ | 569,303 |
| ||||||||||||||||
|
| (in thousands, except per share data) |
| ||||||||||||||||||||||||||||
Net sales |
| $ | 458,841 |
|
| $ | 373,817 |
|
| $ | 863,521 |
|
| $ | 730,453 |
| |||||||||||||||
Cost of sales |
| 198,141 |
|
|
| 171,648 |
|
|
| 568,659 |
|
|
| 499,896 |
|
|
| 440,416 |
|
|
| 367,644 |
|
|
| 823,472 |
|
|
| 716,119 |
|
Startup and transition costs |
| 12,352 |
|
|
| 5,088 |
|
|
| 29,051 |
|
|
| 11,449 |
|
|
| 10,099 |
|
|
| 10,920 |
|
|
| 24,453 |
|
|
| 22,954 |
|
Total cost of goods sold |
| 210,493 |
|
|
| 176,736 |
|
|
| 597,710 |
|
|
| 511,345 |
|
|
| 450,515 |
|
|
| 378,564 |
|
|
| 847,925 |
|
|
| 739,073 |
|
Gross profit |
| 32,861 |
|
|
| 22,202 |
|
|
| 85,432 |
|
|
| 57,958 |
| ||||||||||||||||
Gross profit (loss) |
|
| 8,326 |
|
|
| (4,747 | ) |
|
| 15,596 |
|
|
| (8,620 | ) | |||||||||||||||
General and administrative expenses |
| 9,315 |
|
|
| 14,065 |
|
|
| 28,373 |
|
|
| 24,154 |
|
|
| 6,712 |
|
|
| 6,887 |
|
|
| 15,634 |
|
|
| 16,383 |
|
Income from operations |
| 23,546 |
|
|
| 8,137 |
|
|
| 57,059 |
|
|
| 33,804 |
| ||||||||||||||||
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): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Interest income |
| 48 |
|
|
| 27 |
|
|
| 78 |
|
|
| 76 |
| ||||||||||||||||
Interest expense |
| (3,254 | ) |
|
| (4,663 | ) |
|
| (9,215 | ) |
|
| (12,709 | ) | ||||||||||||||||
Realized gain (loss) on foreign currency remeasurement |
| 39 |
|
|
| (243 | ) |
|
| (2,575 | ) |
|
| (700 | ) | ||||||||||||||||
Miscellaneous income (expense) |
| 390 |
|
|
| (152 | ) |
|
| 968 |
|
|
| 192 |
| ||||||||||||||||
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 |
| (2,777 | ) |
|
| (5,031 | ) |
|
| (10,744 | ) |
|
| (13,141 | ) |
|
| (8,874 | ) |
|
| (3,534 | ) |
|
| (14,566 | ) |
|
| (3,650 | ) |
Income before income taxes |
| 20,769 |
|
|
| 3,106 |
|
|
| 46,315 |
|
|
| 20,663 |
| ||||||||||||||||
Loss before income taxes |
|
| (10,907 | ) |
|
| (16,789 | ) |
|
| (19,806 | ) |
|
| (32,309 | ) | |||||||||||||||
Income tax provision |
| (371 | ) |
|
| (309 | ) |
|
| (8,514 | ) |
|
| (4,565 | ) |
|
| (28,890 | ) |
|
| (49,312 | ) |
|
| (21,788 | ) |
|
| (34,284 | ) |
Net income |
| 20,398 |
|
|
| 2,797 |
|
|
| 37,801 |
|
|
| 16,098 |
| ||||||||||||||||
Net income attributable to preferred shareholders |
| — |
|
|
| 596 |
|
|
| — |
|
|
| 5,471 |
| ||||||||||||||||
Net income attributable to common shareholders | $ | 20,398 |
|
| $ | 2,201 |
|
| $ | 37,801 |
|
| $ | 10,627 |
| ||||||||||||||||
Net loss |
| $ | (39,797 | ) |
| $ | (66,101 | ) |
| $ | (41,594 | ) |
| $ | (66,593 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic |
| 33,891 |
|
|
| 27,284 |
|
|
| 33,789 |
|
|
| 12,042 |
|
|
| 36,881 |
|
|
| 35,299 |
|
|
| 36,742 |
|
|
| 35,256 |
|
Diluted |
| 35,015 |
|
|
| 27,375 |
|
|
| 34,748 |
|
|
| 12,133 |
|
|
| 36,881 |
|
|
| 35,299 |
|
|
| 36,742 |
|
|
| 35,256 |
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
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|
|
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Net loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Basic | $ | 0.60 |
|
| $ | 0.08 |
|
| $ | 1.12 |
|
| $ | 0.88 |
|
| $ | (1.08 | ) |
| $ | (1.87 | ) |
| $ | (1.13 | ) |
| $ | (1.89 | ) |
Diluted | $ | 0.58 |
|
| $ | 0.08 |
|
| $ | 1.09 |
|
| $ | 0.88 |
|
| $ | (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 IncomeCONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)(Unaudited)
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (Unaudited) |
| |||||||||||||
Net income |
| $ | 20,398 |
|
| $ | 2,797 |
|
| $ | 37,801 |
|
| $ | 16,098 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
| 1,231 |
|
|
| (344 | ) |
|
| 2,808 |
|
|
| (1,169 | ) |
Comprehensive income |
| $ | 21,629 |
|
| $ | 2,453 |
|
| $ | 40,609 |
|
| $ | 14,929 |
|
|
| 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 |
|
| (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 Cash FlowsCONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)(Unaudited)
|
| Nine Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
|
| (Unaudited) |
| |||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
| $ | 37,801 |
|
| $ | 16,098 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 13,622 |
|
|
| 9,703 |
|
Share-based compensation expense |
|
| 4,794 |
|
|
| 8,117 |
|
Amortization of debt issuance costs |
|
| 430 |
|
|
| 1,273 |
|
Amortization of debt discount |
|
| — |
|
|
| 3,018 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (66,438 | ) |
|
| (27,237 | ) |
Inventories |
|
| (24,979 | ) |
|
| (6,592 | ) |
Prepaid expenses and other current assets |
|
| 881 |
|
|
| 4,922 |
|
Other noncurrent assets |
|
| 3,067 |
|
|
| (6,900 | ) |
Accounts payable and accrued expenses |
|
| 47,498 |
|
|
| 6,339 |
|
Accrued warranty |
|
| 8,238 |
|
|
| 17,461 |
|
Customer deposits |
|
| 9,019 |
|
|
| 4,870 |
|
Deferred revenue |
|
| 17,726 |
|
|
| (3,571 | ) |
Other noncurrent liabilities |
|
| (136 | ) |
|
| 475 |
|
Net cash provided by operating activities |
|
| 51,523 |
|
|
| 27,976 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| (35,312 | ) |
|
| (18,917 | ) |
Net cash used in investing activities |
|
| (35,312 | ) |
|
| (18,917 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock in initial public offering, net of underwriters discount and offering costs |
|
| — |
|
|
| 67,199 |
|
Repayments of term loan |
|
| (2,812 | ) |
|
| (617 | ) |
Net proceeds from (repayments of) accounts receivable financing |
|
| 8,196 |
|
|
| (6,050 | ) |
Net repayments of working capital loans |
|
| (4,638 | ) |
|
| (4,097 | ) |
Net proceeds from (repayments of) other debt |
|
| 4,556 |
|
|
| (3,415 | ) |
Proceeds from exercise of stock options |
|
| 988 |
|
|
| — |
|
Repurchase of common stock including shares withheld in lieu of income taxes |
|
| (1,264 | ) |
|
| — |
|
Restricted cash |
|
| (1,543 | ) |
|
| (649 | ) |
Net cash provided by financing activities |
|
| 3,483 |
|
|
| 52,371 |
|
Impact of foreign exchange rates on cash and cash equivalents |
|
| 305 |
|
|
| (545 | ) |
Net change in cash and cash equivalents |
|
| 19,999 |
|
|
| 60,885 |
|
Cash and cash equivalents, beginning of year |
|
| 119,066 |
|
|
| 45,917 |
|
Cash and cash equivalents, end of period |
| $ | 139,065 |
|
| $ | 106,802 |
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 8,717 |
|
| $ | 9,505 |
|
Cash paid for income taxes, net |
|
| 14,134 |
|
|
| 5,191 |
|
Supplemental disclosures of noncash investing and financing activities: |
|
|
|
|
|
|
|
|
Conversion of subordinated convertible promissory notes into common stock |
|
| — |
|
|
| 11,877 |
|
Equipment acquired through capital lease and financing obligations |
|
| 4,749 |
|
|
| 1,464 |
|
Accrued capital expenditures in accounts payable |
|
| 3,689 |
|
|
| 3,610 |
|
|
| 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 |
|
| 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 |
|
| 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 |
|
| 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 |
|
| 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.
47
TPI COMPOSITES, INC. AND SUBSIDIARIES
NotesCONDENSED 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 |
|
|
|
|
|
| ||
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
Note 1. Summary of Operations and Significant Accounting Policies
Description of Business
TPI Composites, Inc. is the holding company that conducts substantially all of its business operations through its direct and indirect subsidiaries (collectively, the Company). The Company was founded in 1968 and has been producing composite wind blades since 2001. The Company’s knowledge and experience of composite materials and manufacturing originates with its predecessor company, Tillotson Pearson Inc., a leading manufacturer of high-performance sail and powerboats along with a wide range of composite structures used in other industrial applications. Following the separation from the boat building business in 2004, the Company reorganized in Delaware as LCSI Holding, Inc. and then changed its corporate name to TPI Composites, Inc. in 2008. Today, the Company is headquartered in Scottsdale, Arizona and has expanded its global footprint to include domestic facilities in Newton, Iowa; Fall River, Massachusetts; Warren, Rhode Island and Santa Teresa, New Mexico and international facilities in Dafeng, China; Taicang Port, China; Taicang City, China; Juárez, Mexico and Izmir, Turkey. In April 2017, the Company entered into a new lease agreement with a third party for a new manufacturing facility in Matamoros, Mexico, and the Company expects to commence operations at this facility in the second half of 2018.
Initial Public Offering and Stock Split
In July 2016, the Company completed an initial public offering (IPO) of 7,187,500 shares of the Company’s common stock at a price of $11.00 per share, which included 937,500 shares issued pursuant to the underwriters’ over-allotment option. Certain of the Company’s existing shareholders, a director and executive officers purchased an aggregate of 1,250,000 shares of common stock in the IPO included in the total issuance above. The net proceeds from the IPO were $67.2 million after deducting underwriting discounts and offering expenses. Immediately prior to the closing of the IPO, all shares of the then-outstanding redeemable preferred shares converted into an aggregate of 21,110,204 shares of common stock and the redeemable preferred share warrants converted on a net issuance basis into 120,923 shares of common stock. In addition, concurrent with the closing of the IPO, certain subordinated convertible promissory notes in the aggregate principal and interest amount of $11.9 million were converted into 1,079,749 shares of common stock at the public offering price of $11.00 per share.
Prior to the IPO, in July 2016 the Company amended its amended and restated certificate of incorporation to effect a 360-for-1 forward stock split of its common stock. As a result of the stock split, the Company has adjusted the share amounts authorized and issuable under the share-based compensation plans. All share and per share common stock information (including the share-based compensation plans) referenced throughout the unaudited condensed consolidated financial statements and notes thereto have been retroactively adjusted to reflect this stock split. The stock split did not cause an adjustment to the par value of the authorized shares of common stock.statements.
5
8
TPI COMPOSITES, INC. AND SUBSIDIARIES
NotesCONDENSED 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 |
| $ | 123,261 |
|
| $ | 130,196 |
|
| $ | 97,444 |
|
| $ | 71,749 |
|
See accompanying notes to Unaudited Condensed Consolidated Financial Statements
In May 2017, the Company completed a secondary public offering of 5,075,000 shares of its common stock at a price of $16.35 per share, which included 575,000 shares issued pursuant to the underwriters’ option to purchase additional shares. All of the shares were sold by existing shareholders and certain executive officers of the Company. The selling shareholders received all of the net proceeds of $78.8 million from the secondary public offering. The Company did not sell any shares and did not receive any of the proceeds from the offering and the costs paid by the Company in connection with the offering of $0.8 million were recorded in general and administrative costs in the accompanyingunaudited condensed consolidated income statement. financial statements.
9
TPI COMPOSITES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The Company divides its business operations into four geographic operating segments—the United States, Asia, Mexico and Europe, the Middle East and Africa (EMEA) as follows:
The U.S. segment includes (1) the manufacturing of wind blades at the Newton, Iowa plant, (2) the manufacturing of precision molding and assembly systems used for the manufacture of wind blades in the Warren, Rhode Island facility, (3) the manufacturing of composite solutions for the transportation industry, which the Company also conducts in its Rhode Island and Massachusetts facilities and (4) its corporate headquarters, the costs of which are included in general and administrative expenses.
The Asia segment includes (1) the manufacturing of wind blades at a facility in Taicang Port, China and at its two facilities in Dafeng, China, (2) the manufacturing of precision molding and assembly systems in the Taicang City, China facility, (3) the manufacture of components in a second Taicang Port, China facility and (4) wind blade inspection and repair services.
The Mexico segment manufactures wind blades from three facilities in Juárez, Mexico, one of which commenced operations in 2014, the second during the third quarter of 2016 and the third in January 2017. In April 2017, the Company entered into a new lease agreement with a third party for a new manufacturing facility in Matamoros, Mexico and the Company expects to commence operations at this facility in the second half of 2018.
The EMEA segment manufactures wind blades from two facilities in Izmir, Turkey. The Company entered into a joint venture in 2012 to produce wind blades at the first Turkey plant and in 2013 became the sole owner of the Turkey operation with the acquisition of the remaining 25% interest. The EMEA segment commenced operations in the second facility during the third quarter of 2016.
The accompanying consolidated financial statements include the accounts of TPI Composites, Inc. and all majority owned subsidiaries. All significant intercompany transactions and balances have been eliminated.
The condensed consolidated financial statements included herein have been prepared by the Companyus 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, 20162020 included in the Company’sour 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 the Company believeswe 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 the Company’sour financial position at SeptemberJune 30, 2017,2021, and the results of the Company’sour operations, comprehensive income (loss) and cash flows for the periods presented. The Company derived the December 31, 2016 condensed consolidated balance sheet data from audited financial statements, but does not include all disclosures required by GAAP. Interim results for the three and ninesix months ended SeptemberJune 30, 20172021 and 20162020 are not necessarily indicative of the results to be expected for the full years.
Warranty Expense
The Company provides a limited warranty for its mold Certain prior period amounts in the condensed consolidated financial statements and wind blade products, including parts and labor, with terms and conditions that vary depending on the product sold, for periods that range from twoaccompanying notes have been reclassified to five years. Warranty expense is recorded based upon estimates of future repairs using a probability-based methodology. Once the warranty period has expired, any remaining unused warranty accrual for the specific products is reversed againstconform to the current year warranty expense amount.period’s presentation.
6
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Warranty accrual at September 30 consisted of the following (in thousands):
|
|
|
|
|
|
| 2017 |
| |
Warranty accrual at beginning of year |
| $ | 19,912 |
|
Accrual during the period |
|
| 10,696 |
|
Cost of warranty services provided during the period |
|
| (372 | ) |
Reversal of reserves upon warranty expiration |
|
| (2,086 | ) |
Warranty accrual at end of period |
| $ | 28,150 |
|
Treasury Stock
Common stock purchased for treasury is recorded at historical cost. Transactions in treasury shares are primarily related to share-based compensation plans and are recorded at weighted-average cost.
Net Income Attributable to Preferred Shareholders
Net income attributable to preferred shareholders related to the accrual of dividends on previously outstanding convertible and senior redeemable preferred shares, the accretion to redemption amounts on the convertible preferred shares and warrant fair value adjustment. Immediately prior to the closing of the Company’s IPO, all preferred shares were converted into shares of the Company’s common stock and as a result, the accrual of dividends ceased.
Net Income Per Share Calculation
The basic net income per common share is computed by dividing the net income by the weighted-average number of common shares outstanding during a period. Diluted net income per common share is computed by dividing the net income by the weighted-average number of common shares outstanding plus potentially dilutive securities. The table below reflects the calculation of the weighted-average number of common shares outstanding used in computing basic and diluted earnings per common share (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Basic weighted-average shares outstanding |
|
| 33,891 |
|
|
| 27,284 |
|
|
| 33,789 |
|
|
| 12,042 |
|
Effect of dilutive stock options and warrants |
|
| 1,124 |
|
|
| 91 |
|
|
| 959 |
|
|
| 91 |
|
Diluted weighted-average shares outstanding |
|
| 35,015 |
|
|
| 27,375 |
|
|
| 34,748 |
|
|
| 12,133 |
|
The Company did not have any potentially dilutive securities outstanding that are not included in the diluted net income per share calculation for the three and nine months ended September 30, 2017 and 2016.
Use of Estimates
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.
7
The accompanying condensed consolidated financial statements include the accounts of TPI COMPOSITES, INC. AND SUBSIDIARIESComposites, Inc. and all of our majority owned subsidiaries. All significant intercompany transactions and balances have been eliminated.
NotesReferences to Unaudited Condensed Consolidated Financial StatementsTPI Composites, Inc, the “Company,” “we,” “us” or “our” in these notes refer to TPI Composites, Inc. and its consolidated subsidiaries.
Recently Issued Accounting Pronouncements
Recently Adopted Accounting Pronouncements Adopted in 2017
Convertible Instruments
In March 2016,August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-09, Compensation – Stock Compensation: Improvement2020-06, 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 Employee Share-Based Payment Accounting, to simplify certain aspects of the accounting for share-based payment transactions to employees. The new standard requires excess tax benefitscertain convertible instruments with characteristics of both liability and tax deficiencies toequity. 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 recorded in the consolidated income statementswholly accounted for as a componentdebt. This ASU also expands disclosure requirements for convertible instruments and simplifies areas of the provisionguidance for income taxes when stock awards vestdiluted 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 options are exercised. In addition, it eliminates the requirement to reclassify cash flows related to excess tax benefits from operating activities to financing activities on the consolidated statements of cash flows. Further, the standard provides an accounting policy election to account for forfeitures as they occur, allows the Company to withhold more of an employee’s vesting shares for tax withholding purposes without triggering liability accounting and clarifies that all cash payments made to tax authorities on an employee’s behalf for withheld shares should be presented as a financing activity on the Company’s consolidated statements of cash flows.
The Company adopted ASU 2016-09 in the first quarter of 2017 using the modified retrospective transition method through a cumulative effect adjustment to equity asbasis. An entity should adopt the guidance at the beginning of its annual fiscal year. We adopted this standard on January 1, 2017. Upon adoption, the Company elected to eliminate application of2021 on a forfeiture assumption to share based compensation expensemodified retrospective basis and account for forfeitures as they occur over the vesting period. The cumulative effect of this change increased additional paid-in capital and decreased retained earnings as of January 1, 2017 by $1.1 million. The Company it did not have any previously unrecognized excess tax effects that had not been recorded as a reduction to the tax liability.
The Company did not recognize any excess tax benefits from the vesting of restricted stock units and stock options which were later exercised during the three and nine months ended September 30, 2017 due to the valuation allowance recorded against the U.S. federal and state deferred tax assets. The provisions of the standard relating to the cash flow presentation and income taxes are included in the accompanying statements of cash flows and income statements for applicable periods presented in the accompanyingmaterial effect on our condensed consolidated financial statements. If or when the valuation allowance recorded against the U.S. federal and state deferred tax assets is released, the inclusion of excess tax benefits and deficiencies as a component of the Company’s income tax expense in future periods will increase volatility within the provision for income taxes as the amount of excess tax benefits or deficiencies from share-based compensation awards are dependent on the Company’s stock price at the date the restricted awards vest, the stock price on the date an option is exercised and the quantity of options exercised.
Revenue from Contracts with CustomersRecently Issued Accounting Pronouncements
Reference Rate Reform
In May 2014,March 2020, the FASB issued ASU 2014-09, Revenue from Contracts with Customers,2020-04, Reference Rate Reform (Topic 606)848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides new recognitionoptional expedients and disclosure requirementsexceptions for revenue fromapplying GAAP to contracts, with customershedging 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 supersedesreference the existing revenue recognition guidance. The new recognition requirements focus on when the customer obtains control of the goodsLondon Interbank Offered Rate (LIBOR) or services, rather than the current risks and rewards model of recognition. The core principle of the new standard is that an entity will recognize revenue when it transfers goods or services to its customers in an amount that reflects the consideration an entity expectsanother reference rate expected to be entitled to for those goods or services. The new disclosure requirements will include information intended to communicate the nature, amount, timing and any uncertaintydiscontinued because of revenue and cash flows from the applicable contracts, including any significant judgments and changes in judgments and assets recognized from the costs to obtain or fulfill a contract. Entities will generally be required to make more estimates and use more judgment under the new standard.
The new requirements arereference rate reform. This ASU is effective for all entities beginning on March 12, 2020 and entities may elect to apply the Company beginning January 1, 2018, and may be implemented either retrospectively for all periods presented, or as a cumulative-effect adjustment as of the date of adoption.
The Company will adopt Topic 606 as of January 1, 2018 with retrospective application to January 1, 2015ASU prospectively through December 31, 2017. Based on the Company’s evaluation of the new standard, revenue recognition in accordance with Topic 606 differs from the current guidance provided by GAAP as outlined in the SEC’s Staff Accounting Bulletin 104, which requires the Company to defer recognition of revenue until the risk of loss has passed to the customer and delivery has been made or a fixed delivery schedule has been provided by the customer. Since the Company’s products have no alternative use to the Company due to contractual restrictions placed by each customer on the technical specifications and design of the products, the Company’s assessment is that revenue upon adoption of Topic 606 will be recognized over time during the course of the production process and before the product is delivered to the customer.2022. The FASB later issued ASU 2021-01, Reference Rate
810
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 Unaudited Condensed 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 |
|
| 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 |
|
| 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 |
|
| 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 |
|
| 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 Company expects thatgeography of Europe, the adoptionMiddle 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 Topic 606 will have a material impact on the amount of net sales, cost of goods sold and income from operations reported in the consolidated income statements in future periods. In accordance with Topic 606, revenues will be recognized over the time period of the production process, whereas currently it is recognized upon delivery to the customer. Further, since revenue will be recognized over time for manufacturing contracts, future net sales will include amounts related to products that areperformance obligations in production aswhere 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 period end. Finally, the gross margin realizedcontract asset balance relates to materials procured based on customer specifications. The contract assets are recorded as current assets in the period may be impacted by the changes related to the timing and amountcondensed consolidated balance sheets. Contract liabilities consist of advance payments in excess of revenue recognized for productsearned. 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 production process.condensed consolidated balance sheets and are reduced as we record revenue over time.
Although Topic 606 does not have a cash impact nor an effect on the economics of the Company's underlying customer contracts, applying Topic 606 to contracts in startup and transition will likely result in higher reported earnings in 2018 than under the previous guidance as revenue is shifted to the initial years of startup and transition activities of a contract. Topic 606 will not change the total amount of revenue recognized under the Company’s long-term supply contracts, only accelerate the timing of when the revenue is recognized. The Company expects a corresponding acceleration in timing of cost of goods sold recognition for these contracts upon adoption of Topic 606.
The changes noted above involving the timing of revenue recognition will materially impact the amount of reportedThese contract assets and liabilities are reported on the condensed consolidated balance sheet associated withsheets net on a contract-by-contract basis at the Company’s manufacturing contracts. Upon adoptionend of Topic 606,each reporting period.
Contract assets and contract liabilities consisted of the Company will include amounts recognizedfollowing:
|
| 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 revenue for products incustomer specific material purchases and incremental unbilled production as contract assets on the consolidated balance sheet, which differs from the current practice of including the balances in inventory, and will include an amount for the margin recognized to date. The Company will no longer report inventory held for customer orders since revenue will be recognized over time during the course of the production process and before the product is deliveredsix months ended June 30, 2021. Contracts liabilities increased by $1.6 million from December 31, 2020 to the customer. Work performed as production takes place will leadJune 30, 2021 primarily due to revenue recognition and be included in the consolidated balance sheet under contract assets until billed. The Company expects that contract liabilities will be reported for amounts collected from customersbilled to a customer in advance of the production of products. The Company also expects thatprecision molding and assembly systems during the amountsix 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 deferred revenue will be substantially reduced as revenue for products will be recognized over time.
The Company does not anticipate a changerelated to precision molding and assembly systems and wind blades, which was included in the timing of cash receipts and payments from customers as customers will continue to be invoiced as products are completed. In addition, the Company does not expect changes to the aggregate amount of cash flows from operating activities in the consolidated statements of cash flows; however, the impact of changes in the captions on the consolidatedcorresponding contract liability balance sheet will have a material effect on the captions within cash flows from operating activities in the consolidated statements of cash flows.
The Company has a project plan in place for the transition to revenue recognition in accordance with Topic 606 including necessary changes to accounting processes and procedures, the chart of accounts, the system of internal control and retrospective application of the standard to periods beginning January 1, 2015 through December 31, 2017. The Company expects to complete the plan in time to report in accordance with Topic 606 for the first quarterly filing on Form 10-Q for the period ended March 31, 2018.
Cash Flow Presentation
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, that clarifies how certain cash receipts and cash payments are presented and classified in the consolidated statement of cash flows. In addition, in November 2016, the FASB issued ASU 2016-18, Restricted Cash, that requires restricted cash and cash equivalents to be included with the amount of cash and cash equivalents that are reconciled to on the consolidated statement of cash flows. These ASUs are effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted. The Company does not believe that the adoption of ASU 2016-15 and 2016-18 on January 1, 2018 will have a material effect on the Company’s financial position or results of operations.
Leases
In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 is a comprehensive new recognition model for leases requiring a lessee to recognize the asset and liability that arise from leases. For public companies, the amendment is effective for financial statements issued for annual periods beginning after December 16, 2018. Entities may elect to early adopt the lease standard in 2016. In adopting ASU 2016-02, entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. Management is evaluatingperiod.
Performance Obligations
Remaining performance obligations represent the provisions of ASU 2016-02 andtransaction price for which work has not yet selected a transition method norbeen performed and excludes any unexercised contract options. The transaction price includes estimated variable consideration as determined what impact the adoption of ASU 2016-02 will havebased on the Company’s financial position or resultsestimated production output within the range of operations.the contractual guaranteed minimum volume obligations and production capacity.
9As 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
NotesNOTES 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 Unaudited Condensed Consolidated Financial Statementsincreases 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 2.3. Significant Risks and Uncertainties
The Company’sOur revenues and receivables are earned from a small number of customers. As such, the Company’sour production levels are dependent on these customers’ orders. See note 11, Note 13, Concentration of Customers.Customers.
The Company maintains itsWe 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$250,000 during 20172021 and 2016.2020. U.S. money market accounts are not guaranteed by the FDIC. At SeptemberJune 30, 20172021 and December 31, 2016, the Company2020, we had $105.6$55.2 million and $103.4$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. The Company hasWe have not experienced losses in any such accounts.
The CompanyWe also maintainsmaintain cash in bank deposit accounts outside the U.S. with no deposit insurance. This includes $31.5At June 30, 2021, this included $58.7 million in China, $1.2$5.1 million in Turkey, and $0.8$2.3 million in Mexico, as$1.5 million in India and $0.3 million in other countries. As of September 30, 2017. The Company hasDecember 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 past.
Note 3. Related-Party Transactions
Related party transactions include transactions between the CompanyEuro Interbank Offered Rate (EURIBOR) and certain of its affiliates. The following transactions were in the normal course of operations and were measured at the exchange amount, which is the amount of consideration established and agreed to by the parties.
The Company has entered into several agreements with subsidiaries of General Electric Company and its consolidated affiliates (GE) relatingthem have associated interest rate hedges. Due to the operation of its business. As a result of these agreements, GE has been a debtor, creditorrelatively low LIBOR and holder of both preferred and common shares. During the second quarter of 2017, GE reduced its holdings of the Company’s common shares to less than five percent of the total shares outstanding and then completely divested of the Company’s common shares during the current quarter.
The Company has entered into five separate supply agreements with GE to manufacture wind bladesEURIBOR rates in Newton, Iowa; Taicang Port, China; Juárez, Mexico (2) and Izmir, Turkey. The supply agreements in Taicang Port, China and Izmir, Turkey expire December 31, 2017 and GE has decided not to renew or extend these two contracts. As a result of the supply agreements, GE is the Company’s largest customer. For the six months ended June 30, 2017, the Company recorded related-party sales with GE of $187.3 million. As disclosed at note 11, Concentration of Customers, for the three and nine months ended September 30, 2016, the Company recorded related-party sales with GE of $98.1 million and $292.4 million, respectively. Aseffect as of June 30, 2017 and December 31, 2016,2021, a 10% change in the CompanyLIBOR or EURIBOR rate would not have had accounts receivables related to sales to GE of $26.7 million and $16.6 million, respectively.a material impact on our future earnings, fair values or cash flows.
In January 2016,Note 4. Accrued Warranty
The warranty accrual activity for the Company entered into an agreement with GE and received an advance of $2.0 million, which the Company repaid in full in August 2016.
Certainperiods noted consisted of the Company’s existing stockholders, consisting of entities associated with Element Partners, Angeleno Group and Landmark Partners, each of which is an affiliate of a member of the board of directors, as well as certain executive officers and a director, purchased an aggregate of 1,250,000 shares of common stock in the IPO. In addition, all outstanding obligations and accrued interest under the Company’s subordinated convertible promissory notes held by certain existing stockholders, including Element Partners, Angeleno Group and Landmark Partners, were converted into an aggregate of 1,079,749 shares of common stock concurrent with the closing of the IPO at the public offering price of $11.00 per share. following:
In connection with the Company’s secondary offering, certain entities associated with Element Partners, Angeleno Group, Landmark Partners and NGP Energy Technology Partners, L.P, as well as certain executive officers of the Company sold an aggregate of 5,075,000 shares of common stock at the public offering price of $16.35 per share.
|
| 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, |
|
| (113 | ) |
|
| 6,002 |
|
|
| (2,285 | ) |
| 9,241 |
|
Warranty accrual at end of period |
| $ | 47,462 |
|
| $ | 56,772 |
|
| $ | 47,462 |
| $ | 56,772 |
|
1013
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial StatementsNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Accounts receivable consisted of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Trade accounts receivable |
| $ | 130,578 |
|
| $ | 66,612 |
|
Other accounts receivable |
|
| 3,880 |
|
|
| 1,230 |
|
Total accounts receivable |
| $ | 134,458 |
|
| $ | 67,842 |
|
Note 5. Inventories
Inventories consisted of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Raw materials |
| $ | 30,260 |
|
| $ | 29,278 |
|
Work in process |
|
| 27,122 |
|
|
| 21,169 |
|
Finished goods |
|
| 3,211 |
|
|
| 2,648 |
|
Total inventories |
| $ | 60,593 |
|
| $ | 53,095 |
|
Note 6. Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Machinery and equipment |
| $ | 92,938 |
|
| $ | 70,481 |
|
Buildings |
|
| 14,603 |
|
|
| 13,449 |
|
Leasehold improvements |
|
| 21,518 |
|
|
| 16,818 |
|
Office equipment and software |
|
| 11,061 |
|
|
| 6,403 |
|
Furniture |
|
| 20,235 |
|
|
| 15,883 |
|
Vehicles |
|
| 341 |
|
|
| 342 |
|
Construction in progress |
|
| 16,472 |
|
|
| 11,592 |
|
Total |
|
| 177,168 |
|
|
| 134,968 |
|
Accumulated depreciation |
|
| (57,533 | ) |
|
| (43,802 | ) |
Property, plant and equipment, net |
| $ | 119,635 |
|
| $ | 91,166 |
|
Total depreciation expense for the three months ended September 30, 2017 and 2016 was $5.1 million and $3.5 million, respectively, and for the nine months ended September 30, 2017 and 2016 was $13.5 million and $9.7 million, respectively.
11
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Note 7. Long-Term Debt, Net of Debt Issuance Costs and Current Maturities
Long-term debt, net of debt issuance costs and current maturities, consisted of the following (in thousands):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 |
| $ | 180,138 |
|
| $ | 184,316 |
|
|
| September 30, |
|
| December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Senior term loan—U.S. |
| $ | 72,188 |
|
| $ | 75,000 |
|
Senior revolving loan—U.S. |
|
| 2,820 |
|
|
| 2,820 |
|
Accounts receivable financing—EMEA |
|
| 23,316 |
|
|
| 15,120 |
|
Unsecured financing—EMEA |
|
| — |
|
|
| 4,638 |
|
Equipment financing—EMEA |
|
| 17,704 |
|
|
| 15,813 |
|
Equipment capital lease—Mexico |
|
| 14,731 |
|
|
| 8,037 |
|
Equipment capital lease—U.S. |
|
| 867 |
|
|
| 2,016 |
|
Equipment capital lease—EMEA |
|
| 3,810 |
|
|
| 1,898 |
|
Equipment loan—Mexico |
|
| 61 |
|
|
| 103 |
|
Total long-term debt |
|
| 135,497 |
|
|
| 125,445 |
|
Less: Debt issuance costs |
|
| (1,860 | ) |
|
| (2,290 | ) |
Total long-term debt, net of debt issuance costs |
|
| 133,637 |
|
|
| 123,155 |
|
Less: Current maturities of long-term debt |
|
| (44,498 | ) |
|
| (33,403 | ) |
Long-term debt, net of debt issuance costs and current maturities |
| $ | 89,139 |
|
| $ | 89,752 |
|
Note 8.6. Share-Based Compensation Plans
The Company has granted restricted stock unit (RSU) and stock option awardsDuring the six months ended June 30, 2021, we issued to certain employees and non-employee directors under the Amended and Restated 2015 Stock Option and Incentive Plan (the 2015 Plan). Each award granted prior to the consummationan aggregate of the IPO included a performance condition168,993 timed-based restricted stock units (RSUs), 58,396 performance-based restricted stock units (PSUs) that required the completion of an initial public offering by the Company and a required vesting period of one to four years, commencingvest upon achievement of the performance condition. As the IPO was consummated in July 2016, the Company began recording compensation expense in the third quartera cumulative, three-year Adjusted EBITDA target measured from January 1, 2021 through December 31, 2023, and 79,784 PSUs that vest upon achievement of 2016certain stock price hurdles for the requisite service period fromof the grant date through the IPO date, with the balanceDecember 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 be expensedextend 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 |
|
|
|
|
|
| ||
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 vesting period. Total share-based compensation expense recognizedterm 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 SeptemberMarch 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, 20172021, $0.7 million and $1.4 million, respectively, of premium amortization was $1.0 million,recorded through cost of which $0.2 millionsales 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 includedexpected to be recognized in cost of goods sold and the remaining $0.8 million is includedsales in general and administrative expenses. The amount related to RSUs was $0.4 million while $0.6 million related to stock options. Total share-based compensation expense recognizedour condensed consolidated statements of operations during the next nine months ended September 30, 2017 was $4.8 million, of which $0.8 million is included in cost of goods sold and the remaining $4.0 million is included in general and administrative expenses. The amount related to RSUs was $1.5 million while $3.3 million related to stock options. No share-based compensation costs were capitalized during the three or nine months ended September 30, 2017 and 2016.months.
As of September 30, 2017, the unamortized cost of the unvested RSUs was $1.8 million, which the Company expects to recognize in the consolidated financial statements over a weighted-average period of approximately 1.3 years. The total unrecognized cost related to unvested stock option awards was $5.3 million as of September 30, 2017. The Company expects to recognize such costs in the consolidated financial statements over a weighted-average period of approximately 1.9 years.
The following table summarizes the activity of the stock options and RSUs under the Company’s incentive plans:
|
|
|
|
|
| Stock Options |
|
| RSUs |
| ||||||||||||||
|
| Shares Available for Grant |
|
| Shares |
|
| Weighted- Average Exercise Price |
|
| Options Exercisable |
|
| Units |
|
| Weighted- Average Grant Date Fair Value |
| ||||||
Balance as of December 31, 2016 |
|
| 3,587,692 |
|
|
| 3,331,418 |
|
| $ | 12.72 |
|
|
| 25,828 |
|
|
| 636,120 |
|
| $ | 10.90 |
|
Increase in shares authorized |
|
| 1,349,475 |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| — |
|
|
| — |
|
Granted |
|
| (190,290 | ) |
|
| 161,090 |
|
|
| 20.00 |
|
|
|
|
|
|
| 29,200 |
|
|
| 16.69 |
|
Exercised/vested |
|
| — |
|
|
| (107,527 | ) |
|
| 10.81 |
|
|
|
|
|
|
| (218,040 | ) |
|
| 10.95 |
|
Forfeited/cancelled |
|
| 227,650 |
|
|
| (202,450 | ) |
|
| 11.54 |
|
|
|
|
|
|
| (25,200 | ) |
|
| 10.87 |
|
Balance as of September 30, 2017 |
|
| 4,974,527 |
|
|
| 3,182,531 |
|
|
| 13.23 |
|
|
| 729,196 |
|
|
| 422,080 |
|
|
| 11.27 |
|
1216
TPI COMPOSITES, INC. AND SUBSIDIARIES
NotesNOTES 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 Unaudited Condensed Consolidated Financial Statementsour 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 |
|
| 1,218 |
|
|
| 2,096 |
|
Interest rate swap |
| Other noncurrent liabilities |
|
| 3,365 |
|
|
| 4,414 |
|
The following table summarizespresents the outstanding and exercisable stock option awards aspretax amounts reclassified from accumulated other comprehensive loss into our condensed consolidated statements of September 30, 2017: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 |
| Cost of sales |
| $ | (1,035 | ) |
| $ | 2,738 |
|
| $ | (3,037 | ) |
| $ | 2,516 |
|
|
|
|
| Options Outstanding |
|
| Options Exercisable |
| ||||||||||||||
Range of Exercise Prices: |
|
| Shares |
|
| Weighted- Average Remaining Contractual Life (in years) |
|
| Weighted- Average Exercise Price |
|
| Shares |
|
| Weighted- Average Exercise Price |
| ||||||
$8.49 |
|
|
| 22,728 |
|
|
| 2.3 |
|
| $ | 8.49 |
|
|
| 22,728 |
|
| $ | 8.49 |
| |
$ | 10.87 |
|
|
| 2,004,700 |
|
|
| 7.7 |
|
|
| 10.87 |
|
|
| 465,700 |
|
|
| 10.87 |
|
$11.00 to $16.53 |
|
|
| 656,523 |
|
|
| 8.3 |
|
|
| 16.12 |
|
|
| 157,072 |
|
|
| 16.33 |
| |
$18.70 |
|
|
| 342,790 |
|
|
| 8.7 |
|
|
| 18.68 |
|
|
| 83,696 |
|
|
| 18.70 |
| |
$20.05 to $22.34 |
|
|
| 155,790 |
|
|
| 9.9 |
|
|
| 20.14 |
|
|
| — |
|
|
| — |
| |
$8.49 to $22.34 |
|
|
| 3,182,531 |
|
|
| 8.0 |
|
|
| 13.23 |
|
|
| 729,196 |
|
|
| 12.87 |
|
Note 9. Income Taxes
Income
The income tax expense was $0.4 millionprovisions for the three and $0.3 millionsix 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 SeptemberJune 30, 20172021 and 2016, respectively,an increase in our uncertain tax positions for the three and $8.5 million and $4.6 million in the ninesix months ended SeptemberJune 30, 2017 and 2016, respectively. The lower effective tax rate was primarily due2021 as compared to the release of the valuation allowance which was recorded against the Turkey operation’s deferred tax assets as well as the tax benefit received by the Turkey operationssame periods in the third quarter of 2017 from new tax incentives from the Turkish government.2020.
The Company has historically provided a valuation allowance to reduce its U.S. federal, state and non-U.S. deferred tax assets to the amount that is more likely than not to be realized. In the current quarter, the Company released the majority of its valuation allowance against its Turkey operation’s deferred tax assets, resulting in a non-cash benefit to income tax expense of approximately $2.6 million, $1.2 million of which was related to future earnings. Given the Turkey operation’s current level of pre-tax income, and assuming the Turkey operations maintains this current level of pre-tax income at a minimum, the Company expects to generate income before taxes in Turkey in future periods at a level that would fully realize the benefit of its deferred tax assets in Turkey. As of September 30, 2017, the Company continues to maintain a valuation allowance against net deferred tax assets in the U.S. and certain of its state jurisdictions where it does not currently believe that the realization of the deferred tax assets is more likely than not.
The Company evaluates its deferred tax assets quarterly to determine whether adjustments to the valuation allowance are appropriate in light of changes in facts or circumstances, such as changes in expected future pre-tax earnings, tax law, interactions with taxing authorities and developments in case law. In making this evaluation, the Company relies on its recent history of pre-tax earnings. The Company's material assumptions are its forecasts of future pre-tax earnings and the nature and timing of future deductions and income represented by the deferred tax assets and liabilities, all of which involve the exercise of significant judgment.
The impact of the new tax incentives received related to the Turkey operations was $1.8 million, all of which will be used to reduce the taxes paid on future earnings.
No other changes in tax law since December 31, 2016 haveoccurred during the six months ended June 30, 2021, which had a material impact on the Company’sour 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 |
|
| 1,607 |
|
|
| 1,154 |
|
|
| 1,864 |
|
|
| 1,117 |
|
Anti dilutive share-based compensation awards excluded |
|
| 0 |
|
|
| 6 |
|
|
| 0 |
|
|
| 55 |
|
Performance-based restricted stock units excluded from |
|
| 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 10.12. Commitments and Contingencies
Legal Proceedings
A complaint was filed against the Company in the Superior Court of the State of Arizona (Maricopa County) by a former employee of the Company, alleging that the Company had agreedFrom time to make certain cash paymentstime, we are party to such employee upon any future sale of the Company. The Company denies the substantive allegations of the complaint and intends to vigorously defend this lawsuit; however, the Company is currently unable to determine the ultimate outcome of this case. The Court has set a trial date in August 2018.
In addition, the Company entered into a transition agreement with a former officer, pursuant to which he transitioned out of his role at the end of 2015 and was to serve in a consulting capacity in 2016 and 2017. In January 2016, following the discovery that he had materially violated the terms of his transition agreement, the Company terminated his consultancy for cause. In April 2016, the officer filed an arbitration claim alleging that the Company improperly terminated his transition agreement. The Company believes that the termination of his transition agreement was valid and the Company intends to vigorously defend this matter. The arbitration tribunal held that the former officer was entitled to a portion of the compensationvarious lawsuits, claims, and other payments contemplated under the transition agreement. The Company has appealed the arbitration tribunal’s decision to a Chinese court and the appeal remains pending.
13
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
The Company is involved in various claims and legal actions arisingproceedings that arise in the ordinary course of business. Inbusiness, 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 opinion of management, the ultimate disposition of these matters will notaggregate, have a material adverse effect on the Company’s consolidatedour financial position,condition, results of operations or liquidity.cash flows.
Note 11.13. Concentration of Customers
RevenuesNet sales from certain customers (in thousands) in excess of 10 percent of our total consolidated Company revenues (dollars in thousands)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 | % |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||||||||||||||||||
Customer |
| Revenues |
|
| % of Total |
|
| Revenues |
|
| % of Total |
|
| Revenues |
|
| % of Total |
|
| Revenues |
|
| % of Total |
| ||||||||
GE |
| $ | 99,623 |
|
|
| 40.9 | % |
| $ | 98,141 |
|
|
| 49.3 | % |
| $ | 286,941 |
|
|
| 42.0 | % |
| $ | 292,435 |
|
|
| 51.4 | % |
Vestas |
|
| 69,125 |
|
|
| 28.4 |
|
|
| 50,300 |
|
|
| 25.3 |
|
|
| 195,556 |
|
|
| 28.6 |
|
|
| 120,716 |
|
|
| 21.2 |
|
Nordex Group |
|
| 46,998 |
|
|
| 19.3 |
|
|
| 31,132 |
|
|
| 15.6 |
|
|
| 119,530 |
|
|
| 17.5 |
|
|
| 96,139 |
|
|
| 16.9 |
|
Gamesa |
|
| 23,820 |
|
|
| 9.8 |
|
|
| 17,844 |
|
|
| 9.0 |
|
|
| 71,405 |
|
|
| 10.5 |
|
|
| 54,553 |
|
|
| 9.6 |
|
Other |
|
| 3,788 |
|
|
| 1.6 |
|
|
| 1,521 |
|
|
| 0.8 |
|
|
| 9,710 |
|
|
| 1.4 |
|
|
| 5,460 |
|
|
| 0.9 |
|
Total |
| $ | 243,354 |
|
|
| 100.0 | % |
| $ | 198,938 |
|
|
| 100.0 | % |
| $ | 683,142 |
|
|
| 100.0 | % |
| $ | 569,303 |
|
|
| 100.0 | % |
Trade accounts receivable from certain customers in excess of 10 percent of our total consolidated Company 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 | % |
|
| September 30, |
|
| December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Customer |
| % of Total |
|
| % of Total |
| ||
GE |
|
| 17.1 | % |
|
| 24.9 | % |
Vestas |
|
| 42.7 | % |
|
| 26.2 | % |
Nordex Group |
|
| 28.0 | % |
|
| 26.8 | % |
Gamesa |
|
| 8.7 | % |
|
| 16.2 | % |
Note 12.14. Segment Reporting
The Company’sOur operating segments are defined geographically asinto 5 geographic operating segments—(1) the United States (U.S.), (2) Asia, (3) Mexico, (4) EMEA and EMEA.(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 results are aggregated into four reportable segments basedStatements within our Annual Report on quantitative thresholds. Form 10-K.
All of the Company’sour segments operate in their local currency except for the ChinaMexico and MexicoAsia segments, which both include a U.S. parent company.company, and India and Switzerland, which operate in the U.S. dollar.
1419
TPI COMPOSITES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial StatementsNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables set forth certain information (in thousands) 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 Company’s segments:location where the product is manufactured or the services are performed.
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Revenues by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
| $ | 44,599 |
|
| $ | 45,090 |
|
| $ | 136,314 |
|
| $ | 141,920 |
|
Asia |
|
| 102,463 |
|
|
| 86,834 |
|
|
| 278,284 |
|
|
| 232,639 |
|
Mexico |
|
| 44,941 |
|
|
| 35,448 |
|
|
| 134,010 |
|
|
| 88,623 |
|
EMEA |
|
| 51,351 |
|
|
| 31,566 |
|
|
| 134,534 |
|
|
| 106,121 |
|
Total revenues |
| $ | 243,354 |
|
| $ | 198,938 |
|
| $ | 683,142 |
|
| $ | 569,303 |
|
Revenues by geographic location (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
| $ | 44,599 |
|
| $ | 45,090 |
|
| $ | 136,314 |
|
| $ | 141,920 |
|
China |
|
| 102,463 |
|
|
| 86,834 |
|
|
| 278,284 |
|
|
| 232,639 |
|
Mexico |
|
| 44,941 |
|
|
| 35,448 |
|
|
| 134,010 |
|
|
| 88,623 |
|
Turkey |
|
| 51,351 |
|
|
| 31,566 |
|
|
| 134,534 |
|
|
| 106,121 |
|
Total revenues |
| $ | 243,354 |
|
| $ | 198,938 |
|
| $ | 683,142 |
|
| $ | 569,303 |
|
Income (loss) from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. (2) |
| $ | (8,120 | ) |
| $ | (12,929 | ) |
| $ | (26,247 | ) |
| $ | (18,052 | ) |
Asia |
|
| 24,031 |
|
|
| 17,291 |
|
|
| 64,191 |
|
|
| 48,055 |
|
Mexico |
|
| 3,286 |
|
|
| 3,574 |
|
|
| 5,254 |
|
|
| 6,197 |
|
EMEA |
|
| 4,349 |
|
|
| 201 |
|
|
| 13,861 |
|
|
| (2,396 | ) |
Total income from operations |
| $ | 23,546 |
|
| $ | 8,137 |
|
| $ | 57,059 |
|
| $ | 33,804 |
|
|
| September 30, |
|
| December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Property, plant and equipment, net: |
|
|
|
|
|
|
|
|
U.S. |
| $ | 21,693 |
|
| $ | 16,740 |
|
Asia (China) |
|
| 29,262 |
|
|
| 26,341 |
|
Mexico |
|
| 40,359 |
|
|
| 24,842 |
|
EMEA (Turkey) |
|
| 28,321 |
|
|
| 23,243 |
|
Total property, plant and equipment, net |
| $ | 119,635 |
|
| $ | 91,166 |
|
|
|
|
|
Note 13. Subsequent Events
In October 2017, the Company granted an aggregate of 191,300 RSU awards to certain employees. Each of these RSU awards vests as follows: 20% on March 7, 2018, 30% on March 7, 2019 and the remaining 50% on March 7, 2020. The Company estimates that the total share-based-compensation expense for these RSU awards will be approximately $4.5$6.7 million and will be recognized over$6.9 million for the requisite service period of approximately 1.7 years.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
On November 8, 2017, the Company signed a new, five-year supply agreement with Proterra Inc. to produce composite bus bodies at the Company’s existing Rhode Island manufacturing facility and from a new facility in Newton, Iowa that the Company expects to open in the first half of 2018.
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”)(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, and related financing, 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 enable many of the industry’sdeliver high-quality, cost-effective composite solutions through long term relationships with leading wind turbine original equipment manufacturers (OEM), who have historically relied on in-house production, to outsource in the manufacturing of some of their wind blades through our global footprint of advanced manufacturing facilities strategically located to serve large and growing wind markets in a cost-effective manner. Given the importance of wind energy capture, turbine reliabilitytransportation markets. We also provide field service inspection and cost to power producers, the size, quality and performance of wind blades have become highly strategic to our OEM customers. As a result, we have become a key supplierrepair 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 manufacture of wind bladesU.S., China, Mexico, Turkey, and related precision moldingIndia. We operate additional engineering development centers in Denmark and assembly systems. We have entered into long-term supply agreements pursuant to which we dedicate capacity at our facilities to our customers in exchange for their commitment to purchase minimum annual volumes of wind blade sets, which consist of three wind blades. As of November 8, 2017, our long-term supply agreements provide for minimum aggregate volume commitments from our customers of approximately $2.7 billion and encourage our customers to purchase additional volume up to, in the aggregate, a total contract value of over approximately $4.4 billion through the end of 2023. This collaborative dedicated supplier model provides us with contracted volumes that generate significant revenue visibility, drive capital efficiency and allow us to produce wind blades at a lower total delivered cost, while ensuring critical dedicated capacity for our customers. Our wind blade and precision molding and assembly systems manufacturing businesses accounted for approximately 98% of our total net sales in the three and nine months ended September 30, 2017 and for approximately 99% of our total net sales in the three and nine months ended September 30, 2016.Germany.
We divide ourOur business operations are defined geographically into fourfive geographic operating segments—(1) the United States (U.S.), (2) Asia, (3) Mexico, and(4) Europe, the Middle East and Africa (EMEA) as follows:
Our U.S. segment includes (1) the manufacturing of wind blades atand (5) India. See Note 14, Segment Reporting, to our Newton, Iowa plant, (2) the manufacturing of precision molding and assembly systems usedcondensed consolidated financial statements for the manufacture of wind blades inmore details about our Warren, Rhode Island facility, (3) the manufacturing of composite solutions for the transportation industry, which we also conduct in our Rhode Island and Massachusetts facilities and (4) our corporate headquarters, the costs of which are included in general and administrative expenses.operating segments.
Our Asia segment includes (1) the manufacturing of wind blades in facilities in Taicang Port, China and in two facilities in Dafeng, China, (2) the manufacturing of precision molding and assembly systems in our Taicang City, China facility, (3) the manufacture of components in our second Taicang Port, China facility and (4) wind blade inspection and repair services.
Our Mexico segment manufactures wind blades from three facilities in Juárez, Mexico, one of which commenced operations in 2014, the second during the third quarter of 2016 and the third in January 2017. In April 2017, our Mexico segment entered into a new lease agreement with a third party for a new manufacturing facility in Matamoros, Mexico and expects to commence operations at this facility in the second half of 2018.
Our EMEA segment manufactures wind blades from two facilities in Izmir, Turkey. We entered into a joint venture in 2012 to produce wind blades at our first Turkey plant and in 2013 became the sole owner of the Turkey operation with the acquisition of the remaining 25% interest. Our EMEA segment commenced operations at our second facility during the third quarter of 2016.
KEY TRENDS AND RECENT DEVELOPMENTS AFFECTING OUR BUSINESS
The trendCOVID-19 pandemic did not materially adversely affect our business and operations during the three and six months ended June 30, 2021. Although all of wind turbine OEMs outsourcingour 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 remains strong as evidenced byfrom our signingcustomers during the remainder of 2021, in August 2017 of a new multiyear supply agreement with Senvion S.A. for two production linesparticular during the fourth quarter. We believe this decrease in our Taicang Port, China manufacturing facility.
Our wind turbine OEMs are experiencing significant pricing pressure in many geographic marketsdemand is short term and due to several factors, includingthe continued global renewable energy regulatory and policy uncertainty and raw material cost increases mentioned below. The result is an increasing prevalenceexpected adverse impact to our Adjusted EBITDA in 2021 of “winner take all” auction-based pricing models for new wind farm projects, increasing competition from solar energy projects and market demand shifts driven byapproximately $28 million. We believe that general optimism around potential legislation in the currentU.S. to extend the Production Tax Credit cycle(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 United States. Asexpected 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 resultmultitude of these market trends,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 wind turbine OEM customers are requiring an increasing numberresults of wind blade model transitions in late 2017operations by approximately $4.4 million for both the three and 2018.
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 numberlogistics 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 model transitions in late 2017manufacturing facility at the end of the 3-year term if the supply agreement is not extended and 2018 may reduce our year-over-year revenue growth rate in 2018.we will cease to operate and supply blades from the customer’s manufacturing facility.
COMPONENTS OF RESULTS OF OPERATIONSKEY METRICS USED BY MANAGEMENT TO MEASURE PERFORMANCE
Net Sales
Net sales reflect salesFor a detailed discussion of our products, including wind blades, precision moldingkey financial measures and assembly systems and transportation products, as well as fees and other amounts paid by our customers to compensate us for our costs and capital expenditures associated with wind blade model transitions. Several factors affect net sales in any period, including customer demand, wind blade model transitions, general economic conditions and weather conditions. We currently derive an immaterial amount of net sales from our transportation business. Under GAAP, we do not recognize revenue on our wind blade sales until the wind blades have been delivered to our customers. Under our long-term supply agreements with our customers, we invoice our customers for wind blades once the blades pass certain acceptance procedures and title passes to our customers. Our customers generally pay us for the wind blades between 15 to 65 days after receipt of the invoice based on negotiated payment terms. However, in many cases, our customers request that we store their wind blades until they are ready to assemble wind turbines at a particular wind farm project. We have no control over when our customers decide to ship wind blades from our storage sites, and in some cases, our customers have stored large numbers of their wind blades at our sites for six months or more. Even if the customer has paid us for the wind blades and title has passedkey operating metrics, refer to the customer, we do not recognize revenue for these wind blades until the wind blades have been delivered to the customer. Instead, these transactions are recorded as deferred revenuediscussion in our condensed consolidated financial statements.
Cost“Management’s Discussion and Analysis of Goods Sold
CostFinancial Condition and Results of goods sold includes the costs associated with products invoiced during the period as well as unallocated manufacturing overhead costs associated with startup and transition costs. Cost of sales includes all costs incurred at our production facilities to make products saleable, such as raw materials, direct labor and indirect labor and facilities costs, including purchasing and receiving costs, plant management, inspection costs, product engineering and internal transfer costs. In addition, all depreciation associated with assets used to produce composite products and make them saleable isOperations – Key Metrics Used By Management To Measure Performance” included in cost of sales. Direct labor costs consist of salaries, benefits and other personnel related costs for employees engaged in the manufacturePart II, Item 7 of our products.Annual Report on Form 10-K.
Startup costs represent the unallocated overhead related to both new manufacturing facilities as well as new lines in existing manufacturing facilities. Transition costs represent the unallocated overhead related to the transition of wind blade models at the request of our customers. The startup and transition costs are primarily fixed overhead costs incurred during the period production facilities are under-utilized while transitioning wind blade models and ramping up manufacturing, which are not allocated to products and are expensed as incurred. The cost of sales for the initial wind blades from a new model manufacturing line is generally higher than when the line is operating at optimal production volume levels due to inefficiencies during ramp-up related to labor hours per blade, cycle times per blade and raw material usage. Additionally, manufacturing overhead as a percentage of net sales is generally higher during the period in which a facility is ramping up to full production capacity due to underutilization of the facility. Manufacturing overhead at each of our facilities includes virtually all indirect costs (including share-based compensation costs) incurred at the plants, including engineering, finance, information technology, human resources and plant management.
General and Administrative Expenses
General and administrative expenses are primarily incurred at our corporate headquarters and our research facilities and include salaries, benefits and other personnel related costs for employees engaged in research and development, engineering, finance, information technology, human resources, business development, global operational excellence, global supply chain, in-house legal and executive management. Other costs include outside legal and accounting fees, risk management (insurance), share-based compensation and certain other administrative and global resources costs.
For the three months ended September 30, 2017 and 2016 and for the nine months ended September 30, 2017 and 2016, our research and development expenses (included in general and administrative expenses) totaled $0.3 million, $0.4 million, $1.1 million and $1.0 million, respectively.
Other Income (Expense)
Other income (expense) consists primarily of interest expense on our credit facilities and the amortization of deferred financing costs and beneficial conversion features related to our debt borrowings. Other income (expense) also includes realized gains and losses on foreign currency remeasurement, interest income and miscellaneous income and expense.
Income Tax Provision
Income tax provision consists of federal, state, provincial, local and foreign taxes based on income in jurisdictions in which we operate, including in the United States, China, Mexico and Turkey. The composite income tax rate, tax provisions, deferred tax assets and deferred tax liabilities vary according to the jurisdiction in which the income or loss arises. Tax laws are complex and subject to different interpretations by management and the respective governmental taxing authorities, and require us to exercise judgment in determining our income tax provision, our deferred tax assets and liabilities and the valuation allowance recorded against our net deferred tax assets.
Net Income Attributable to Preferred Shareholders
Net income attributable to preferred shareholders related to the accrual of dividends on our convertible and senior redeemable preferred shares, the accretion to redemption amounts on our convertible preferred shares and warrant fair value adjustment. Immediately prior to the closing of our IPO, all preferred shares were converted into shares of our common stock and as a result, the accrual of dividends ceased.
KEY FINANCIAL MEASURES
In addition
|
| 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 | ) |
22
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
Net sales |
| $ | 243,354 |
|
| $ | 198,938 |
|
| $ | 683,142 |
|
| $ | 569,303 |
|
Total billings (1) |
| $ | 256,404 |
|
| $ | 196,095 |
|
| $ | 698,833 |
|
| $ | 566,779 |
|
Net income |
| $ | 20,398 |
|
| $ | 2,797 |
|
| $ | 37,801 |
|
| $ | 16,098 |
|
EBITDA (1) |
| $ | 29,114 |
|
| $ | 11,272 |
|
| $ | 69,074 |
|
| $ | 42,999 |
|
Adjusted EBITDA (1) |
| $ | 30,118 |
|
| $ | 19,632 |
|
| $ | 76,443 |
|
| $ | 51,816 |
|
Capital expenditures |
| $ | 8,585 |
|
| $ | 4,673 |
|
| $ | 35,312 |
|
| $ | 18,917 |
|
|
| September 30, |
|
| December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
|
| (in thousands) |
| |||||
Total debt, net of debt issuance costs |
| $ | 133,637 |
|
| $ | 123,155 |
|
Net debt (1) |
| $ | (3,568 | ) |
| $ | 6,379 |
|
|
|
We define total billings, a non-GAAP financial measure, as the total amounts we have invoiced our customers for products and services for which we are entitled to payment under the terms of our long-term supply agreements or other contractual agreements. We monitor total billings, and believe it is useful to present to investors as a supplement to our GAAP measures, because we believe it more directly correlates to sales activity and operations based on the timing of actual transactions with our customers, which facilitates comparison of our performance between periods and provides a more timely indication of trends in sales. Under GAAP, we do not recognize revenue on our wind blade sales until the wind blades have been delivered to our customers. Under our long-term supply agreements with our customers, we invoice our customers for wind blades once the blades pass certain acceptance procedures and title passes to our customers. Our customers generally pay us for the wind blades between 15 to 65 days after receipt of the invoice based on negotiated payment terms. However, in many cases, our customers request that we store their wind blades until they are ready to assemble wind turbines at a particular wind farm project. We have no control over when our customers decide to ship wind blades from our storage sites, and in some cases, our customers have stored large numbers of their wind blades on our sites for six months or more. Even if the customer has paid us for the wind blades and title has passed to the customer, we do not recognize revenue for these wind blades until the wind blades have been delivered to the customer. Instead, these transactions are recorded as deferred revenue in our condensed consolidated financial statements. However, we are contractually entitled to payment for those wind blades and, accordingly, invoice them when the blades are placed in storage.
Our use of total billings has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.
EBITDA and Adjusted EBITDA
We define EBITDA, a non-GAAP financial measure, as net income or loss plus interest expense (including losses on extinguishment of debt and net of interest income), income taxes and depreciation and amortization. We define adjusted EBITDA as EBITDA plus any share-based compensation expense plus or minus any realized gains or losses from foreign currency remeasurement. Adjusted EBITDA is the primary metric used by our management and our board of directors to establish budgets and operational goals for managing our business and evaluating our performance. In addition, our Credit Facility contains minimum EBITDA (as defined in the Credit Facility) covenants with which we must comply. We monitor adjusted EBITDA as a supplement to our GAAP measures, and believe it is useful to present to investors, because we believe that it facilitates evaluation of our period-to-period operating performance by eliminating items that are not operational in nature, allowing comparison of our recurring core business operating results over multiple periods unaffected by differences in capital structure, capital investment cycles and fixed asset base. In addition, we believe adjusted EBITDA and similar measures are widely used by investors, securities analysts, ratings agencies, and other parties in evaluating companies in our industry as a measure of financial performance and debt-service capabilities.
Our uses of EBITDA and adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP.
In evaluating EBITDA and adjusted EBITDA, you should be aware that in the future, we will incur expenses similar to the adjustments noted in this presentation. Our presentations of EBITDA and adjusted EBITDA should not be construed as suggesting that our future results will be unaffected by these expenses or any unusual or non-recurring items. When evaluating our performance, you should consider EBITDA and adjusted EBITDA alongside other financial performance measures, including our net income and other GAAP measures.
Net debt
We define net debt as the total principal amount of debt outstanding less unrestricted cash and cash equivalents. The total principal amount of debt outstanding is comprised of the long-term debt and current maturities of long-term debt as presented in our condensed consolidated balance sheets adding back any debt issuance costs and discount. We believe that the presentation of net debt provides useful information to investors because our management reviews net debt as part of our oversight of overall liquidity, financial flexibility and leverage. Net debt is important when we consider opening new plants and expanding existing plants, as well as for capital expenditure requirements.
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 |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
Net sales |
| $ | 243,354 |
|
| $ | 198,938 |
|
| $ | 683,142 |
|
| $ | 569,303 |
|
Change in deferred revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blade-related deferred revenue at beginning of period (1) |
|
| (74,255 | ) |
|
| (65,656 | ) |
|
| (69,568 | ) |
|
| (65,520 | ) |
Blade-related deferred revenue at end of period (1) |
|
| 87,294 |
|
|
| 61,949 |
|
|
| 87,294 |
|
|
| 61,949 |
|
Foreign exchange impact (2) |
|
| 11 |
|
|
| 864 |
|
|
| (2,035 | ) |
|
| 1,047 |
|
Change in deferred revenue |
|
| 13,050 |
|
|
| (2,843 | ) |
|
| 15,691 |
|
|
| (2,524 | ) |
Total billings |
| $ | 256,404 |
|
| $ | 196,095 |
|
| $ | 698,833 |
|
| $ | 566,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 20,398 |
|
| $ | 2,797 |
|
| $ | 37,801 |
|
| $ | 16,098 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 5,139 |
|
|
| 3,530 |
|
|
| 13,622 |
|
|
| 9,703 |
|
Interest expense (net of interest income) |
|
| 3,206 |
|
|
| 4,636 |
|
|
| 9,137 |
|
|
| 12,633 |
|
Income tax provision |
|
| 371 |
|
|
| 309 |
|
|
| 8,514 |
|
|
| 4,565 |
|
EBITDA |
|
| 29,114 |
|
|
| 11,272 |
|
|
| 69,074 |
|
|
| 42,999 |
|
Share-based compensation expense |
|
| 1,043 |
|
|
| 8,117 |
|
|
| 4,794 |
|
|
| 8,117 |
|
Realized loss (gain) on foreign currency remeasurement |
|
| (39 | ) |
|
| 243 |
|
|
| 2,575 |
|
|
| 700 |
|
Adjusted EBITDA |
| $ | 30,118 |
|
| $ | 19,632 |
|
| $ | 76,443 |
|
| $ | 51,816 |
|
|
|
|
| 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 |
|
| 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 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands) |
| |||||||||||||
Blade-related deferred revenue at beginning of period |
| $ | 74,255 |
|
| $ | 65,656 |
|
| $ | 69,568 |
|
| $ | 65,520 |
|
Non-blade related deferred revenue at beginning of period |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total current and noncurrent deferred revenue at beginning of period |
| $ | 74,255 |
|
| $ | 65,656 |
|
| $ | 69,568 |
|
| $ | 65,520 |
|
Blade-related deferred revenue at end of period |
| $ | 87,294 |
|
| $ | 61,949 |
|
| $ | 87,294 |
|
| $ | 61,949 |
|
Non-blade related deferred revenue at end of period |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total current and noncurrent deferred revenue at end of period |
| $ | 87,294 |
|
| $ | 61,949 |
|
| $ | 87,294 |
|
| $ | 61,949 |
|
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:
|
| September 30, |
|
| December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
|
| (in thousands) |
| |||||
Total debt, net of debt issuance costs |
| $ | 133,637 |
|
| $ | 123,155 |
|
Add debt issuance costs |
|
| 1,860 |
|
|
| 2,290 |
|
Less cash and cash equivalents |
|
| (139,065 | ) |
|
| (119,066 | ) |
Net debt |
| $ | (3,568 | ) |
| $ | 6,379 |
|
|
| 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 | ) |
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| Six Months Ended |
| |||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
| June 30, |
| |||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| |||||||||||
Sets |
|
| 739 |
|
|
| 581 |
|
|
| 2,067 |
|
|
| 1,613 |
|
|
| 843 |
|
|
| 788 |
|
|
| 1,657 |
|
|
| 1,519 |
|
Estimated megawatts |
|
| 1,796 |
|
|
| 1,321 |
|
|
| 4,876 |
|
|
| 3,686 |
|
|
| 3,303 |
|
|
| 2,655 |
|
|
| 6,375 |
|
|
| 4,984 |
|
Utilization |
|
| 82 | % |
|
| 70 | % |
|
| 80 | % |
|
| 70 | % | ||||||||||||||||
Dedicated manufacturing lines |
|
| 48 |
|
|
| 38 |
|
|
| 48 |
|
|
| 38 |
|
|
| 50 |
|
|
| 52 |
|
|
| 50 |
|
|
| 52 |
|
Total manufacturing lines installed |
|
| 38 |
|
|
| 32 |
|
|
| 41 |
|
|
| 32 |
| ||||||||||||||||
Manufacturing lines in startup |
|
| 10 |
|
|
| 2 |
|
|
| 12 |
|
|
| 2 |
| ||||||||||||||||
Manufacturing lines in transition |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
| ||||||||||||||||
Manufacturing lines installed |
|
| 51 |
|
|
| 54 |
|
|
| 52 |
|
|
| 54 |
|
Sets represents the number of wind blade sets, consisting of three wind blades each, which we invoiced worldwide during the period. We monitor sets and believe that presenting sets to investors is helpful because we believe that it is the most direct measurement of our manufacturing output during the period. Sets primarily impact net sales and total billings.
Estimated megawatts are the energy capacity to be generated by wind blade sets invoiced in the period. Our estimate is based solely on name-plate capacity of the wind turbine on which our wind blades are expected to be installed. We monitor estimated megawatts and believe that presenting estimated megawatts to investors is helpful because we believe that it is a commonly followed measurement of energy capacity across our industry and provides an indication of our share of the overall wind blade market.23
Dedicated manufacturing lines are the number of wind blade manufacturing lines that we have dedicated to our customers pursuant to our long-term supply agreements. We monitor dedicated manufacturing lines and believe that presenting this metric to investors is helpful because we believe that the number of dedicated manufacturing lines is the best indicator of demand for our wind blades from customers under our long-term supply agreements in any given period. Dedicated manufacturing lines primarily impacts our net sales and total billings. In April 2017, we entered into a multiyear supply agreement with Vestas to supply wind blades from two manufacturing lines at a new manufacturing facility that will be constructed in Matamoros, Mexico. We expect to commence operations at this facility in the second half of 2018. In August 2017, we entered into a multiyear supply agreement with Senvion S.A. to supply wind blades from two manufacturing lines at our Taicang Port, China facility. We expect to commence operations for this customer before the end of the first quarter of 2018. RESULTS OF OPERATIONS
Total manufacturing lines installed represents the number of wind blade manufacturing lines installed and either in operation, startup or transition.
Manufacturing lines in startup is the number of dedicated wind blade manufacturing lines that were in a startup phase during the pre-production and production ramp up period, pursuant to the opening of a new manufacturing facility, the expansion of an existing manufacturing facility or the addition of new manufacturing lines in an existing manufacturing facility. We monitor and present this metric because we believe it helps investors to better understand the impact of the startup phase of our new manufacturing facilities on our gross profit and net income.
Manufacturing lines in transition is the number of wind blade manufacturing lines that were being transitioned to a new wind blade model during the period. We monitor and present this metric because we believe it helps investors to better understand the impact of these transitions on our gross profit and net income.
Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016
The following table summarizes certain information relating to our operating results and relatedas a percentage of net sales for the three and six months ended SeptemberJune 30, 20172021 and 20162020 that hashave been derived from our unaudited condensed consolidated financial statements.statements of operations:
|
| Three Months Ended |
| |||||||||||||
|
| September 30, |
| |||||||||||||
|
| 2017 |
|
| 2016 |
| ||||||||||
|
| (dollars in thousands) |
| |||||||||||||
Net sales |
| $ | 243,354 |
|
|
| 100.0 | % |
| $ | 198,938 |
|
|
| 100.0 | % |
Cost of sales |
|
| 198,141 |
|
|
| 81.4 |
|
|
| 171,648 |
|
|
| 86.3 |
|
Startup and transition costs |
|
| 12,352 |
|
|
| 5.1 |
|
|
| 5,088 |
|
|
| 2.5 |
|
Total cost of goods sold |
|
| 210,493 |
|
|
| 86.5 |
|
|
| 176,736 |
|
|
| 88.8 |
|
Gross profit |
|
| 32,861 |
|
|
| 13.5 |
|
|
| 22,202 |
|
|
| 11.2 |
|
General and administrative expenses |
|
| 9,315 |
|
|
| 3.8 |
|
|
| 14,065 |
|
|
| 7.1 |
|
Income from operations |
|
| 23,546 |
|
|
| 9.7 |
|
|
| 8,137 |
|
|
| 4.1 |
|
Other expense |
|
| (2,777 | ) |
|
| (1.2 | ) |
|
| (5,031 | ) |
|
| (2.5 | ) |
Income before income taxes |
|
| 20,769 |
|
|
| 8.5 |
|
|
| 3,106 |
|
|
| 1.6 |
|
Income tax provision |
|
| (371 | ) |
|
| (0.1 | ) |
|
| (309 | ) |
|
| (0.2 | ) |
Net income |
|
| 20,398 |
|
|
| 8.4 |
|
|
| 2,797 |
|
|
| 1.4 |
|
Net income attributable to preferred shareholders |
|
| — |
|
|
| — |
|
|
| 596 |
|
|
| 0.3 |
|
Net income attributable to common shareholders |
| $ | 20,398 |
|
|
| 8.4 | % |
| $ | 2,201 |
|
|
| 1.1 | % |
|
| 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 SeptemberJune 30, 2017 increased by $44.4 million or 22.3% to $243.4 million compared to $198.9 million2021 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 |
|
| 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 the same period in 2016. Netnet sales of wind blades increased by 20.3% to $233.5 million forduring the three and six months ended SeptemberJune 30, 20172021 as compared to $194.2 million in the same periodperiods in 2016. The increase2020 was primarily driven by a 21%7% and 9% increase in the number of wind blades deliveredproduced, 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 |
|
| 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 SeptemberJune 30, 2017 compared to the same period in 2016 primarily from our China, Mexico and Turkey plants as well as from foreign currency fluctuations in Turkey, partially offset by a decline in the average sales prices of the same wind blade models delivered in both periods as a result of geographic mix and savings in raw material costs, a portion of which we share with our customers. Net sales from the manufacturing of precision molding and assembly systems during the three months ended September 30, 2017 increased to $5.9 million from $3.3 million in the same period in 2016. This increase was primarily the result of our customers requiring more precision molding and assembly systems from our Taicang facility during the three months ended September 30, 20172021 as compared to the same period in 2016. Total billings2020 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 SeptemberJune 30, 2017 increased by $60.3 million or 30.8% to $256.4 million compared to $196.1 million2021, there was an increase in the same period over period number of wind blades still in 2016. The favorable impactthe production process at the end of the weakening of theperiod. The fluctuating U.S. dollar against the Euro atChinese Renminbi in our TurkeyChina operations had a favorable impact of 0.1% on consolidated net sales and total billings for the three months ended SeptemberJune 30, 2017 were increases2021 as compared to the 2020 period.
25
The decrease in the Asia segment’s net sales of 1.0% and 0.9%, respectively. Forwind blades during the threesix months ended SeptemberJune 30, 2016,2021 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 foreign currency fluctuations0.2% 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 total billingssix 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 |
|
| 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 both reductionspartially offset by a decrease in the year over year number of 0.4%.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 for the three months ended September 30, 2017 was $210.5 million and included aggregate costs of $12.4 million related to startup costs in
The following table summarizes our new plants in Mexico and Turkey and the startup of new wind blade models for certain of our customers in Turkey and Dafeng, China. This compares to total cost of goods sold for the three and six months ended SeptemberJune 30, 2016 of $176.7 million, including aggregate costs of $5.1 million related to startup costs in our new plants in Mexico2021 and Turkey as well as the transition of wind blade models in our original plant in Mexico. Cost2020:
|
| 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 |
|
| 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 of wind blades decreased slightlyby approximately three percentage points during the three and six months ended SeptemberJune 30, 20172021 as compared to the same periodperiods in 2016,2020, driven primarily by improved operating efficienciesa decrease in warranty costs and the impact of savings in raw materialdirect labor costs, partially offset by thean increase in startupdirect material costs and transition costs.foreign currency fluctuations. The net impact of 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 SeptemberJune 30, 2017 was not significant2021, respectively, as compared to a favorable impact of 1.9% for the three months ended September 30, 2016.2020 periods.
General and administrative expenses
The following table summarizes our general and administrative expenses for the three and six months ended SeptemberJune 30, 2017 totaled $9.3 million2021 and 2020:
|
| Three Months Ended |
|
|
|
|
|
|
|
| Six Months Ended |
|
|
|
|
|
|
| ||||||||||||||
|
| June 30, |
|
| Change |
|
| June 30, |
|
| Change |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
|
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
| ||||||||
|
| (in thousands) |
|
|
|
|
| (in thousands) |
|
|
|
| ||||||||||||||||||||
General and |
| $ | 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 compared to $14.1 million for the same period in 2016. As a percentage of net sales generalfor the three and administrative expensessix months ended June 30, 2021 as compared to the same periods in 2020 were 3.8%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 SeptemberJune 30, 2017, down from 7.1% in the same period in 2016. The decrease2021, there was primarily driven by a $6.1 million decrease in share-based compensationstartup and transition costs in the 2017 period as compared to the 2016 period, which was the period in which we recorded the expense from grant date through the end of the third quarter of 20162020 period. Additionally, for the performance awards upon consummationsix 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 the IPO. This decrease was partially offset by additional costs incurred to enhance our corporate support functions to support our growth1.1% and public company governance.
Other expense totaled $2.8 million0.4% on cost of goods sold for the three and six months ended SeptemberJune 30, 20172021, respectively, as compared to $5.0 million for the same period2020 periods.
India Segment
The increase in 2016. The amountthe income from operations in the India segment for the three and six months ended SeptemberJune 30, 20172021 as compared to the same periods in 2020 was primarily compriseddriven by the commencement of interest expenseproduction in 2020, and the ramp up of $3.3 million. This compares to interest expense of $4.7 millionsuch production in the three months ended September 30, 2016.2021.
Income tax provision increased to $0.4 million28
Other income (expense)
The following table summarizes our total other income (expense) for the three and six months ended SeptemberJune 30, 2017 from $0.3 million2021 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 periodperiods in 2016. The lower effective tax rate was2020 were primarily due to the release of the valuation allowance which was recorded against our Turkey operation’s deferred tax assets as well as the tax benefit receivedan increase in the 2017 period by the Turkey operations from new tax incentives fromforeign currency loss primarily due to net Euro liability exposure against the Turkish government.Lira in the current year periods as compared to the same periods in 2020.
NetIncome taxes
The following table summarizes our income taxes for the three and six months ended SeptemberJune 30, 2017 was $20.4 million2021 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 $2.8 million in the same periodperiods in 2016. The increase2020 was primarily due to the reasons set forth above.
Net income attributable to preferred shareholders The diluted net loss per share was $0.6 million$1.08 for the three months ended SeptemberJune 30, 2016 and there was none in the 2017 period as following our IPO in July 2016, all2021, compared to a diluted net loss per share of the previously outstanding preferred shares were converted to common shares.
Net income attributable to common shareholders was $20.4 million$1.87 for the three months ended SeptemberJune 30, 2017, compared to $2.2 million in the same period in 2016. This increase was primarily due to the improved operating results discussed above. Diluted earnings2020. The diluted net loss per share was $0.58$1.13 for the threesix months ended SeptemberJune 30, 2017,2021, compared to $0.08a diluted net loss per share of $1.89 for the threesix months ended SeptemberJune 30, 2016.2020.
Segment DiscussionLIQUIDITY AND CAPITAL RESOURCES
The following table summarizes our net sales and income (loss) from operations by our four geographic operating segments:
|
| Three Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Net Sales |
| (in thousands) |
| |||||
U.S. |
| $ | 44,599 |
|
| $ | 45,090 |
|
Asia |
|
| 102,463 |
|
|
| 86,834 |
|
Mexico |
|
| 44,941 |
|
|
| 35,448 |
|
EMEA |
|
| 51,351 |
|
|
| 31,566 |
|
Total net sales |
| $ | 243,354 |
|
| $ | 198,938 |
|
|
| Three Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Income (Loss) from Operations |
| (in thousands) |
| |||||
U.S. (1) |
| $ | (8,120 | ) |
| $ | (12,929 | ) |
Asia |
|
| 24,031 |
|
|
| 17,291 |
|
Mexico |
|
| 3,286 |
|
|
| 3,574 |
|
EMEA |
|
| 4,349 |
|
|
| 201 |
|
Total income from operations |
| $ | 23,546 |
|
| $ | 8,137 |
|
|
|
U.S. Segment
Net sales in the three months ended September 30, 2017 decreased slightly to $44.6 million compared to $45.1 million in the same period in 2016. Net sales of wind blades decreased to $39.5 million during the three months ended September 30, 2017 as compared to $41.8 million in the same period of 2016 primarily due to a slight reduction in the number of wind blades delivered and a decline in the average sales prices of the same wind blade models delivered in both periods asAs a result of savings in raw material costs, a portion of which we share with our customers. Net sales from the manufacturing of precision moldinguncertainty relating to: (i) the evolving nature, magnitude and assembly systems during the three months ended September 30, 2017 were $1.2 million compared to $1.9 million during the same period in 2016. These decreases were partially offset by a $2.5 million increase in non-wind related net sales during the three months ended September 30, 2017 as compared to the same period in 2016.
The loss from operations for the three months ended September 30, 2017 was $8.1 million as compared to a loss of $12.9 million in the same period in 2016. These amounts include corporate general and administrative costs of $9.3 million and $14.1 million for the three months ended September 30, 2017 and 2016, respectively. The decrease in the corporate general and administrative costs was primarily due to a $6.1 million decrease in share-based compensation costs, partially offset by additional costs incurred to enhance our corporate support functions to support our growth and public company governance. The operating results were also unfavorably impacted by lower precision molding volume discussed above during the three months ended September 30, 2017 as compared to the 2016 period.
Asia Segment
Net sales in the three months ended September 30, 2017 increased by $15.6 million or 18.0% to $102.5 million compared to $86.8 million in the same period in 2016. Net sales of wind blades were $97.8 million in the three months ended September 30, 2017 as compared to $85.4 million in the same period of 2016. The increase was the result of a 24% increase in the number of wind blades delivered during the three months ended September 30, 2017 compared to the same period in 2016. These increases were partially offset by a change in the mix of wind blade models sold and lower average sales prices of wind blades delivered in both periods due to savings in raw material costs, a portion of which we share with our customers. The impactduration of the fluctuating U.S. dollar againstCOVID-19 pandemic, (ii) the Chinese Renminbi did not have a significant effect on net sales duringvariety of measures implemented by governments around the three months ended September 30, 2017, as comparedworld to an unfavorable impact of 1.2% inaddress its effects and (iii) the three months ended September 30, 2016. Net sales from the manufacturing of precision molding and assembly systems totaled $4.7 million during the three months ended September 30, 2017 compared to $1.4 million during the three months ended September 30, 2016.
Income from operations in the Asia segment for the three months ended September 30, 2017 was $24.0 million as compared to $17.3 million in the same period in 2016. In addition to the factors noted above, the increase reflects lower overhead costs in the 2017 period as compared to 2016. As with net sales, the fluctuating U.S. dollar against the Chinese Renminbi did not have a significant effect on cost of goods sold for three months ended September 30, 2017 versus a favorable impact of 4.2% in the comparable 2016 period.
Mexico Segment
Net sales in the three months ended September 30, 2017 increased by $9.5 million or 26.8% to $44.9 million compared to $35.4 million in the same period in 2016, reflecting the beginning of wind blade production in our second and third plants and a slight increase in wind blade volume at our first Mexico plant. These increases were partially offset by lower average sales prices of wind blades delivered in both periods. Net sales of wind blades represents the entirety of net sales in the Mexico segment in the 2017 and 2016 periods.
Income from operations in the Mexico segment for the three months ended September 30, 2017 was $3.3 million as compared to $3.6 million in the same period in 2016. The decrease in income from operations was due to the startup losses incurred at our three new Mexico facilities and the unfavorable impact of the weakening U.S. dollar relative to the Mexican Peso on cost of goods sold of 1.1%, partially offset by the increase in wind blade volume in the 2017 period as compared to 2016 as well as from savings in raw material costs. The fluctuating U.S. dollar against the Mexican Peso had a favorable impact of 2.2% on cost of goods sold for three months ended September 30, 2016.
EMEA Segment
Net sales during the three months ended September 30, 2017 increased by $19.8 million or 62.7% to $51.4 million compared to $31.6 million in the same period in 2016. The increase was driven by the beginning of wind blade production in our second Turkey plant, partially offset by a 34% decrease in wind blade volume at our first Turkey plant as a result of GE only requiring the minimum volume required under its contract after its decision to not renew or extend its supply agreement with us beyond 2017. We completed 100% of this volume by the end of June to enable us to accelerate the transition of those manufacturing lines to two new manufacturing lines for Nordex Group. Other items having a favorable impact on net sales includeour manufacturing operations, we have and will continue to manage our liquidity to ensure our long-term viability until the mix of wind blades sold during the period as well as overall higher average sales prices of wind blades delivered in the comparative periods due to the beginning of wind blade production in our second Turkey plant and the impact of the weakening U.S. dollar relative to the Euro of 5.2%. This compares to a favorable impact on net sales of 0.5% in the three months ended September 30, 2016. Net sales of wind blades represents the entirety of net sales in the EMEA segment in 2017 and 2016.COVID-19 pandemic abates.
Income from operations in the EMEA segment for the three months ended September 30, 2017 was $4.3 million as compared to $0.2 million in the same period in 2016. The increase was primarily driven by the wind blade production in our second Turkey plant, improved operating efficiency at our first Turkey plant, savings in raw materials and the net favorable impact on cost of goods sold of the fluctuation of the U.S. dollar relative to the Turkish Lira and Euro of 1.1% compared to 0.2% in the three months ended September 30, 2016.
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
The following table summarizes certain information relating to our operating results and related percentage of net sales for the nine months ended September 30, 2017 and 2016 that has been derived from our unaudited condensed consolidated financial statements.
|
| Nine Months Ended |
| |||||||||||||
|
| September 30, |
| |||||||||||||
|
| 2017 |
|
| 2016 |
| ||||||||||
|
| (dollars in thousands) |
| |||||||||||||
Net sales |
| $ | 683,142 |
|
|
| 100.0 | % |
| $ | 569,303 |
|
|
| 100.0 | % |
Cost of sales |
|
| 568,659 |
|
|
| 83.2 |
|
|
| 499,896 |
|
|
| 87.8 |
|
Startup and transition costs |
|
| 29,051 |
|
|
| 4.3 |
|
|
| 11,449 |
|
|
| 2.0 |
|
Total cost of goods sold |
|
| 597,710 |
|
|
| 87.5 |
|
|
| 511,345 |
|
|
| 89.8 |
|
Gross profit |
|
| 85,432 |
|
|
| 12.5 |
|
|
| 57,958 |
|
|
| 10.2 |
|
General and administrative expenses |
|
| 28,373 |
|
|
| 4.1 |
|
|
| 24,154 |
|
|
| 4.2 |
|
Income from operations |
|
| 57,059 |
|
|
| 8.4 |
|
|
| 33,804 |
|
|
| 6.0 |
|
Other expense |
|
| (10,744 | ) |
|
| (1.6 | ) |
|
| (13,141 | ) |
|
| (2.3 | ) |
Income before income taxes |
|
| 46,315 |
|
|
| 6.8 |
|
|
| 20,663 |
|
|
| 3.7 |
|
Income tax provision |
|
| (8,514 | ) |
|
| (1.3 | ) |
|
| (4,565 | ) |
|
| (0.8 | ) |
Net income |
|
| 37,801 |
|
|
| 5.5 |
|
|
| 16,098 |
|
|
| 2.9 |
|
Net income attributable to preferred shareholders |
|
| — |
|
|
| 0.0 |
|
|
| 5,471 |
|
|
| 1.0 |
|
Net income attributable to common shareholders |
| $ | 37,801 |
|
|
| 5.5 | % |
| $ | 10,627 |
|
|
| 1.9 | % |
Net sales for the nine months ended September 30, 2017 increased by $113.8 million or 20.0% to $683.1 million compared to $569.3 million in the same period in 2016. Net sales of wind blades increased by 21.4% to $657.6 million for the nine months ended September 30, 2017 as compared to $541.7 million in the same period in 2016. The increase was primarily driven by a 24% increase in the number of wind blades delivered during the nine months ended September 30, 2017 compared to the same period in 2016 from each of our segments, partially offset by a decline in the average sales prices of the same wind blade models delivered in both periods as a result of geographical mix and savings in raw material costs, a portion of which we share with our customers, as well as from foreign currency fluctuations in China. Net sales from the manufacturing of precision molding and assembly systems during the nine months ended September 30, 2017 decreased to $15.3 million from $23.2 million in the same period in 2016. This decrease was primarily the result of our customers requiring less precision molding and assembly systems from our Rhode Island facility during the nine months ended September 30, 2017 as compared to the same period in 2016. Total billings for the nine months ended September 30, 2017 increased by $132.1 million or 23.3% to $698.8 million compared to $566.8 million in the same period in 2016. The net unfavorable impact of foreign currency fluctuations on consolidated net sales and total billings of 0.6% and 0.7%, respectively, was driven by the strengthening of the U.S. dollar against the Chinese Renminbi at our China operations for the nine months ended September 30, 2017 compared to reductions of 0.5% for both categories during the nine months ended September 30, 2016.
Total cost of goods sold for the nine months ended September 30, 2017 was $597.7 million and included aggregate costs of $29.1 million related to startup costs in our new plants in Mexico and Turkey and the startup of new wind blade models for certain of our customers in Turkey and Dafeng, China. This compares to total cost of goods sold for the nine months ended September 30, 2016 of $511.3 million, including aggregate costs of $11.4 million related to startup costs in our new plants in Mexico and Turkey as well as the transition of wind blade models in our original plant in Mexico. Cost of goods sold as a percentage of net sales of wind blades decreased by two percentage points during the nine months ended September 30, 2017 as compared to the same period in 2016, driven by improved operating efficiencies and the impact of savings in raw material costs and foreign currency fluctuations, partially offset by the increase in startup and transition costs. The impact of the strengthening of the U.S. dollar against the Euro, Turkish Lira, Chinese Renminbi and Mexican Peso reduced consolidated cost of goods sold by 2.8% for nine months ended September 30, 2017, as compared to 1.3% in the same period in 2016.
General and administrative expenses for the nine months ended September 30, 2017 totaled $28.4 million as compared to $24.2 million for the same period in 2016. As a percentage of net sales, general and administrative expenses were 4.1% for the nine months ended September 30, 2017, down from 4.2% in the same period in 2016. The increase was primarily driven by additional costs incurred to enhance our corporate support functions to support our growth and public company governance, partially offset by a $2.9 million decrease in share-based compensation costs in the 2017 period as compared to the same period in 2016, which was the period in which we recorded the expense from grant date through the end of the third quarter of 2016 for the performance awards upon consummation of the IPO.
Other expense totaled $10.7 million for the nine months ended September 30, 2017 as compared to $13.1 million for the same period in 2016. The amount for the nine months ended September 30, 2017 was primarily comprised of interest expense of $9.2 million and the realized loss on foreign currency remeasurement of $2.6 million. This compares to interest expense of $12.7 million and $0.7 million related to the realized loss on foreign currency remeasurement in the nine months ended September 30, 2016.
Income tax provision increased to $8.5 million for the nine months ended September 30, 2017 from $4.6 million for the same period in 2016. The lower effective tax rate was primarily due to the release of the valuation allowance which was recorded against our Turkey operation’s deferred tax assets as well as the benefit received in the quarter by the Turkey operations from new tax incentives from its government.
Net income for the nine months ended September 30, 2017 was $37.8 million as compared to $16.1 million in the same period in 2016. The increase was primarily due to the reasons set forth above.
Net income attributable to preferred shareholders was $5.5 million for the nine months ended September 30, 2016 and there was none in the 2017 period as following our IPO in July 2016, all of the previously outstanding preferred shares were converted to common shares.
Net income attributable to common shareholders was $37.8 million during the nine months ended September 30, 2017, compared to $10.6 million in the same period in 2016. This was primarily due to the improved operating results discussed above. Diluted earnings per share was $1.09 for the nine months ended September 30, 2017, compared to $0.88 for the nine months ended September 30, 2016.
Segment Discussion
The following table summarizes our net sales and income (loss) from operations by our four geographic operating segments:
|
| Nine Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Net Sales |
| (in thousands) |
| |||||
U.S. |
| $ | 136,314 |
|
| $ | 141,920 |
|
Asia |
|
| 278,284 |
|
|
| 232,639 |
|
Mexico |
|
| 134,010 |
|
|
| 88,623 |
|
EMEA |
|
| 134,534 |
|
|
| 106,121 |
|
Total net sales |
| $ | 683,142 |
|
| $ | 569,303 |
|
|
| Nine Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Income (loss) from Operations |
| (in thousands) |
| |||||
U.S. (1) |
| $ | (26,247 | ) |
| $ | (18,052 | ) |
Asia |
|
| 64,191 |
|
|
| 48,055 |
|
Mexico |
|
| 5,254 |
|
|
| 6,197 |
|
EMEA |
|
| 13,861 |
|
|
| (2,396 | ) |
Total income from operations |
| $ | 57,059 |
|
| $ | 33,804 |
|
|
|
U.S. Segment
Net sales in the nine months ended September 30, 2017 decreased by $5.6 million or 4.0% to $136.3 million compared to $141.9 million in the same period in 2016. The decrease was driven by lower net sales from the manufacturing of precision molding and assembly systems at our Rhode Island facility during the nine months ended September 30, 2017 of $5.8 million compared to $17.0 million during the same period in 2016. There was also a slight decrease in our net sales of wind blades which totaled $120.3 million during the nine months ended September 30, 2017 as compared to $120.5 million in the same period of 2016. This decrease was driven by a decline in the average sales prices of the same wind blade models delivered in both periods as a result of savings in raw material costs, a portion of which we share with our customers, partially offset by a 4% increase in the number of wind blades delivered. These decreases were partially offset by a $5.9 million increase in non-wind related net sales during the nine months ended September 30, 2017 as compared to the same period in 2016.
The loss from operations for the nine months ended September 30, 2017 was $26.2 million as compared to a loss of $18.1 million in the same period in 2016. These amounts include corporate general and administrative costs of $28.4 million for the nine months ended September 30, 2017 compared to $24.2 million for the nine months ended September 30, 2016. The increase in the corporate general and administrative costs was primarily due to additional costs incurred to enhance our corporate support functions to support our growth and public company governance, partially offset by a $2.8 million decrease in share-based compensation costs during the nine months ended September 30, 2017 as compared to the same period in 2016. The operating results were also unfavorably impacted by slightly lower gross profit on wind blades delivered during the nine months ended September 30, 2017 as compared to the 2016 period as well as the lower precision molding volume discussed above during the nine months ended September 30, 2017 as compared to the 2016 period.
Asia Segment
Net sales in the nine months ended September 30, 2017 increased by $45.6 million or 19.6% to $278.3 million compared to $232.6 million in the same period in 2016. Net sales of wind blades were $268.8 million in the nine months ended September 30, 2017 as compared to $226.4 million in the same period of 2016. The increase was the result of a 26% increase in the number of wind blades delivered during the nine months ended September 30, 2017 compared to the same period in 2016. These increases were partially offset by a change in the mix of wind blade models sold, lower average sales prices of wind blades due to savings in raw material costs, a portion of which we share with our customers and the unfavorable impact of the fluctuation of the U.S. dollar relative to the Chinese Renminbi of 1.0% during the nine months ended September 30, 2017 as compared to an unfavorable impact of 1.4% during the comparable 2016 period. Net sales from the manufacturing of precision molding and assembly systems totaled $9.5 million during the nine months ended September 30, 2017 as compared to $6.2 million during the nine months ended September 30, 2016.
Income from operations in the Asia segment for the nine months ended September 30, 2017 was $64.2 million as compared to $48.1 million in the same period in 2016. In addition to the factors noted above, the increase in income from operations reflects higher gross margins on wind blade sales driven by operating efficiencies and the favorable impact on cost of goods sold of the fluctuation of the U.S. dollar relative to the Chinese Renminbi of 3.2%, as well as lower overhead costs in the 2017 period as compared to 2016. The impact of the strengthening of the U.S. dollar against the Chinese Renminbi on cost of goods sold for nine months ended September 30, 2016 was 4.5%.
Mexico Segment
Net sales in the nine months ended September 30, 2017 increased by $45.4 million or 51.2% to $134.0 million compared to $88.6 million in the same period in 2016, reflecting a 35% increase in wind blade volume at our first Mexico plant and the beginning of wind blade production in our second plant, partially offset by lower average sales prices of wind blades delivered in both periods. Net sales of wind blades represents the entirety of net sales in the Mexico segment in the 2017 and 2016 periods.
Income from operations in the Mexico segment for the nine months ended September 30, 2017 was $5.3 million as compared to $6.2 million in the same period in 2016. The decrease was largely driven by the startup losses incurred at our three new Mexico facilities, partially offset by the increase in wind blade volume in the 2017 period as compared to 2016 and operating efficiencies at our first Mexico plant, as well as from savings in raw material costs and the favorable impact of the fluctuation of the U.S. dollar relative to the Mexican Peso on cost of goods sold of 0.6%. The fluctuating U.S. dollar against the Mexican Peso had a favorable impact of 3.0% for nine months ended September 30, 2016.
EMEA Segment
Net sales during the nine months ended September 30, 2017 increased by $28.4 million or 26.8% to $134.5 million compared to $106.1 million in the same period in 2016. The increase was driven by the beginning of wind blade production in our second Turkey plant, partially offset by a 24% decrease in wind blade volume at our first Turkey plant as a result of GE only requiring the minimum volume required under its contract after its decision to not renew or extend its supply agreement with us beyond 2017. We completed 100% of this volume by the end of June to enable us to accelerate the transition of those manufacturing lines to two new manufacturing lines for Nordex Group. Other items having a favorable impact on net sales include the mix of wind blades sold during the period as well as overall higher average sales prices of wind blades delivered in the comparative periods due to the beginning of wind blade production in our second Turkey plant. The fluctuating U.S. dollar against the Euro did not have a significant effect on net sales in either the nine months ended September 30, 2017 or 2016. Net sales of wind blades represents the entirety of net sales in the EMEA segment in 2017 and 2016.
Income from operations in the EMEA segment for the nine months ended September 30, 2017 was $13.9 million as compared to a loss of $2.4 million in the same period in 2016. The increase was primarily driven by the wind blade production in our second Turkey plant, improved operating efficiencies at our first Turkey plant, savings in raw material costs, and a large warranty reserve accrual expensed related to the settlement agreement and release with one of its customers to resolve a potential warranty claim related to
wind blades primarily manufactured in 2014 in the 2016 period as well as the net favorable impact on cost of goods sold of the fluctuation of the U.S. dollar relative to the Turkish Lira and Euro of 8.4%. This compares to the favorable impact of the fluctuation of the U.S. dollar relative to the Turkish Lira and Euro of 3.9% for nine months ended September 30, 2016.
Liquidity and Capital Resources
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, and debt service costs.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 forat our new facilities or facility expansions.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 borrowings onproceeds under our financing arrangements of $5.3$19.0 million for the ninesix months ended SeptemberJune 30, 20172021 as compared to net repayments onproceeds under our financing arrangements of $14.2$97.1 million in the comparable period of 2016.2020. As of SeptemberJune 30, 2017,2021 and December 31, 2020, we had $135.5$237.1 million and $217.9 million in outstanding indebtedness, excluding debt issuance costs.costs, respectively. As of SeptemberJune 30, 2017, 2021,
29
we had an aggregate of $74.8$115.9 million of remaining capacity and $39.7$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.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 flowflows 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 proceeds of our IPO in July 2016, the incurrence of other indebtedness and other potential sources of liquidity.
At SeptemberJune 30, 20172021 and December 31, 2016,2020, we had unrestricted cash, cash equivalents and short-term investments totaling $139.1$123.1 million and $119.1$129.9 million, respectively. The SeptemberJune 30, 20172021 balance includes $33.5$67.9 million of cash located outside of the United States, including $31.5$58.7 million in China, $1.2$5.1 million in Turkey, and $0.8$2.3 million in Mexico. Mexico, $1.5 million in India, and $0.3 million in other countries.
Our ability to repatriate funds from China to the United States 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 the People’s Republic of China, including retained earnings as determined under Chinese-statutory accounting requirements. Until 50% ($5.2 million)26.6 million as of June 30, 2021 and December 31, 2020) of registered capital is contributed to a surplus reserve, our ChineseChina 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 ChineseChina operations can pay dividends equal to 100% of after-tax profit assuming other conditions are met. At June 30, 2021 and December 31, 2016,2020, the amount of the surplus reserve fund was $4.4 million.$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 |
|
| (323 | ) |
|
| (2,525 | ) |
|
| 2,202 |
|
Net change in cash, cash equivalents and restricted cash |
| $ | (6,935 | ) |
| $ | 25,695 |
|
| $ | (32,630 | ) |
Operating Cash Flows
|
| Nine Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
|
| (in thousands) |
| |||||
Net income |
| $ | 37,801 |
|
| $ | 16,098 |
|
Depreciation and amortization |
|
| 13,622 |
|
|
| 9,703 |
|
Share-based compensation expense |
|
| 4,794 |
|
|
| 8,117 |
|
Other non-cash items |
|
| 430 |
|
|
| 4,291 |
|
Changes in assets and liabilities |
|
| (5,124 | ) |
|
| (10,233 | ) |
Net cash provided by operating activities |
| $ | 51,523 |
|
| $ | 27,976 |
|
Net cash provided byused in operating activities totaled $51.5decreased by $23.8 million for the ninesix months ended SeptemberJune 30, 2017 and was2021 as compared to the same period in 2020 primarily theas a result of net income for the period of $37.8 million, depreciationhigher operating results and amortization of $13.6 million, share-based compensation costs of $4.8 million and net changes in working capital. The key components of the $5.1 million increase infavorable working capital include a $66.4 million increase in accounts receivable and a $25.0 million increase in inventory. This was partially offset by $47.5 million increase in accounts payable and accrued expenses, a $17.7 million increase in deferred revenue, a $9.0 million increase in customer deposits, an $8.2 million increase in accrued warranty, a $3.1 million decrease in other noncurrent assets and a $0.9 million decrease in prepaid expenses and other current assets. The working capital changes in accounts receivable, inventory, accounts payable and accrued expenses and deferred revenue are primarily the result of the material increase in and the timing of sales in the nine months ended September 30, 2017.usage.
Net cash provided by operating activities totaled $28.0 million for the nine months ended September 30, 2016 and was primarily the result of net income for the period of $16.1 million, depreciation and amortization of $9.7 million, share-based compensation costs of
$8.1 million and other non-cash items of $4.3 million, partially offset by net changes in working capital. The key components of the $10.2 million increase in working capital include an increase in accounts receivable of $27.2 million, a $6.9 million increase in other noncurrent assets, a $6.6 million increase in inventory and a $3.6 million decrease in deferred revenue. This was partially offset by a $17.5 million increase in accrued warranty, a $6.3 million increase in accounts payable and accrued expenses, a $4.9 million decrease in prepaid expenses and other current assets and a $4.9 million increase in customer deposits. The working capital changes in accounts receivable, inventory, accounts payable and accrued expenses and deferred revenue are primarily the result of the material increase in and the timing of sales in the nine months ended September 30, 2016.
Investing Cash Flows
|
| Nine Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
|
| (in thousands) |
| |||||
Purchase of property and equipment |
| $ | (35,312 | ) |
| $ | (18,917 | ) |
Net cash used in investing activities |
| $ | (35,312 | ) |
| $ | (18,917 | ) |
Net cash used in investing activities totaled $35.3 million and $18.9decreased by $15.0 million for the ninesix months ended SeptemberJune 30, 2017 and 2016, respectively, driven primarily by2021 as compared to the same period in 2020 as a result of a decrease in capital expenditures for new facilities and expansion or improvements at existing facilities and costs at our corporate office to enhance our information technology systems. The capital expenditures for the nine months ended September 30, 2017 primarily related to our second and third wind blade plants in Mexico and Turkey. The capital expenditures for the nine months ended September 30, 2016 primarily related to our second wind blade plants in Mexico and Turkey as well as the expansion of our original wind blade facility in Mexico.expenditures.
We anticipate fiscal year 20172021 capital expenditures of between $70$55 million to $75 million. We$65 million and we estimate that the cost that we will incur after SeptemberJune 30, 20172021 to complete our current projects in process iswill be approximately $5.7$8.5 million. We have used, and will
30
continue to use, cash flowflows from operations, the proceeds received from our credit facilities and debtthe proceeds received from the issuance of stock for major projects currently being undertaken, which include the new manufacturing facilities in MexicoChennai, India and Turkey discussed above, our new manufacturing facility in Matamoros, Mexico as well as ourthe continued investment in our existing wind bladeTukey, Mexico, China and U.S. facilities.
Financing Cash Flows
|
| Nine Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
|
| (in thousands) |
| |||||
Net proceeds from issuance of common stock in initial public offering |
| $ | — |
|
| $ | 67,199 |
|
Repayments of term loan |
|
| (2,812 | ) |
|
| (617 | ) |
Net proceeds from (repayments of) accounts receivable financing |
|
| 8,196 |
|
|
| (6,050 | ) |
Net repayments of working capital loans |
|
| (4,638 | ) |
|
| (4,097 | ) |
Net proceeds from (repayments of) other debt |
|
| 4,556 |
|
|
| (3,415 | ) |
Proceeds from exercise of stock options |
|
| 988 |
|
|
| — |
|
Repurchase of common stock including shares withheld in lieu of income taxes |
|
| (1,264 | ) |
|
| — |
|
Restricted cash |
|
| (1,543 | ) |
|
| (649 | ) |
Net cash provided by financing activities |
| $ | 3,483 |
|
| $ | 52,371 |
|
The net cash provided by financing activities totaled $3.5 million for the nine months ended September 30, 2017 compared to net cash provided by financing activities of $52.4 million in the comparable period of 2016. Net cash provided by financing activities for the nine months ended September 30, 2017 primarily reflects the net proceeds from accounts receivable financing and other growth-related debt, partially offsetdecreased by net repayments of working capital and term loans. The 2016 period reflects the Company’s net proceeds from the IPO of $67.2 million, partially offset by the net repayments of accounts receivable financing, working capital loans, the term loan and other debt, all of which were repaid with cash flows from operations.
Share Repurchases
During the three months ended September 30, 2017, we repurchased 68,815 shares of our common stock for $1.3 million related to tax withholding requirements on restricted stock units which vested during the period.
Description of Our Indebtedness
Senior Financing Agreements (U.S.):
In December 2016, we amended and restated our previous credit facility (the Restated Credit Facility). The previous $100.0 million of available principal was replaced with a $75.0 million term loan and a $25.0 million revolving credit facility, which originally included a $15.0 million letter of credit sub-facility, which was increased to $20.0 million in April 2017. The borrowings under the Restated Credit Facility bear interest at a variable rate through maturity at LIBOR, with a 1.0% floor, plus 5.75% (currently 7.09%). The Restated Credit Facility requires us to make quarterly principal payments in the amount of $0.9 million of the outstanding principal loan balance commencing in March 2017, with the remaining outstanding balance to be repaid on or before December 30, 2020. The Restated Credit Facility contains customary affirmative covenants, negative covenants and events of default, including covenants and restrictions that, among other things, require us and our subsidiaries to satisfy certain capital expenditure and other financial covenants, and restricts the ability of us and our subsidiaries to incur liens, incur additional indebtedness, enter into joint ventures or partnerships, engage in mergers and acquisitions, engage in asset sales and declare dividends on its capital stock without the prior written consent of the lenders. The obligations under the Restated Credit Facility are secured by a lien on substantially all tangible and intangible property of us and our domestic subsidiaries and by a pledge by us and our domestic subsidiaries of 65% of the equity of their direct foreign subsidiaries, subject to customary exceptions and exclusions from collateral.
If we prepay any of the outstanding principal loan balance prior to December 30, 2017, we are required to pay the lenders a premium in an amount equal to the amount of interest that otherwise would have been payable from the date of prepayment until December 30, 2017 plus 3.0% of the amount of the principal loan balance that was prepaid. If we prepay any of the outstanding principal loan balance after December 30, 2017 through December 30, 2018, we are required to pay the lenders 2.0% of the principal loan balance that was prepaid, and if we prepay any of the outstanding loan balance after December 30, 2018 through December 30, 2019, we are required to pay a premium of 1.5% of the amount of the principal loan balance that was prepaid.
As of September 30, 2017 and December 31, 2016, the aggregate outstanding balance under the Restated Credit Facility was $75.0 million and $77.8 million, respectively. We cannot assure you that we will be able to maintain appropriate minimum leverage or fixed-charge coverage ratio requirements in the future.
Accounts Receivable, Secured and Unsecured Financing:
EMEA: During 2014, we renewed a general credit agreement with a financial institution in Turkey to provide up to $20.0 million (later updated to 21.0 million Euro, or approximately $24.8 million as of September 30, 2017) of short-term collateralized financing on invoiced accounts receivable of one of Turkey’s customers. Interest accrues annually at a variable rate (currently 5.75%) and is paid quarterly. In December 2014, we obtained an additional $7.0 million (later decreased to $5.0 million) of unsecured financing in Turkey under the credit agreement, increasing the total facility. All credit agreement terms remained the same. The credit agreement does not have a maturity date, however the limits are reviewed in September of each year. Amounts outstanding under this agreement as of September 30, 2017 and December 31, 2016 include $13.9 million and $15.1 million of accounts receivable financing and none and $4.6 million of unsecured financing, respectively.
In December 2014, we entered into a credit agreement with a Turkish financial institution to provide up to $16.0 million of short-term financing of which $10.0 million is collateralized financing on invoiced accounts receivable of one of our customers in Turkey, $5.0 million is unsecured financing and $1.0 million is related to letters of guarantee. Interest accrues at a variable rate (currently 6.5%). The credit agreement does not have a maturity date, however the limits are reviewed in September of each year. No amounts were outstanding under this agreement as of September 30, 2017 or December 31, 2016.
In March 2016, we entered into a general credit agreement, as amended, with a Turkish financial institution to provide up to 35.0 million Euro (approximately $41.3 million as of September 30, 2017) of short-term financing of which 20.0 million Euro (approximately $23.6 million as of September 30, 2017) is collateralized financing based on invoiced accounts receivable of one of the EMEA segment’s customers and 12.5 million Euro (later increased to 15.0 million Euro, or approximately $17.7 million as of September 30, 2017) for the collateralized financing of capital expenditures. An additional 1.0 million Euro related to letters of guarantee matured in March 2017. Interest on the collateralized financing based on invoiced accounts receivable accrues at the three month EURIBOR plus 5.75% (currently 5.75%) and is paid quarterly with a maturity date equal to four months from the applicable invoice date. Interest on the collateralized capital expenditures financing accrues at the one month EURIBOR, plus 6.75% (currently 6.75%) with monthly principal repayments beginning in October 2017 with a final maturity date of December 2021. Interest on the letters of guarantee accrued at 2.00% annually. As of September 30, 2017 and December 31, 2016, there was $17.7 million and $15.8 million outstanding under the collateralized financing of capital expenditures line, respectively. Additionally, as of
September 30, 2017, there was $9.4 million outstanding under the collateralized financing based on invoiced accounts receivables, with no corresponding amounts outstanding as of December 31, 2016.
Asia: In January 2016, we entered into a credit agreement with a Chinese financial institution to provide up to 95.0 million Renminbi (approximately $13.6 million as of December 31, 2016) of short-term financing of which 85.0 million Renminbi (approximately $12.2 million as of December 31, 2016) is collateralized financing based on invoiced accounts receivables of one of our Asia segment’s customers and 10.0 million Renminbi (approximately $1.4 million as of December 31, 2016) of working capital loans collateralized by one of our Asia segment location’s machinery and equipment. Interest on the collateralized financing and the collateralized working capital loan accrues at a specified LIBOR rate plus an applicable margin and can be paid monthly, quarterly or at the time of the debt’s final maturity (January 12, 2017). As of December 31, 2016, there were no amounts outstanding under these accounts receivable financing and working capital loans. This credit agreement matured in January 2017.
In February 2017, we entered into a credit agreement with a Chinese financial institution to provide an unsecured credit line of up to 150.0 million Renminbi (approximately $22.5 million as of September 30, 2017) which can be used for the purpose of domestic and foreign currency loans, issuing letters of guarantee or other transactions approved by the lender. Interest on the credit line accrues at the LIBOR rate plus an applicable margin and can be paid monthly, quarterly or at the time of the debt’s maturity (in February 2018). No amounts were outstanding under this agreement as of September 30, 2017.
Equipment Lease and Other Arrangements: We have entered into certain capital lease, sale-leaseback and construction loan arrangements in the United States, Mexico and EMEA for equipment used in our operations as well as for office use. These leases bear interest at rates ranging from 3.0% to 9.0% annually, and principal and interest are payable monthly. As of September 30, 2017 and December 31, 2016, there was $19.5 million and $12.1 million outstanding under these arrangements, respectively.
Operating Leases: We lease various facilities and equipment under non-cancelable operating lease agreements. As of September 30, 2017, we leased a total of approximately 4.8 million square feet in Dafeng, China; Izmir, Turkey; Newton, Iowa; Juárez, Mexico; Santa Teresa, New Mexico; Taicang City, China; Taicang Port, China; Matamoros, Mexico; Warren, Rhode Island; and Fall River, Massachusetts, as well as our corporate office in Scottsdale, Arizona. The terms of these leases range from 12 months to 120 months with annual payments approximating $16$73.6 million for the full year 2017. 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 TransactionsOFF-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 theour accounts receivable assignment agreementagreements described below and the operating lease arrangements presented in our Annual Report on Form 10-K.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.
In July 2014, our Mexico segment enteredOur segments enter into an accounts receivable assignment agreementagreements with avarious financial institution.institutions. Under this agreement,these agreements, the financial institution buys, on a non-recourse basis, the accounts receivable amounts related to one of our Mexico segment’s customers at aan agreed-upon discount calculated based on an effective annual raterate.
The following table summarizes certain key details of LIBOR plus 2.75%. 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 thesethe receivables are purchased by the financial institution, theyinstitutions under the agreements noted above, the receivables are removed from the Mexico segment’sour condensed consolidated balance sheet. During the three and nine months ended SeptemberJune 30, 2017, $17.32021 and 2020, $360.8 million and $60.0$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 tounder the financial institution, respectively.accounts receivable assignment agreements described above.
Critical Accounting Policies and EstimatesCRITICAL 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 PronouncementsRECENT ACCOUNTING PRONOUNCEMENTS
ForSee Note 1, Basis of Presentation, under the heading “Accounting Pronouncements” to our condensed consolidated financial statements for a discussion of recent accounting pronouncements, see Note 1 to our condensed consolidated financial statements.pronouncements.
Contractual ObligationsCONTRACTUAL OBLIGATIONS
During the ninesix months ended SeptemberJune 30, 2017,2021, 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 RiskQUANTITATIVE 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. We currently do not hedge our exposure to these risks.
31
Foreign Currency Risk. We conduct international operations in China, Mexico, Turkey and Turkey.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 historicalcondensed consolidated financial statements. In recent years, exchange rates between these foreign currencies and the U.S. dollarsdollar 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 $6.0 million and $5.7$15.7 million for the ninesix months ended SeptemberJune 30, 2017 and 2016, respectively.2021.
Commodity Price Risk. We are subject to commodity price risk under agreements for the supply of our raw materials. We have not hedged nor do we intend to hedge, 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. Additionally, the arrangementsperiod, which we have with our customers limitbelieve helps to mitigate the impact of anyraw material price or cost increases.
Finally, since As many of our raw material supply agreements have meet or release clauses, if raw materials prices go down,decrease, we can alsoare able to benefit from the reductions in price. We believe that this adequately protects us from increases in raw material prices but also enables us to take full advantage of decreases. We believe that a 10% change in the price of resin
Resin and resin systems are the primary commodities for which we do not have fixed pricing,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 $9.9 million and $12.0$11.8 million for the nine months ended September 30, 2017full 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 2016, respectively.resin systems.
Interest Rate Risk. As of SeptemberJune 30, 2017, we have an aggregate2021, our Credit Agreement includes interest on the unhedged principal amount of $75.0$96.2 million which is tied to the London Interbank Offered Rate (LIBOR), our India segment has two credit agreements outstanding under the Restated Credit Facility that iswhich are tied to LIBOR, and an aggregate of $27.1 million outstanding under aour EMEA segment has one general credit agreement with a Turkish financial institution thatoutstanding which is tied to EURIBOR.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 RestatedIndia 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 FacilityAgreement, the two India credit agreements, and the Turkishone EMEA general credit agreement are the only variable rate debt instrumentsagreements that we had outstanding as of SeptemberJune 30, 2017 and December 31, 20162021 as all remaining working capital loans, secured and unsecured financing accounts receivable financing and capitalfinance 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 SeptemberJune 30, 2017,2021, 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 ProceduresCONTROLS 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 SeptemberJune 30, 20172021 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 SeptemberJune 30, 2017.2021.
Changes in Internal Control Over Financial Reporting
There have not been anywere no changes in our internal control over financial reporting during the three months ended SeptemberJune 30, 2017,2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
32
Item 1. Legal ProceedingsLEGAL PROCEEDINGS
From time to time, we may be involved in disputes or litigation relating to claims arising out of our operations.
As previously disclosed in our Annual Report on Form 10-K, in March 2015, a complaint was filed against the Company in the Superior Court of the State of Arizona (Maricopa County) by a former employee of the Company, alleging that the Company had agreed to make certain cash payments to such employee upon any future sale of the Company. We filed a motion to dismiss the complaint in April 2015, which was denied. We subsequently filed an answer to the complaint in July 2015 denying the substantive allegations of the complaint. The parties completed court-ordered mediation in December 2015 but were not able to reach a settlement. We filed a motion for summary judgment to dismiss the complaint in April 2016See Note 12, Commitments and the court denied our motion in August 2016. The court set a trial date for September 2017. In May 2017, we filed a motion for continuance to change the trial date and the court granted our motion. The court has set a trial date in August 2018. We continue to deny the substantive allegations of the complaint and we intend to vigorously defend this lawsuit; however, we are currently unable to determine the ultimate outcome of this case.
As previously disclosed in our Annual Report on Form 10-K, in August 2015, we entered into a transition agreement with our former Senior Vice President – Asia (SVP–Asia)Contingencies, pursuant to which he transitioned out of this role at the end of 2015 and was to serve in a consulting capacity in 2016 and 2017. In January 2016, following our discovery that he had materially violated the terms of his transition agreement, we terminated his consultancy for cause. In April 2016, he filed an arbitration claim in China with the Taicang Labor and Personnel Dispute Arbitration Committee alleging that we improperly terminated his transition agreement. He is demanding that we continue to honor the terms of the transition agreement and pay him compensation and fees owed to him under the transition agreement, which in the aggregate total approximately $2.6 million. In addition, he is also challenging the validityheading “Legal Proceedings” to our condensed consolidated financial statements for a discussion of our termination of his option to purchase 164,880 shares of our common stocklegal proceedings and 77,760 restricted stock units under the 2015 Plan, which were canceled in January 2016 when we terminated his consultancy. In May 2017, the arbitration committee awarded our former SVP–Asia approximately fifty percent of the amounts demanded under the transition agreement but denied his claims regarding the improper termination of his stock option and restricted stock units. We have appealed the arbitration committee’s award of damages in favor of our former SVP–Asia and the appeal remains pending. We previously established a reserve for this matter and we do not believe the award, if upheld on appeal, will have a material impact on our operating results or financial condition.other related matters.
Item 1A. Risk FactorsRISK FACTORS
Other than the supplemental risk factor set forthExcept 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 the Company’sour business, financial condition, and/or future results.
The proposed tax reform bill introducedOur 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 U.S. Housefuture 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 Representativesour 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 early November contains provisions which, if enacted, would likelythe 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 adverse effectimpact on our operations during the U.S. wind energy sector andsix 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 materially harm our business, financial condition and results of operations.
The proposed tax reform bill introduced in the U.S. House of Representatives in early November contains provisions that would limitfuture be adversely affected if the value and potential use of the Production Tax Credit for Renewable Energy (PTC) to finance the development of wind energy projects in the United States. Under current law, a taxpayer may claim a PTC for the production of electricity from qualified wind energy projects at a qualifying facility during the 10-year period beginning on the date the facility was originally placed in service. In addition, current law provides that the base amount of the PTC is 1.5 cents (indexed annually for inflation) per kilowatt-hour of electricity produced. For 2016, the amount of the PTC is generally 2.3 cents per kilowatt-hour. Under the proposed tax reform bill, the inflation adjustment would be repealed, effective for electricity produced at a wind energy facility, the construction of which begins after November 2, 2017, and taxpayers’ credit amount would revert back to 1.5 cents per kilowatt- hour for the remaining portion of the 10-year period. The proposed tax reform legislation also would require a “continuous program of construction” from the date a wind energy facility begins construction to the date it is placed in service to qualify for the PTC. The “continuous program of construction” requirement exists under current law and has been interpreted by the Department of the Treasury to permit several “safe harbor” time periods. At present, it is unclear whether the proposed tax reform bill, if enacted, would effectively eliminate those safe harbors or whether the U.S. Department of Treasury may issue them unchanged or substantially unchanged. If the proposed changes to the PTC are enacted, it would likely have a material adverse effect on the U.S. wind energy sector and reduce the demand for our wind turbine blades. Any reduction in the demand for our wind turbine blades may materially harm our business, financial condition and results of operations.COVID-19 pandemic persists.
Item 2. Unregistered Sales of Equity Securities and Use of ProceedsUNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
Not applicable.
The following table summarizes the total number of shares of our common stock that we repurchased during the three months ended September 30, 2017 from certain employees who surrendered common stock to pay the taxes in connection with the vesting of restricted stock units.
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Program |
|
| Maximum Number of Shares That May Yet Be Purchased Under the Program |
| ||||
July (July 1, 2017 - July 31, 2017) |
|
| 68,815 |
|
| $ | 18.37 |
|
|
| — |
|
|
| — |
|
August (August 1, 2017 - August 31, 2017) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
September (September 1, 2017 - September 30, 2017) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total |
|
| 68,815 |
|
| $ | 18.37 |
|
|
| — |
|
|
| — |
|
Use of Proceeds
On July 21, 2016, our Registration Statement on Form S-1 (File No. 333-212093) was declared effective by the SEC for our IPO whereby we registered an aggregate of 7,187,500 shares of our common stock, including 937,500 shares of our common stock registered for sale by us upon the full exercise of the underwriters’ option to purchase additional shares. On July 27, 2016, we completed our IPO and sold 7,187,500 shares of our common stock at a price to the public of $11.00 per share. J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC acted as the managing underwriters. The total gross proceeds from the offering to us were $79.1 million. After deducting underwriting discounts and commissions of $4.6 million and offering expenses of $7.3 million, we received $67.2 million in net proceeds. There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed with the SEC on July 22, 2016 pursuant to Rule 424(b) of the Securities Act. We continue to invest the remaining funds received in registered money market funds.Not applicable.
Item 3. Defaults Upon Senior SecuritiesDEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. Mine Safety DisclosuresMINE SAFETY DISCLOSURES
Not applicable.
Item 5. Other InformationOTHER INFORMATION
None.
33
Exhibit Number | Exhibit Description | |
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 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 | |
| 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.*) |
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** 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. |
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Date: August 5, 2021 | By: | /s/ Adan Gossar | ||
Adan Gossar | ||||
Chief Accounting Officer | ||||
(Principal |
3635