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TPI COMPOSITES, INC - Quarter Report: 2022 March (Form 10-Q)

 

06

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

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

 

For the quarterly period ended March 31, 2022

OR

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

Commission File Number 001-37839

 

img144850166_0.jpg 

TPI Composites, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-1590775

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

8501 N. Scottsdale Rd.

Gainey Center II, Suite 100

Scottsdale, AZ 85253

(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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

 


 

As of April 29, 2022, there were 37,257,924 shares of common stock outstanding.

 

 


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

INDEX

 

 

 

 

 

Page

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Condensed Consolidated Financial Statements (Unaudited)

 

4

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2022 and 2021

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021

 

7

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021

 

8

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

10

 

 

 

 

 

ITEM 2.

 

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

 

22

 

 

 

 

 

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

32

 

 

 

 

 

ITEM 4.

 

Controls and Procedures

 

33

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Legal Proceedings

 

34

 

 

 

 

 

ITEM 1A.

 

Risk Factors

 

34

 

 

 

 

 

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

34

 

 

 

 

 

ITEM 3.

 

Defaults Upon Senior Securities

 

34

 

 

 

 

 

ITEM 4.

 

Mine Safety Disclosures

 

34

 

 

 

 

 

ITEM 5.

 

Other Information

 

34

 

 

 

 

 

ITEM 6.

 

Exhibits

 

35

 

 

 

 

 

SIGNATURES

 

36

 

 

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

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

2


 

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 implied by these forward-looking statements. We have described in the “Risk Factors” section of our Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on February 25, 2022 the principal risks and uncertainties that we believe could cause actual results to differ from these forward-looking statements. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as guarantees of future events.

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

 

3


 

PART I. FINANCIAL INFORMATION

ITEM l. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands, except par value data)

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

130,893

 

 

$

242,165

 

Restricted cash

 

 

9,869

 

 

 

10,053

 

Accounts receivable

 

 

187,993

 

 

 

157,804

 

Contract assets

 

 

206,064

 

 

 

188,323

 

Prepaid expenses

 

 

29,654

 

 

 

19,280

 

Other current assets

 

 

24,595

 

 

 

22,584

 

Inventories

 

 

17,649

 

 

 

11,533

 

Assets held for sale

 

 

8,529

 

 

 

8,529

 

Total current assets

 

 

615,246

 

 

 

660,271

 

Property, plant and equipment, net

 

 

178,657

 

 

 

169,578

 

Operating lease right of use assets

 

 

160,532

 

 

 

137,192

 

Other noncurrent assets

 

 

41,753

 

 

 

40,660

 

Total assets

 

$

996,188

 

 

$

1,007,701

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

316,477

 

 

$

336,697

 

Accrued warranty

 

 

38,943

 

 

 

42,020

 

Current maturities of long-term debt

 

 

46,137

 

 

 

66,438

 

Current operating lease liabilities

 

 

22,652

 

 

 

22,681

 

Contract liabilities

 

 

1,274

 

 

 

1,274

 

Total current liabilities

 

 

425,483

 

 

 

469,110

 

Long-term debt, net of current maturities

 

 

5,573

 

 

 

8,208

 

Noncurrent operating lease liabilities

 

 

148,189

 

 

 

146,479

 

Other noncurrent liabilities

 

 

10,805

 

 

 

10,978

 

Total liabilities

 

 

590,050

 

 

 

634,775

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

Mezzanine equity:

 

 

 

 

 

 

Series A Preferred Stock, $0.01 par value, 400 shares authorized; 350 and 350 shares
   issued and outstanding, respectively at March 31, 2022 and December 31, 2021;
   liquidation preference of $
474,603 at March 31, 2022 and $473,227 at
   December 31, 2021

 

 

265,106

 

 

 

250,974

 

Stockholders’ equity:

 

 

 

 

 

 

Common shares, $0.01 par value, 100,000 shares authorized, 37,524 shares issued
   and
37,258 shares outstanding at March 31, 2022 and 100,000 shares authorized,
   
37,419 shares issued and 37,180 shares outstanding at December 31, 2021

 

 

375

 

 

 

374

 

Paid-in capital

 

 

440,588

 

 

 

451,440

 

Accumulated other comprehensive loss

 

 

(7,932

)

 

 

(54,006

)

Accumulated deficit

 

 

(285,064

)

 

 

(269,264

)

Treasury stock, at cost, 266 shares at March 31, 2022 and 239 shares at
   December 31, 2021

 

 

(6,935

)

 

 

(6,592

)

Total stockholders’ equity

 

 

141,032

 

 

 

121,952

 

Total liabilities and stockholders’ equity

 

$

996,188

 

 

$

1,007,701

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

4


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

(in thousands, except per share data)

 

Net sales

 

$

384,870

 

 

$

404,680

 

Cost of sales

 

 

370,954

 

 

 

383,056

 

Startup and transition costs

 

 

15,543

 

 

 

14,354

 

Total cost of goods sold

 

 

386,497

 

 

 

397,410

 

Gross profit (loss)

 

 

(1,627

)

 

 

7,270

 

General and administrative expenses

 

 

7,860

 

 

 

8,922

 

Loss on sale of assets and asset impairments

 

 

959

 

 

 

1,297

 

Restructuring charges, net

 

 

2,393

 

 

 

258

 

Loss from operations

 

 

(12,839

)

 

 

(3,207

)

Other income (expense):

 

 

 

 

 

 

Interest expense, net

 

 

(769

)

 

 

(2,704

)

Foreign currency income (loss)

 

 

210

 

 

 

(3,727

)

Miscellaneous income

 

 

542

 

 

 

739

 

Total other expense

 

 

(17

)

 

 

(5,692

)

Loss before income taxes

 

 

(12,856

)

 

 

(8,899

)

Income tax benefit (provision)

 

 

(2,944

)

 

 

7,102

 

Net loss

 

 

(15,800

)

 

 

(1,797

)

Preferred stock dividends and accretion

 

 

(14,132

)

 

 

 

Net loss attributable to common stockholders

 

$

(29,932

)

 

$

(1,797

)

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

Basic

 

 

41,899

 

 

 

36,601

 

Diluted

 

 

41,899

 

 

 

36,601

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

Basic

 

$

(0.71

)

 

$

(0.05

)

Diluted

 

$

(0.71

)

 

$

(0.05

)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

5


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

(in thousands)

 

Net loss

 

$

(15,800

)

 

$

(1,797

)

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

43,369

 

 

 

(5,291

)

Unrealized gain (loss) on hedging derivatives, net of taxes of
  $
0 and $651, respectively

 

 

2,705

 

 

 

(3,035

)

Comprehensive income (loss)

 

$

30,274

 

 

$

(10,123

)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

6


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

Three Months Ended March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Series A Preferred Stock

 

 

 

Common

 

 

Paid-in

 

 

other comprehensive

 

 

Accumulated

 

 

Treasury stock,

 

 

Total stockholders'

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

loss

 

 

deficit

 

 

at cost

 

 

equity

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Balance at
   December 31, 2021

 

 

350

 

 

$

250,974

 

 

 

 

37,418

 

 

$

374

 

 

$

451,440

 

 

$

(54,006

)

 

$

(269,264

)

 

$

(6,592

)

 

$

121,952

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,800

)

 

 

 

 

 

(15,800

)

Preferred stock
   dividends

 

 

 

 

 

9,605

 

 

 

 

 

 

 

 

 

 

(9,605

)

 

 

 

 

 

 

 

 

 

 

 

(9,605

)

Other comprehensive
   income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

46,074

 

 

 

 

 

 

 

 

 

46,074

 

Common stock
   repurchased
   for treasury

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(343

)

 

 

(343

)

Issuances under
   share-based
   compensation plan

 

 

 

 

 

 

 

 

 

106

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Share-based
   compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,279

 

 

 

 

 

 

 

 

 

 

 

 

3,279

 

Accretion of Series A
   Preferred Stock

 

 

 

 

 

4,527

 

 

 

 

 

 

 

 

 

 

(4,527

)

 

 

 

 

 

 

 

 

 

 

 

(4,527

)

Balance at
   March 31, 2022

 

 

350

 

 

 

265,106

 

 

 

 

37,524

 

 

 

375

 

 

 

440,587

 

 

 

(7,932

)

 

 

(285,064

)

 

 

(6,935

)

 

 

141,032

 

 

 

 

Three Months Ended March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Series A Preferred Stock

 

 

 

Common

 

 

Paid-in

 

 

other comprehensive

 

 

Accumulated

 

 

Treasury stock,

 

 

Total stockholders'

 

 

 

Shares

 

 

Amount

 

 

 

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

)

Other comprehensive
   loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,326

)

 

 

 

 

 

 

 

 

(8,326

)

Common stock
   repurchased
   for treasury

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(34

)

 

 

(34

)

Issuances under
   share-based
   compensation plan

 

 

 

 

 

 

 

 

 

149

 

 

 

1

 

 

 

1,235

 

 

 

 

 

 

 

 

 

 

 

 

1,236

 

Share-based
   compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,494

 

 

 

 

 

 

 

 

 

 

 

 

2,494

 

Balance at
   March 31, 2021

 

 

 

 

 

 

 

 

 

36,920

 

 

 

369

 

 

 

353,201

 

 

 

(41,316

)

 

 

(111,513

)

 

 

(6,133

)

 

 

194,608

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

7


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(15,800

)

 

$

(1,797

)

Adjustments to reconcile net loss to net cash provided by (used in)
   operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

11,753

 

 

 

11,609

 

Loss on sale of assets and asset impairments

 

 

959

 

 

 

1,297

 

Share-based compensation expense

 

 

3,309

 

 

 

2,399

 

Amortization of debt issuance costs

 

 

 

 

 

114

 

Deferred income taxes

 

 

(277

)

 

 

(11,574

)

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(30,670

)

 

 

(428

)

Contract assets and liabilities

 

 

(14,906

)

 

 

(132

)

Operating lease right of use assets and operating lease liabilities

 

 

339

 

 

 

2,376

 

Inventories

 

 

(6,027

)

 

 

(1,129

)

Prepaid expenses

 

 

(7,704

)

 

 

6,105

 

Other current assets

 

 

(1,249

)

 

 

8,302

 

Other noncurrent assets

 

 

1,006

 

 

 

(1,526

)

Accounts payable and accrued expenses

 

 

(19,113

)

 

 

(3,466

)

Accrued warranty

 

 

(3,077

)

 

 

(4,896

)

Other noncurrent liabilities

 

 

403

 

 

 

(514

)

Net cash provided by (used in) operating activities

 

 

(81,054

)

 

 

6,740

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(5,516

)

 

 

(18,786

)

Net cash used in investing activities

 

 

(5,516

)

 

 

(18,786

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from working capital loans

 

 

3,967

 

 

 

 

Repayments of working capital loans

 

 

(3,951

)

 

 

 

Principal repayments of finance leases

 

 

(1,545

)

 

 

(1,406

)

Net proceeds from (repayments of) other debt

 

 

(21,408

)

 

 

18,695

 

Proceeds from exercise of stock options

 

 

1

 

 

 

1,216

 

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

 

 

(343

)

 

 

(34

)

Net cash provided by (used in) financing activities

 

 

(23,279

)

 

 

18,471

 

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

 

 

(1,607

)

 

 

(49

)

Net change in cash, cash equivalents and restricted cash

 

 

(111,456

)

 

 

6,376

 

Cash, cash equivalents and restricted cash, beginning of year

 

 

252,218

 

 

 

130,196

 

Cash, cash equivalents and restricted cash, end of period

 

$

140,762

 

 

$

136,572

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

8


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

Supplemental cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

639

 

 

$

2,617

 

Cash paid for income taxes, net of refunds

 

 

10,828

 

 

 

5,130

 

Noncash investing and financing activities:

 

 

 

 

 

 

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

 

 

8,298

 

 

 

1,245

 

Accrued capital expenditures in accounts payable

 

 

1,397

 

 

 

6,975

 

Paid-in-kind preferred stock dividends and accretion

 

 

14,132

 

 

 

 

 

 

Reconciliation of Cash, Cash Equivalents and Restricted Cash:

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

  Cash and cash equivalents

 

$

130,893

 

 

$

242,165

 

 

$

136,236

 

 

$

129,857

 

  Restricted cash

 

 

9,869

 

 

 

10,053

 

 

 

336

 

 

 

339

 

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

 

$

140,762

 

 

$

252,218

 

 

$

136,572

 

 

$

130,196

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

9


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Significant Accounting Policies

Functional Currency Change from Turkish Lira to Euro for the Company’s Turkish operations.

Effective January 1, 2022, the functional currency for our operations in Turkey changed from the Turkish Lira to the Euro. Nonmonetary assets and liabilities were remeasured into Euros at the rate in effect on the date of the asset's or liability’s inception and then translated into reporting currency based on the current exchange rate. The monetary assets and liabilities were remeasured into Euros at the rate in effect on the date of change and then translated into reporting currency based on the current exchange rate. The difference between historical basis of nonmonetary assets and liabilities and the new basis of $44.9 million (increase in net assets) was recorded in the currency translation adjustment account. The amount recorded in the currency translation adjustment account for prior periods was not reversed upon the change in functional currency. The majority of the initial impact of the functional currency change was to property, plant and equipment and operating lease right of use assets with offset to the currency translation adjustment account.

While the change of the functional currency was based on a factual assessment, the determination of the date of the change required management’s judgement given the change in the primary economic and business environment in which we operate have evolved over time. When we established our Turkish operations in 2012 and 2013, the Turkish government had a goal of significantly increasing renewable energy being generated and utilized within Turkey by year 2023. During 2014-2017, wind energy being generated and utilized in Turkey increased and management observed that progress was being made towards the Turkish government's goal. In 2018 and 2019, the Turkish government introduced tenders to spur domestic renewable energy generation and utilization in Turkey. However, as of year-end 2020, Turkish domestic renewable energy being generated and utilized was significantly less than originally forecasted by the Turkish government. As of 2021, there were no significant wind turbine installations under the tenders awarded by the Turkish government in 2018 and 2019. Based on recent and anticipated annual domestic renewable energy demand it is unlikely for the local energy generation to reach the Turkish government's goals for 2023. Additionally, in recent years sales to the eurozone have increased and the Company is focused on meeting the export demands of the region. Based on the analysis of the domestic renewable energy demand through 2021 and anticipated future demand, management concluded that Turkish domestic sales will not grow as previously envisioned and most of the future growth will continue to be predominately export sales to the eurozone, which are primarily denominated in Euros.

Management re-evaluated all indicators established in ASC Topic 830, "Foreign Currency Matters", to determine the functional currency of our Turkish operations. Such indicators include i) cash flow, ii) sales price, iii) sales market, iv) expense, v) financing and vi) intercompany transactions and arrangements. At the time of the assessment adopted on January 1, 2022, (i) approximately 80% of our sales in Turkey are denominated in Euros and the rest are in USD, (ii) a majority of expenses are denominated in Euros, (iii) all debt and lease obligations are denominated in Euro, (iv) a majority of the cash balances are denominated in Euros and (v) a majority of the intercompany balances are denominated in Euros. When considering all relevant facts together along with managements’ long-term plan for our Turkey operations, management concluded that the Euros best reflects the currency of the primary economic environment in which we currently operate. As a result, the Company adopted the Euro as the functional currency of our Turkish operations effective January 1, 2022 on a prospective basis.

Note 2. Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by us without audit, pursuant to the rules and regulations of the SEC and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2021 included in our Annual Report on Form 10-K. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted, as permitted by the SEC, although we believe the disclosures that are made are adequate to make the information presented herein not misleading. The accompanying condensed consolidated financial statements reflect, in the opinion of our management, all normal recurring adjustments necessary to present fairly our financial position at March 31, 2022, and the results of our operations, comprehensive income (loss) and cash flows for the periods presented. Interim results for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full years. Certain prior period amounts in the condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation.

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

10


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

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

Accounting Pronouncements

Recently Issued Accounting Pronouncements

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This ASU only applies to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. This ASU is effective for all entities beginning on March 12, 2020 and entities may elect to apply the ASU prospectively through December 31, 2022. The FASB later issued ASU 2021-01, Reference Rate 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 3. Revenue From Contracts with Customers

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

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

 

 

 

Three Months Ended March 31, 2022

 

 

 

U.S.

 

 

Asia

 

 

Mexico

 

 

EMEA

 

 

India

 

 

Total

 

 

 

(in thousands)

 

Wind blade sales

 

$

 

 

$

36,399

 

 

$

129,606

 

 

$

146,849

 

 

$

41,727

 

 

$

354,581

 

Precision molding and
   assembly systems sales

 

 

 

 

 

3,859

 

 

 

147

 

 

 

 

 

 

 

 

 

4,006

 

Transportation sales

 

 

12,857

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,857

 

Field service, inspection and
   repair services sales

 

 

8,601

 

 

 

968

 

 

 

 

 

 

281

 

 

 

 

 

 

9,850

 

Other sales

 

 

99

 

 

 

120

 

 

 

643

 

 

 

2,555

 

 

 

159

 

 

 

3,576

 

Total net sales

 

$

21,557

 

 

$

41,346

 

 

$

130,396

 

 

$

149,685

 

 

$

41,886

 

 

$

384,870

 

 

 

 

Three Months Ended March 31, 2021

 

 

 

U.S.

 

 

Asia

 

 

Mexico

 

 

EMEA

 

 

India

 

 

Total

 

 

 

(in thousands)

 

Wind blade sales

 

$

39,627

 

 

$

72,503

 

 

$

108,442

 

 

$

111,027

 

 

$

47,580

 

 

$

379,179

 

Precision molding and
   assembly systems sales

 

 

 

 

 

3,964

 

 

 

4,963

 

 

 

 

 

 

 

 

 

8,927

 

Transportation sales

 

 

8,131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,131

 

Field service, inspection and
   repair services sales

 

 

2,994

 

 

 

308

 

 

 

 

 

 

1,013

 

 

 

 

 

 

4,315

 

Other sales

 

 

241

 

 

 

153

 

 

 

3,347

 

 

 

326

 

 

 

61

 

 

 

4,128

 

Total net sales

 

$

50,993

 

 

$

76,928

 

 

$

116,752

 

 

$

112,366

 

 

$

47,641

 

 

$

404,680

 

 

11


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

For a further discussion regarding our operating segments, see Note 16, Segment Reporting. The geographic regions of Europe, the Middle East and Africa comprises the EMEA segment.

Contract Assets and Liabilities

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

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

Contract assets and contract liabilities consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

 

 

 

2022

 

 

2021

 

 

$ Change

 

 

 

(in thousands)

 

Gross contract assets

 

$

208,010

 

 

$

196,659

 

 

$

11,351

 

Less: reclassification from contract liabilities

 

 

(1,946

)

 

 

(8,336

)

 

 

6,390

 

Contract assets

 

$

206,064

 

 

$

188,323

 

 

$

17,741

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

 

 

 

2022

 

 

2021

 

 

$ Change

 

 

 

(in thousands)

 

Gross contract liabilities

 

$

3,220

 

 

$

9,610

 

 

$

(6,390

)

Less: reclassification to contract assets

 

 

(1,946

)

 

 

(8,336

)

 

 

6,390

 

Contract liabilities

 

$

1,274

 

 

$

1,274

 

 

$

 

 

 

Contract assets increased by $17.7 million from December 31, 2021 to March 31, 2022 due to an increase in customer specific material purchases and incremental unbilled production during the three months ended March 31, 2022. Contracts liabilities, net of the amounts reclassed to contract assets, remained consistent from December 31, 2021 to March 31, 2022.

For the three months ended March 31, 2022, we recognized $1.3 million of revenue related to precision molding and assembly systems and wind blades, which was included in the corresponding contract liability balance at the beginning of the period.

Performance Obligations

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

12


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

As of March 31, 2022, the aggregate amount of the transaction price allocated to the remaining performance obligations to be satisfied in future periods was approximately $2.5 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 2022

 

$

1,262,407

 

 

 

51.3

%

2023

 

 

1,019,335

 

 

 

41.4

 

2024

 

 

180,761

 

 

 

7.3

 

  Total remaining performance obligations

 

$

2,462,503

 

 

 

100

%

For the three months ended March 31, 2022, net revenue recognized from our performance obligations satisfied in previous period decreased by $6.6 million, as compared to decreases of $8.5 million, in the same period in 2021. 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 4. Significant Risks and Uncertainties

Our revenues and receivables are earned from a small number of customers. As such, our production levels are dependent on these customers’ orders. See Note 15, Concentration of Customers.

We may be required to reinstate temporary production suspensions or volume reductions at our manufacturing facilities to the extent there are new resurgences of COVID-19 cases in the regions where we operate or there is an outbreak of positive COVID-19 cases in any of our manufacturing facilities.

The after-effects of the pandemic continue to evolve and affect supply chain performance and underlying assumptions in various ways – specifically with volatility in commodity and logistics costs. There were both significant price increases and supply constraints during the three months ended March 31, 2022, as compared to the same period in 2021 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 carbon fiber and related product supply will remain constrained. Production of carbon products is very energy intensive and although we are able to pass on a majority of cost increases onto our customers, rising energy costs could continue to adversely impact cost of materials. If the supply of resin feedstocks and carbon fiber continue to be constrained and the prices for these raw materials remain elevated for an extended period of time, such constraints and elevated price levels could have a further material adverse impact on our results of operations.

Although we believe that the onshore wind market will continue to grow over the long term, the expiration of the United States Production Tax Credit (PTC) at the end of 2021 and the lack of new policy or legislation has created uncertainty in the near term. We are monitoring legislative and regulatory policy proposals to extend or expand tax credits and other programs in the United States to promote wind energy.

We maintain our United States (U.S.) cash in bank deposit and money market accounts that, at times, exceed U.S. federally insured limits. U.S. bank accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) in an amount up to $250,000 during 2022 and 2021. U.S. money market accounts are not guaranteed by the FDIC. At March 31, 2022 and December 31, 2021, we had $112.6 million and $165.4 million, respectively, of cash in bank deposit and money market accounts in U.S. banks, which were in excess of FDIC limits. We have not experienced losses in any such accounts.

We also maintain cash in bank deposit accounts outside the U.S. with no insurance. At March 31, 2022, this included $10.6 million in China, $3.0 million in Turkey, $2.4 million in India, $1.8 million in Mexico and $0.5 million in other countries. As of December 31, 2021, this included $25.9 million in China, $42.6 million in Turkey, $5.7 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 March 31, 2022 and December 31, 2021, we had short-term deposits in interest bearing accounts in the U.S. of $9.9 million and $10.1 million, respectively, which are reported as restricted cash in our condensed consolidated balance sheets.

13


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 5. Accrued Warranty

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

2021

 

 

(in thousands)

 

Warranty accrual at beginning of period

 

$

42,020

 

$

50,852

 

Accrual during the period

 

 

3,066

 

 

4,847

 

Cost of warranty services provided during the period

 

 

(8,314

)

 

(7,571

)

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

 

 

2,171

 

 

(2,172

)

Warranty accrual at end of period

 

$

38,943

 

$

45,956

 

 

Note 6. Long-Term Debt, Net of Current Maturities

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

Unsecured financing—EMEA

 

$

27,146

 

 

$

48,444

 

Secured and unsecured working capital—India

 

 

10,285

 

 

 

10,269

 

Unsecured term loan—India

 

 

8,109

 

 

 

8,109

 

Equipment finance lease—Mexico

 

 

4,686

 

 

 

5,821

 

Equipment finance lease—EMEA

 

 

1,402

 

 

 

1,884

 

Other equipment finance leases

 

 

82

 

 

 

119

 

Total debt—principal

 

 

51,710

 

 

 

74,646

 

Less: Current maturities of long-term debt

 

 

(46,137

)

 

 

(66,438

)

Long-term debt, net of current maturities

 

$

5,573

 

 

$

8,208

 

 

Note 7. Share-Based Compensation Plans

During the three months ended March 31, 2022, we issued to certain employees an aggregate of 764,318 timed-based restricted stock units (RSUs), 37,065 performance-based restricted stock units (PSUs) that vest upon achievement of annual, adjusted Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) targets measured from January 1, 2022 through December 31, 2024, 111,193 PSUs that vest upon achievement of certain stock price hurdles for the period of the grant date through December 31, 2024, and 49,781 PSUs that vest upon achievement of certain strategic targets measured from January 12, 2022 through January 12, 2032. 167,507 of the time-based RSUs vest on the third anniversary date of the grant date, 413,467 of the time-based RSUs vest 50% on the first and second anniversary of the grant date, respectively and 183,344 of the time-based RSUs vest 25% on the first, second, third and fourth anniversary of the grant date, respectively. 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

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

Cost of goods sold

 

$

889

 

 

$

203

 

General and administrative expenses

 

 

2,420

 

 

 

2,196

 

Total share-based compensation expense

 

$

3,309

 

 

$

2,399

 

 

14


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

RSUs

 

$

2,819

 

 

$

1,255

 

Stock options

 

 

164

 

 

 

618

 

PSUs

 

 

326

 

 

 

526

 

Total share-based compensation expense

 

$

3,309

 

 

$

2,399

 

 

Note 8. Leases

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

The components of lease cost were as follows:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

Total operating lease cost

 

$

11,216

 

 

$

9,716

 

 

 

 

 

 

 

 

Finance lease cost

 

 

 

 

 

 

  Amortization of assets under finance leases

 

$

1,037

 

 

$

900

 

  Interest on finance leases

 

 

110

 

 

 

189

 

Total finance lease cost

 

$

1,147

 

 

$

1,089

 

 

Total lease assets and liabilities were as follows:

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

Operating Leases

 

 

 

 

 

 

Operating lease right of use assets

 

$

160,532

 

 

$

137,192

 

 

 

 

 

 

 

 

Current operating lease liabilities

 

$

22,652

 

 

$

22,681

 

Noncurrent operating lease liabilities

 

 

148,189

 

 

 

146,479

 

   Total operating lease liabilities

 

$

170,841

 

 

$

169,160

 

 

 

 

 

 

 

 

Finance Leases

 

 

 

 

 

 

Property, plant and equipment, gross

 

$

36,606

 

 

$

26,405

 

Less: accumulated depreciation

 

 

(21,343

)

 

 

(13,782

)

   Total property, plant and equipment, net

 

$

15,263

 

 

$

12,623

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

4,300

 

 

$

5,435

 

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

 

 

1,870

 

 

 

2,389

 

   Total finance lease liabilities

 

$

6,170

 

 

$

7,824

 

 

Future minimum lease payments under noncancelable leases as of March 31, 2022 were as follows:

 

15


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

 

Operating

 

 

Finance

 

 

 

Leases

 

 

Leases

 

 

 

(in thousands)

 

Year Ending December 31,

 

 

 

 

 

 

Remainder of 2022

 

$

26,248

 

 

$

4,182

 

2023

 

 

33,124

 

 

 

1,344

 

2024

 

 

29,006

 

 

 

711

 

2025

 

 

28,546

 

 

 

379

 

2026

 

 

28,879

 

 

 

7

 

Thereafter

 

 

83,486

 

 

 

 

  Total future minimum lease payments

 

 

229,289

 

 

 

6,623

 

Less: interest

 

 

(58,448

)

 

 

(453

)

  Total lease liabilities

 

$

170,841

 

 

$

6,170

 

 

Supplemental cash flow information related to leases was as follows:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

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

 

 

 

 

 

 

  Operating cash flows from operating leases

 

$

8,965

 

 

$

9,250

 

  Operating cash flows from finance leases

 

 

110

 

 

 

189

 

  Financing cash flows from finance leases

 

 

1,545

 

 

 

1,406

 

 

Other information related to leases was as follows:

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Weighted-Average Remaining Lease Term (In Years):

 

 

 

 

 

 

  Operating leases

 

 

7.1

 

 

 

7.0

 

  Finance leases

 

 

1.8

 

 

 

1.9

 

 

 

 

 

 

 

 

Weighted-Average Discount Rate:

 

 

 

 

 

 

  Operating leases

 

 

8.1

%

 

 

8.0

%

  Finance leases

 

 

5.7

%

 

 

5.8

%

 

As of March 31, 2022, there were no material additional leases related to our manufacturing facilities, warehouses, offices, automobiles or our machinery and equipment which have not yet commenced.

Note 9. Financial Instruments

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

With regards to our foreign exchange call option contracts, for the three months ended March 31, 2022 and 2021, $0.6 million and $0.7 million of premium amortization was recorded through cost of sales within our condensed consolidated statements of operations, respectively. The net income (loss) recognized in accumulated other comprehensive loss in our condensed consolidated statements of

16


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

changes in stockholders’ equity for our foreign exchange call option contracts is expected to be recognized in cost of sales in our condensed consolidated statements of operations during the next nine months.

As of March 31, 2022 and December 31, 2021, the notional values associated with our foreign exchange call option contracts qualifying as cash flow hedges were approximately 1.1 billion Mexican Pesos (approximately $52.4 million) and approximately 0.4 billion Mexican Pesos (approximately $20.2 million), respectively.

Chinese Renminbi

With regards to our foreign exchange forward contracts, for which hedge accounting does not apply, for the three months ended March 31, 2022 and 2021, $0.0 million and $0.1 million in gains were recorded through foreign currency income (loss) within our condensed consolidated statements of operations, respectively.

India Rupee

With regards to our foreign exchange call option contracts, for which hedge accounting does not apply, for the three months ended March 31, 2022 and 2021, $0.1 million and $0.7 million in gains were recorded through foreign currency income (loss) within our condensed consolidated statements of operations, respectively. Additionally, with regards to our foreign exchange call option contracts, for the three months ended March 31, 2022 and 2021, $0.6 million and $0.0 million of premium amortization was recorded as losses through foreign currency income (loss) within our condensed consolidated statements of operations, respectively.

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

 

 

 

Condensed Consolidated

 

March 31,

 

 

December 31,

 

Financial Instrument

 

Balance Sheet Line Item

 

2022

 

 

2021

 

 

 

 

 

(in thousands)

 

Foreign exchange forward contracts

 

Other current assets

 

$

3,912

 

 

$

1,580

 

Foreign exchange forward contracts

 

Accounts payable and accrued
   expenses

 

 

 

 

 

1,052

 

 

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

 

Accumulated

 

Condensed Consolidated

 

Three Months Ended

 

Other Comprehensive

 

Statement of Operations

 

March 31,

 

Loss Component

 

Line Item

 

2022

 

 

2021

 

 

 

 

 

(in thousands)

 

Foreign exchange forward
  contracts

 

Cost of sales

 

$

(640

)

 

$

(2,002

)

 

Note 10. Restructuring Charges, Net

The following is a summary of our restructuring charges, net for the period presented:

 

 

 

Three Months Ended March 31, 2022

 

 

 

U.S.

 

 

Asia

 

 

Mexico

 

 

Total

 

 

 

(in thousands)

 

Severance

 

$

44

 

 

$

1,553

 

 

$

266

 

 

$

1,863

 

Other restructuring costs

 

 

147

 

 

 

383

 

 

 

 

 

 

530

 

Total restructuring charges, net

 

$

191

 

 

$

1,936

 

 

$

266

 

 

$

2,393

 

 

For the three months ended March 31, 2021, we incurred $0.3 million in restructuring charges related to our Asia segment.

 

The following is a summary of our restructuring liability activity for the periods presented:

 

17


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

 

U.S.

 

 

Asia

 

 

Mexico

 

 

Total

 

 

 

(in thousands)

 

Balance at December 31, 2021

 

$

2,638

 

 

$

8,145

 

 

$

2,161

 

 

$

12,944

 

Restructuring charges, net

 

 

191

 

 

 

1,936

 

 

 

266

 

 

 

2,393

 

Payments

 

 

(1,920

)

 

 

(4,675

)

 

 

(415

)

 

 

(7,010

)

Balance at March 31, 2022

 

$

909

 

 

$

5,406

 

 

$

2,012

 

 

$

8,327

 

 

Note 11. Income Taxes

For the three months ended March 31, 2022, we reported an income tax provision of $2.9 million as compared to an income tax benefit of $7.1 million in the comparative prior year period. This increase resulted primarily from the change in the mix of earnings of foreign jurisdictions and an increase in U.S. valuation allowance and uncertain tax positions compared to the same period in 2021.

No changes in tax law occurred during the three months ended March 31, 2022, which had a material impact on our income tax provision. We do not record a deferred tax liability related to unremitted foreign earnings as we maintain our assertion to indefinitely reinvest our unremitted foreign earnings.

Note 12. 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

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands, except per share data)

 

Numerator:

 

 

 

 

 

 

Net loss

 

$

(15,800

)

 

$

(1,797

)

Preferred stock dividends and accretion

 

 

(14,132

)

 

 

 

Net loss attributable to common stockholders

 

$

(29,932

)

 

$

(1,797

)

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

Basic weighted-average shares outstanding

 

 

41,899

 

 

 

36,601

 

Effect of dilutive awards

 

 

 

 

 

 

Diluted weighted-average shares outstanding

 

 

41,899

 

 

 

36,601

 

 

 

 

 

 

 

 

Basic net income (loss) per common share

 

$

(0.71

)

 

$

(0.05

)

Diluted net income (loss) per common share

 

$

(0.71

)

 

$

(0.05

)

 

 

 

 

 

 

 

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

 

 

474

 

 

 

2,040

 

Anti dilutive share-based compensation awards
   that would be excluded from the calculation
   if income was reported in the period

 

 

429

 

 

 

 

 

For the three months ended March 31, 2022, the weighted average number of common shares outstanding during the period includes 4,666,667 of outstanding, fully vested warrants that are exercisable for $0.01 per warrant.

 

18


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 13. Stockholders’ Equity

Accumulated Other Comprehensive Loss

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

 

 

 

Three Months Ended March 31, 2022

 

 

 

Foreign

 

 

 

 

 

Foreign

 

 

 

 

 

 

currency

 

 

 

 

 

exchange

 

 

 

 

 

 

translation

 

 

Interest rate

 

 

forward

 

 

Total

 

 

 

adjustments

 

 

swap

 

 

contracts

 

 

AOCL

 

 

 

(in thousands)

 

Balance at December 31, 2021

 

$

(48,530

)

 

$

 

 

$

(5,476

)

 

$

(54,006

)

Other comprehensive income (loss) before reclassifications

 

 

43,369

 

 

 

 

 

 

3,345

 

 

 

46,714

 

Amounts reclassified from AOCL

 

 

 

 

 

 

 

 

(640

)

 

 

(640

)

Net tax effect

 

 

 

 

 

 

 

 

 

 

 

 

Net current period other comprehensive income (loss)

 

 

43,369

 

 

 

 

 

 

2,705

 

 

 

46,074

 

Balance at March 31, 2022

 

 

(5,161

)

 

 

-

 

 

 

(2,771

)

 

 

(7,932

)

 

 

 

Three Months Ended March 31, 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

 

 

 

 

 

 

 

 

(2,002

)

 

 

(2,002

)

Net tax effect

 

 

 

 

 

(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

)

 

Note 14. Commitments and Contingencies

Legal Proceedings

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

In January 2021, we received a complaint that was filed by the administrator for the Senvion GmbH (Senvion) insolvency estate in German insolvency court. The complaint asserts voidance against us in the aggregate amount of $13.3 million. The alleged voidance claims relate to payments that Senvion made to us for wind blades that we produced prior to Senvion filing for insolvency protection. We filed a response to these alleged voidance claims in August 2021 and filed a supplemental response in April 2022. We believe we have meritorious defenses to the alleged voidance claims. Due to the early stage of this claim, we have determined that the ultimate outcome cannot be estimated at this time.

19


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 15. Concentration of Customers

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Customer

 

Net sales

 

 

% of Total

 

 

Net sales

 

 

% of Total

 

Vestas

 

$

164,966

 

 

 

42.9

%

 

$

169,218

 

 

 

41.8

%

Nordex

 

 

117,293

 

 

 

30.5

 

 

 

76,543

 

 

 

18.9

 

GE

 

 

57,620

 

 

 

15.0

 

 

 

104,852

 

 

 

25.9

 

 

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Customer

 

% of Total

 

 

% of Total

 

Nordex

 

 

56.3

%

 

 

61.5

%

Vestas

 

 

17.8

 

 

 

10.7

 

Enercon

 

 

11.0

 

 

 

14.7

 

 

Note 16. Segment Reporting

Our operating segments are defined geographically into five geographic operating segments—(1) the U.S., (2) Asia, (3) Mexico, (4) EMEA and (5) India. For a detailed discussion of our operating segments, refer to the discussion in Note 21, Segment Reporting, to the Notes to Consolidated Financial Statements within our Annual Report on Form 10-K.

Our U.S. and India segments operate in U.S. dollars. Our Mexico and Asia segments operate in their local currency and include a U.S. parent company that operates in U.S. dollars. Our EMEA segment operates in Euros, effective January 1, 2022. Prior to this, our EMEA segment operated in Turkish Lira.

20


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

Net sales by segment:

 

 

 

 

 

 

U.S.

 

$

21,557

 

 

$

50,993

 

Asia

 

 

41,346

 

 

 

76,928

 

Mexico

 

 

130,396

 

 

 

116,752

 

EMEA

 

 

149,685

 

 

 

112,366

 

India

 

 

41,886

 

 

 

47,641

 

Total net sales

 

$

384,870

 

 

$

404,680

 

 

 

 

 

 

 

 

Net sales by geographic location (1):

 

 

 

 

 

 

United States

 

$

21,557

 

 

$

50,993

 

China

 

 

41,346

 

 

 

76,928

 

Mexico

 

 

130,396

 

 

 

116,752

 

Turkey

 

 

149,685

 

 

 

112,366

 

India

 

 

41,886

 

 

 

47,641

 

Total net sales

 

$

384,870

 

 

$

404,680

 

 

 

 

 

 

 

 

Income (loss) from operations:

 

 

 

 

 

 

U.S. (2)

 

$

(6,534

)

 

$

(9,913

)

Asia

 

 

(6,109

)

 

 

2,709

 

Mexico

 

 

(23,704

)

 

 

(5,731

)

EMEA

 

 

23,617

 

 

 

9,788

 

India

 

 

(109

)

 

 

(60

)

Total loss from operations

 

$

(12,839

)

 

$

(3,207

)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

Property, plant and equipment, net:

 

 

 

 

 

 

U.S.

 

$

24,293

 

 

$

25,522

 

Asia (China)

 

 

25,552

 

 

 

26,965

 

Mexico

 

 

67,663

 

 

 

71,208

 

EMEA (Turkey)

 

 

29,397

 

 

 

14,413

 

India

 

 

31,752

 

 

 

31,470

 

Total property, plant and equipment, net

 

$

178,657

 

 

$

169,578

 

 

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

(2) The losses from operations in our U.S. segment includes corporate general and administrative costs of $7.9 million and $8.9 million for the three months ended March 31, 2022 and 2021, respectively.

 

21


 

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

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

OVERVIEW

Our Company

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

Our business operations are defined geographically into five geographic operating segments—(1) the United States (U.S.), (2) Asia, (3) Mexico, (4) Europe, the Middle East and Africa (EMEA) and (5) India. See Note 16, Segment Reporting, to our condensed consolidated financial statements for more details about our operating segments.

KEY TRENDS AND RECENT DEVELOPMENTS AFFECTING OUR BUSINESS

 

During the three months ended March 31, 2022, there have been both price increases and supply constraints as compared to the same period in 2021, for key raw materials that we use to manufacture our products, as well as increases in logistics costs to obtain raw materials. 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. We expect that the price of resin and carbon fiber will remain at elevated levels for the remainder of 2022 and into 2023. Approximately 60% of the resin and resin systems, and approximately 90% of carbon fiber we use is purchased under contracts either controlled or borne by two of our customers, and therefore these customers receive/bear 100% of any decrease or increase in resin prices. With respect to our other customer supply agreements, our customers typically receive/bear 70% of any raw material price decreases or 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 2022 and 2023 and could have a material adverse impact on our results of operations for the remainder of 2022 and 2023.

 

Although all of our manufacturing facilities currently are operating without any COVID-19 impacts or restrictions, 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. However, our global supply chain was adversely affected by the COVID-19 pandemic in 2021 and our global supply chain may continue to be adversely affected if the COVID-19 pandemic persists. In addition, certain of our customers source the purchase of certain key raw materials and components, including resin and carbon. In 2021, these customers had challenges procuring adequate supplies of resin and carbon fiber, which had an adverse impact on our production volumes and results of operations and could adversely impact our business in 2022 if such challenges persist.

 

We expect decreased demand for our wind blades from our customers during the remainder of 2022 and 2023. We believe this decrease in demand is due to the continued global renewable energy regulatory and policy uncertainty and the raw material and logistics cost increases mentioned above. We believe that uncertainty around potential legislation in the U.S. to extend the Production Tax Credit (PTC) on a long-term basis is causing developers to delay project timelines in anticipation of being able to build projects at higher PTC levels if such extensions are implemented.

 

We are forecasting to incur a total of approximately $3.1 million of restructuring charges associated with our global footprint alignment and consolidation in 2022 relating to our China and North America operations.

 

22


 

Effective January 1, 2022, the functional currency for our operations in Turkey changed from Turkish Lira to Euros. The Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 830 (ASC 830), “Foreign Currency Matters,” requires a change in functional currency to be reported as of the date it is determined there has been a change, and it is generally accepted practice that the change is made at the start of the most recent period that approximates the date of the change.

 

While the change of the functional currency was based on a factual assessment, the determination of the date of the change required management’s judgement given the change over time in the primary economic and business environment in which we operate.

 

Based on the analysis of the Turkish domestic renewable energy demand through 2021 and anticipated future demand, management concluded that Turkish domestic sales will not grow as previously envisioned and most of the future growth will continue to be predominately export sales to the eurozone, which are primarily denominated in Euros. See Footnote 1, Significant Accounting Policies, for more details.

 

KEY METRICS USED BY MANAGEMENT TO MEASURE PERFORMANCE

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

KEY FINANCIAL MEASURES

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

Net sales

 

$

384,870

 

 

$

404,680

 

Net loss

 

 

(15,800

)

 

 

(1,797

)

EBITDA (1)

 

 

(334

)

 

 

5,414

 

Adjusted EBITDA (1)

 

 

6,117

 

 

 

13,095

 

Capital expenditures

 

 

5,516

 

 

 

18,786

 

Free cash flow (1)

 

 

(86,570

)

 

 

(12,046

)

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

Total debt

 

$

51,710

 

 

$

74,646

 

Net cash

 

 

79,183

 

 

 

167,519

 

 

 

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

23


 

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

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

Net loss attributable to common stockholders

 

$

(29,932

)

 

$

(1,797

)

       Preferred stock dividends and accretion

 

 

14,132

 

 

 

 

Net loss

 

 

(15,800

)

 

 

(1,797

)

Adjustments:

 

 

 

 

 

 

Depreciation and amortization

 

 

11,753

 

 

 

11,609

 

Interest expense, net

 

 

769

 

 

 

2,704

 

Income tax provision (benefit)

 

 

2,944

 

 

 

(7,102

)

EBITDA

 

 

(334

)

 

 

5,414

 

Share-based compensation expense

 

 

3,309

 

 

 

2,399

 

Foreign currency loss (income)

 

 

(210

)

 

 

3,727

 

Loss on sale of assets and asset
  impairments

 

 

959

 

 

 

1,297

 

Restructuring charges, net

 

 

2,393

 

 

 

258

 

Adjusted EBITDA

 

$

6,117

 

 

$

13,095

 

 

Free cash flow is reconciled as follows:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

Net cash provided by operating activities

 

$

(81,054

)

 

$

6,740

 

Less capital expenditures

 

 

(5,516

)

 

 

(18,786

)

Free cash flow

 

$

(86,570

)

 

$

(12,046

)

 

Net cash is reconciled as follows:

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

Cash and cash equivalents

 

$

130,893

 

 

$

242,165

 

Less total debt

 

 

(51,710

)

 

 

(74,646

)

Net cash

 

$

79,183

 

 

$

167,519

 

KEY OPERATING METRICS

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Sets

 

 

602

 

 

 

814

 

Estimated megawatts

 

 

2,644

 

 

 

3,072

 

Utilization

 

 

65

%

 

 

77

%

Dedicated manufacturing lines

 

 

43

 

 

 

50

 

Manufacturing lines installed

 

 

43

 

 

 

52

 

 

 

24


 

RESULTS OF OPERATIONS

The following table summarizes our operating results as a percentage of net sales for the three months ended March 31, 2022 and 2021 that have been derived from our condensed consolidated statements of operations:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

2021

 

Net sales

 

 

100

%

 

100

%

Cost of sales

 

 

96.4

 

 

94.7

 

Startup and transition costs

 

 

4.0

 

 

3.5

 

Total cost of goods sold

 

 

100.4

 

 

98.2

 

Gross profit (loss)

 

 

(0.4

)

 

1.8

 

General and administrative expenses

 

 

2.0

 

 

2.2

 

Loss on sale of assets and asset impairments

 

 

0.3

 

 

0.3

 

Restructuring charges, net

 

 

0.6

 

 

0.1

 

Loss from operations

 

 

(3.3

)

 

(0.8

)

Total other expense

 

 

0.0

 

 

(1.4

)

Loss before income taxes

 

 

(3.3

)

 

(2.2

)

Income tax benefit (provision)

 

 

(0.8

)

 

1.8

 

Net loss

 

 

(4.1

%)

 

(0.4

%)

 

Net sales

Consolidated discussion

The following table summarizes our net sales by product/service for the three months ended March 31, 2022 and 2021:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

March 31,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

Wind blade sales

 

$

354,581

 

 

$

379,179

 

 

$

(24,598

)

 

 

(6.5

)%

Precision molding and
  assembly systems sales

 

 

4,006

 

 

 

8,927

 

 

 

(4,921

)

 

 

(55.1

)

Transportation sales

 

 

12,857

 

 

 

8,131

 

 

 

4,726

 

 

 

58.1

 

Field service, inspection and
   repair services sales

 

 

9,850

 

 

 

4,315

 

 

 

5,535

 

 

 

128.3

 

Other sales

 

 

3,576

 

 

 

4,128

 

 

 

(552

)

 

 

(13.4

)

Total net sales

 

$

384,870

 

 

$

404,680

 

 

$

(19,810

)

 

 

(4.9

)%

 

The decrease in net sales of wind blades during the three months ended March 31, 2022, as compared to the same period in 2021, was primarily driven by a 26% decrease in the number of wind blades produced due to a reduction in manufacturing lines and transitions of existing lines and currency fluctuations, which were partially offset by a higher average sales price due to the mix of wind blade models produced. Net sales from the manufacturing of precision molding and assembly systems decreased during the three months ended March 31, 2022, as compared to the same period in 2021 primarily due to a decrease in volume. Additionally, there was an increase in our field service, inspection and repair service sales during the three months ended March 31, 2022, as compared to the same period in 2021, due to an increase in demand for such services. Transportation sales increased during the three months ended March 31, 2022, as compared to the same period in 2021, due to an increase in volume of transportation products. The fluctuating U.S. dollar against the Euro in our operations in Turkey and the Chinese Renminbi in our China operations had an unfavorable impact of 2.2% on consolidated net sales for the three months ended March 31, 2022, as compared to the 2021 period.

25


 

Segment discussion

The following table summarizes our net sales by our five geographic operating segments for the three months ended March 31, 2022 and 2021:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

March 31,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

U.S.

 

$

21,557

 

 

$

50,993

 

 

$

(29,436

)

 

 

(57.7

)%

Asia

 

 

41,346

 

 

 

76,928

 

 

 

(35,582

)

 

 

(46.3

)

Mexico

 

 

130,396

 

 

 

116,752

 

 

 

13,644

 

 

 

11.7

 

EMEA

 

 

149,685

 

 

 

112,366

 

 

 

37,319

 

 

 

33.2

 

India

 

 

41,886

 

 

 

47,641

 

 

 

(5,755

)

 

 

(12.1

)

Total net sales

 

$

384,870

 

 

$

404,680

 

 

$

(19,810

)

 

 

(4.9

)%

U.S. Segment

The following table summarizes our net sales by product/service for the U.S. segment for the three months ended March 31, 2022 and 2021:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

March 31,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

Wind blade sales

 

$

 

 

$

39,627

 

 

$

(39,627

)

 

NM

 

Transportation sales

 

 

12,857

 

 

 

8,131

 

 

 

4,726

 

 

 

58.1

%

Field service, inspection and
   repair services sales

 

 

8,601

 

 

 

2,994

 

 

 

5,607

 

 

 

187.3

 

Other sales

 

 

99

 

 

 

241

 

 

 

(142

)

 

 

(58.9

)

Total net sales

 

$

21,557

 

 

$

50,993

 

 

$

(29,436

)

 

 

(57.7

)%

NM - not meaningful

 

The decrease in the U.S. segment’s net sales of wind blades during the three months ended March 31, 2022, as compared to the same period in 2021, was due to the shutdown of production at our Newton, Iowa manufacturing facility at the end of the fourth quarter of 2021. The increase in the U.S. segment's field service, inspection and repair services sales was primarily due to increases in overall volume and demand for such services during the three months ended March 31, 2022, as compared to the same period in 2021. Transportation sales increased during the three months ended March 31, 2022, as compared to the same period in 2021, due to an increase in volume of transportation products.

Asia Segment

The following table summarizes our net sales by product/service for the Asia segment for the three months ended March 31, 2022 and 2021:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

March 31,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

Wind blade sales

 

$

36,399

 

 

$

72,503

 

 

$

(36,104

)

 

 

(49.8

)%

Precision molding and
   assembly systems sales

 

 

3,859

 

 

 

3,964

 

 

 

(105

)

 

 

(2.6

)

Field service, inspection and
   repair services sales

 

 

968

 

 

 

308

 

 

 

660

 

 

NM

 

Other sales

 

 

120

 

 

 

153

 

 

 

(33

)

 

 

(21.6

)

Total net sales

 

$

41,346

 

 

$

76,928

 

 

$

(35,582

)

 

 

(46.3

)%

 

The decrease in the Asia segment’s net sales of wind blades during the three months ended March 31, 2022, as compared to the same period in 2021, was primarily due to a 70% decrease in the number of wind blades produced, due to a reduction of contracted manufacturing lines in China and the startup of additional lines in 2022. The net sales decrease during the three months ended

26


 

March 31, 2022 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.

Mexico Segment

The following table summarizes our net sales by product/service for the Mexico segment for the three months ended March 31, 2022 and 2021:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

March 31,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

Wind blade sales

 

$

129,606

 

 

$

108,442

 

 

$

21,164

 

 

 

19.5

%

Precision molding and
   assembly systems sales

 

 

147

 

 

 

4,963

 

 

 

(4,816

)

 

 

(97.0

)

Other sales

 

 

643

 

 

 

3,347

 

 

 

(2,704

)

 

 

(80.8

)

Total net sales

 

$

130,396

 

 

$

116,752

 

 

$

13,644

 

 

 

11.7

%

 

The increase in the Mexico segment’s net sales of wind blades during the three months ended March 31, 2022, as compared to the same period in 2021, is primarily due to the commencement of production at our second manufacturing facility in Matamoros, Mexico that we took over from Nordex in July 2021, and also reflects an increase in the average sales price of wind blades due to the mix of wind blades produced in the two comparative periods. The increase in net sales of wind blades was partially offset by the stop of production in one of our Juarez, Mexico facilities at the end of the fourth quarter of 2021.

EMEA Segment

The following table summarizes our net sales by product/service for the EMEA segment for the three months ended March 31, 2022 and 2021:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

March 31,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

Wind blade sales

 

$

146,849

 

 

$

111,027

 

 

$

35,822

 

 

 

32.3

%

Field service, inspection and
   repair services sales

 

 

281

 

 

 

1,013

 

 

 

(732

)

 

 

(72.3

)

Other sales

 

 

2,555

 

 

 

326

 

 

 

2,229

 

 

NM

 

Total net sales

 

$

149,685

 

 

$

112,366

 

 

$

37,319

 

 

 

33.2

%

 

The increase in the EMEA segment’s net sales of wind blades during the three months ended March 31, 2022, as compared to the same periods in 2021, was primarily driven by a 23% increase in wind blade production at our two Turkey plants, as well as an increase in the average sales price of wind blades produced in the two comparative periods. These net sales increases were partially offset by currency fluctuations. The fluctuating U.S. dollar relative to the Euro had an unfavorable impact of 5.6% on net sales during the three months ended March 31, 2022, as compared to the 2021 period.

India Segment

The following table summarizes our net sales by product/service for the India segment for the three months ended March 31, 2022 and 2021:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

March 31,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

Wind blade sales

 

$

41,727

 

 

$

47,580

 

 

$

(5,853

)

 

 

(12.3

)%

Other sales

 

 

159

 

 

 

61

 

 

 

98

 

 

 

160.7

 

Total net sales

 

$

41,886

 

 

$

47,641

 

 

$

(5,755

)

 

 

(12.1

)%

 

The decrease in the India segment’s net sales of wind blades during the three months ended March 31, 2022, as compared to the same period in 2021, was primarily driven by a 26% decrease in wind blade production for the period and the transition of two of our

27


 

manufacturing lines from one type of wind blade to a new type of wind blade during the first quarter of 2022. The decrease in net sales of wind blades was partially offset by an increase in the average sales price of wind blades in the two comparative periods.

 

Total cost of goods sold

The following table summarizes our total cost of goods sold for the three months ended March 31, 2022 and 2021:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

March 31,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 Cost of sales

 

$

370,954

 

 

$

383,056

 

 

$

(12,102

)

 

 

(3.2

)%

 Startup costs

 

 

5,467

 

 

 

4,552

 

 

 

915

 

 

 

20.1

 

 Transition costs

 

 

10,076

 

 

 

9,802

 

 

 

274

 

 

 

2.8

 

 Total startup and transition
   costs

 

 

15,543

 

 

 

14,354

 

 

 

1,189

 

 

 

8.3

 

 Total cost of goods sold

 

$

386,497

 

 

$

397,410

 

 

$

(10,913

)

 

 

(2.7

)

 % of net sales

 

 

100.4

%

 

 

98.2

%

 

 

 

 

 

2.2

%

 

Total cost of goods sold as a percentage of net sales increased by approximately two percentage points during the three months ended March 31, 2022, as compared to the same period in 2021, primarily driven by an increase in direct material costs and foreign currency fluctuations. The fluctuating U.S. dollar against the Euro, Chinese Renminbi and Mexican Peso had an unfavorable impact of 2.8% on consolidated cost of goods sold for the three months ended March 31, 2022 as compared to the 2021 period. Included in the cost of sales for the three months ended March 31, 2022, is approximately $7.1 million in non-restructuring related operating costs that were associated with certain manufacturing facilities in Newton, Iowa; Dafeng, China; and Juarez, Mexico, where production has stopped.

General and administrative expenses

The following table summarizes our general and administrative expenses for the three months ended March 31, 2022 and 2021:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

March 31,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 General and
   administrative expenses

 

$

7,860

 

 

$

8,922

 

 

$

(1,062

)

 

 

(11.9

)%

 % of net sales

 

 

2.0

 

 

 

2.2

 

 

 

 

 

 

(0.2

)

 

The decrease in general and administrative expenses as a percentage of net sales for the three months ended March 31, 2022, as compared to the same period in 2021, was primarily driven by reduced compensation costs, consulting costs, supplies and our overall continued focus on reducing costs.

Restructuring costs, net

The following table summarizes our loss on sale of assets and asset impairments for the three months ended March 31, 2022 and 2021:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

March 31,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 Restructuring charges, net

 

$

2,393

 

 

$

258

 

 

$

2,135

 

 

NM

 

 % of net sales

 

 

0.6

 

 

 

0.1

 

 

 

 

 

 

0.5

 

 

The increase in restructuring costs, net for the three months ended March 31, 2022, as compared to the same period in 2021, was associated with the optimization of our global footprint, comprised of $1.9 million of severance benefits to terminated employees primarily as a result of the closure of our Newton, Iowa; Dafeng, China and Taicang, China manufacturing facilities.

28


 

Income (loss) from operations

Segment discussion

The following table summarizes our income (loss) from operations by our five geographic operating segments for the three months ended March 31, 2022 and 2021:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

March 31,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

U.S.

 

$

(6,534

)

 

$

(9,913

)

 

$

3,379

 

 

 

34.1

%

Asia

 

 

(6,109

)

 

 

2,709

 

 

 

(8,818

)

 

NM

 

Mexico

 

 

(23,704

)

 

 

(5,731

)

 

 

(17,973

)

 

NM

 

EMEA

 

 

23,617

 

 

 

9,788

 

 

 

13,829

 

 

 

141.3

 

India

 

 

(109

)

 

 

(60

)

 

 

(49

)

 

NM

 

Total loss from operations

 

$

(12,839

)

 

$

(3,207

)

 

$

(9,632

)

 

NM

 

 % of net sales

 

 

-3.3

%

 

 

-0.8

%

 

 

 

 

 

(2.5

)%

 

U.S. Segment

The increase in the loss from operations in the U.S. segment for the three months ended March 31, 2022, as compared to the same period in 2021, was primarily due to the decrease in wind blade volume due to the shutdown of production at our Newton, Iowa manufacturing facility.

Asia Segment

The decrease in the income from operations in the Asia segment for the three months ended March 31, 2022, as compared to the same period in 2021, was primarily due to the decrease in the net sales of wind blades, restructuring charges incurred at our Taicang City and Dafeng manufacturing facilities and foreign currency fluctuations. The fluctuating U.S. dollar against the Chinese Renminbi had an unfavorable impact of 1.1% on cost of goods sold for the three months ended March 31, 2022, respectively, as compared to the 2021 period.

Mexico Segment

The increase in the loss from operations in the Mexico segment for the three months ended March 31, 2022, as compared to the same period in 2021, was primarily due to direct material and startup and transition costs related to the Matamoros, Mexico facility that we took over from Nordex in July 2021, and a decrease in wind blade volume, partially offset by an increase in the average sales price of wind blades as compared to the 2021 period. The fluctuating U.S. dollar relative to the Mexican Peso had a favorable impact of 0.2% on cost of goods sold for the three months ended March 31, 2022, respectively, as compared to the 2021 period.

EMEA Segment

The increase in the income from operations in the EMEA segment for the three months ended March 31, 2022, as compared to the same period in 2021, was primarily driven by increased wind blade production at our two Turkey manufacturing facilities, an increase in the average sales price of wind blades produced and a decrease in startup and transition costs, partially offset by an increase in direct material costs as compared to the 2021 period. The fluctuating U.S. dollar relative to the Euro had an unfavorable impact of 8.5% on cost of goods sold for the three months ended March 31, 2022, respectively, as compared to the 2021 period.

India Segment

The increase in the loss from operations in the India segment for the three months ended March 31, 2022, as compared to the same period in 2021, was primarily driven by a decrease in volume due to the transition of two of our manufacturing lines from one type of wind blade to a new type of wind blade and the continued expansion of our India manufacturing facility, resulting in an increase in manufacturing overhead costs. The increase in net loss was partially offset by an increase in the average sales price of wind blades.

29


 

Other income (expense)

The following table summarizes our total other income (expense) for the three months ended March 31, 2022 and 2021:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

March 31,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 Interest expense, net

 

$

(769

)

 

$

(2,704

)

 

$

1,935

 

 

 

71.6

%

 Foreign currency income
  (loss)

 

 

210

 

 

 

(3,727

)

 

 

3,937

 

 

 

105.6

 

 Miscellaneous income

 

 

542

 

 

 

739

 

 

 

(197

)

 

 

(26.7

)

 Total other income
   (expense)

 

$

(17

)

 

$

(5,692

)

 

$

5,675

 

 

 

99.7

%

 

The decrease in the total other expense for the three months ended March 31, 2022, as compared to the same period in 2021, was primarily due to a decrease in the foreign currency loss due to the change in functional currency at our Turkey subsidiaries from the Turkish Lira to the Euro, as well as a decrease in interest expense due to the repayment of the outstanding senior revolving credit facility in the prior year.

Income taxes

The following table summarizes our income taxes for the three months ended March 31, 2022 and 2021:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

March 31,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 Income tax benefit
  (provision)

 

$

(2,944

)

 

$

7,102

 

 

$

(10,046

)

 

 

(141.5

)%

 Effective tax rate

 

 

-22.9

%

 

 

79.8

%

 

 

 

 

 

 

 

See Note 11, Income Taxes, to our condensed consolidated financial statements for more details about our income taxes for the three months ended March 31, 2022.

 

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, raw materials purchases, working capital, debt service costs, warranty costs and restructuring costs associated with the optimization of our global footprint. Our capital expenditures have been primarily related to machinery and equipment at our new facilities and expansion and improvements at our existing facilities. Historically, we have funded our working capital needs through cash flows from operations, the proceeds received from our credit facilities and from proceeds received from the issuance of stock. We had net repayments under our financing arrangements of $22.9 million for the three months ended March 31, 2022 as compared to net proceeds under our financing arrangements of $17.3 million in the comparable period of 2021. As of March 31, 2022 and December 31, 2021, we had $51.7 million and $74.6 million in outstanding indebtedness, respectively. As of March 31, 2022, we had an aggregate of $107.5 million of remaining capacity for cash and non-cash financing, including $84.3 million of remaining availability for cash borrowing under our various credit facilities. In addition, we also may elect, at our option through November 2023, to require the holders of our Series A Preferred Stock to purchase an additional $50.0 million of Series A Preferred Stock on the same terms and conditions as the initial issuance of the Series A Preferred Stock. Based upon current and anticipated levels of operations, we believe that cash on hand, available credit facilities, and cash flows from operations will be adequate to fund our working capital and capital expenditure requirements and to make required payments of principal and interest on our indebtedness over the next twelve months.

We anticipate that any new facilities and future facility expansions will be funded through cash flows from operations, the incurrence of other indebtedness and other potential sources of liquidity. At March 31, 2022 and December 31, 2021, we had unrestricted cash, cash equivalents and short-term investments totaling $130.9 million and $242.2 million, respectively. The March 31, 2022 balance includes $18.3 million of cash located outside of the United States, including $10.6 million in China, $3.0 million in Turkey, $2.4 million in India, $1.8 million in Mexico and $0.5 million in other countries.

30


 

Our ability to repatriate funds from China is subject to a number of restrictions imposed by the Chinese government. We repatriate funds through several technology license and corporate/administrative service agreements. We are compensated quarterly based on agreed upon royalty rates for such intellectual property licenses and quarterly fees for those services. Certain of our subsidiaries are limited in their ability to declare dividends without first meeting statutory restrictions of China, including retained earnings as determined under Chinese-statutory accounting requirements. Until 50% ($26.7 million as of March 31, 2022 and December 31, 2021) of registered capital is contributed to a surplus reserve, our China operations can only pay dividends equal to 90% of after-tax profits (10% must be contributed to the surplus reserve). Once the surplus reserve fund requirement is met, our China operations can pay dividends equal to 100% of after-tax profit assuming other conditions are met. At March 31, 2022 and December 31, 2021, the amount of the surplus reserve fund was $10.0 million. 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 March 31, 2022 was $51.7 million, including our secured and unsecured financing, working capital and term loan agreements and equipment finance leases. See Note 6, 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 three months ended March 31, 2022 and 2021:

 

 

 

Three Months Ended

 

 

 

 

 

 

March 31,

 

 

 

 

 

 

2022

 

 

2021

 

 

$ Change

 

 

 

(in thousands)

 

Net cash provided by (used in) operating activities

 

$

(81,054

)

 

$

6,740

 

 

$

(87,794

)

Net cash used in investing activities

 

 

(5,516

)

 

 

(18,786

)

 

 

13,270

 

Net cash provided by (used in) financing activities

 

 

(23,279

)

 

 

18,471

 

 

 

(41,750

)

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

 

 

(1,607

)

 

 

(49

)

 

 

(1,558

)

Net change in cash, cash equivalents and restricted cash

 

$

(111,456

)

 

$

6,376

 

 

$

(117,832

)

Operating Cash Flows

Net cash provided by operating activities decreased by $87.8 million for the three months ended March 31, 2022, as compared to the same period in 2021, primarily as a result of an increase in our operating loss, an increase in accounts receivable due to delayed payments from a customer, and a decrease in accounts payable. In addition, the decrease in net cash provided by operating activities for the three months ended March 31, 2022, as compared to the same period in 2021, is due to an increase in contract assets, which was the result of increased procurement of customer specific materials in order to minimize the risk of potential production disruptions that may occur give the recent COVID-19 impacts in China and geopolitical uncertainties with the ongoing Russia and Ukraine war.

Investing Cash Flows

Net cash used in investing activities decreased by $13.3 million for the three months ended March 31, 2022, as compared to the same period in 2021, as a result of a decrease in capital expenditures.

We anticipate fiscal year 2022 capital expenditures of approximately $30 million and we estimate that the cost that we will incur after March 31, 2022 to complete our current projects in process will be approximately $6.9 million. We have used, and will continue to use, cash flows from operations, the proceeds received from our credit facilities and the proceeds received from the issuance of stock for major projects currently being undertaken, which include the expansion of our manufacturing facility in Chennai, India and the continued investment in our existing Tukey, Mexico, China and U.S. facilities.

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Financing Cash Flows

Net cash provided by financing activities decreased by $41.8 million for the three months ended March 31, 2022, as compared to the same period in 2021, primarily as a result of increased repayments of outstanding borrowings.

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

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

The following table summarizes certain key details of each of the accounts receivable assignment agreements in place as of March 31, 2022:

 

Year Of Initial Agreement

 

Segment(s) Related To

 

Current Annual Discount Rate

2014

 

 Mexico

 

 LIBOR plus 0.75%

2018

 

 Mexico

 

 LIBOR plus 1.25%

2018

 

 EMEA

 

 EURIBOR plus 0.75%

2019

 

 Asia and Mexico

 

 LIBOR plus 1.00%

2019

 

 Asia

 

 Fixed rate of 3.85%

2020

 

 EMEA

 

 EURIBOR plus 1.95%

2020

 

 India

 

 LIBOR plus 1.00%

2020

 

 U.S.

 

 LIBOR plus 1.25%

2021

 

 Mexico

 

 LIBOR plus 1.25%

 

As the receivables are purchased by the financial institutions under the agreements noted above, the receivables are removed from our condensed consolidated balance sheet. During the three months ended March 31, 2022 and 2021, $220.1 million and $294.1 million of receivables were sold under the accounts receivable assignment agreements described above.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2, Basis of Presentation, under the heading “Accounting Pronouncements” to our condensed consolidated financial statements for a discussion of recent accounting pronouncements.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Foreign Currency Exchange Rate Risk. We conduct international operations in China, Mexico, Turkey and India. Our results of operations are subject to both currency transaction risk and currency translation risk. We incur currency transaction risk whenever we enter into either a purchase or sale transaction using a currency other than the functional 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 functional currency and then translated into U.S. dollars for inclusion in our condensed consolidated financial statements. In recent years, exchange rates between these foreign currencies and the U.S. dollar have fluctuated significantly and may do so in the future. A hypothetical change of 10% in the exchange rates for the countries above would have resulted in a change to income from operations of approximately $19.9 million for the three months ended March 31, 2022.

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

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our raw material supply agreements have meet or release clauses, if raw materials prices decrease, we are able to benefit from the reductions in price.

Resin, resin systems, and carbon fiber are the primary commodities for which we do not have fixed pricing. Approximately 60% of the resin and resin systems, and approximately 90% of the carbon fiber, we use is purchased under contracts either controlled or borne by two of our customers and therefore they receive/bear 100% of any decrease or increase in resin and carbon fiber costs further limiting our exposure to price fluctuations.

Taking into account the 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, resin systems, and carbon fiber we believe that a 10% change in the current forecasted price of resin, resin systems, and carbon fiber for the customers in which we are exposed to fluctuating prices would have an impact to income from operations of approximately $5.0 million for the full year 2022. With respect to our other customer supply agreements, our customers typically receive/bear 70% of the cost savings or increases resulting from a change in the price of resin, resin systems, and carbon fiber.

Interest Rate Risk. As of March 31, 2022, all remaining secured and unsecured financing and finance lease obligations are fixed rate instruments and are not subject to fluctuations in interest rates.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (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 Interim 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 Interim Chief Financial Officer, evaluated the design and operating effectiveness as of March 31, 2022 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 Interim Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2022.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

See Note 14, Commitments and Contingencies, under the heading “Legal Proceedings” to our condensed consolidated financial statements for a discussion of legal proceedings and other related matters.

 

Item 1A. RISK FACTORS

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

Our business, operations and financial condition during the three months ended March 31, 2022 were not materially adversely affected by the COVID-19 pandemic however we cannot estimate the duration of the COVID-19 pandemic and our business may be adversely affected in the future if the COVID-19 pandemic persists.

 

The COVID-19 pandemic did not materially adversely affect our manufacturing operations during the three months ended March 31, 2022. However, our manufacturing facility in Yangzhou, China was shut down for approximately three weeks during the three months ended September 30, 2021 due to an outbreak of positive COVID-19 cases in Yangzhou City, which had an adverse impact on our results of operations for the three months ended September 30, 2021. Although all of our manufacturing facilities currently are operating at or near normal production levels, we may be required to reinstate temporary production suspensions or volume reductions at our manufacturing facilities to the extent there are new resurgences of COVID-19 cases in the regions where we operate or there is an outbreak of positive COVID-19 cases in any of our manufacturing facilities. However, our global supply chain has been adversely affected by the COVID-19 pandemic in 2022 and our global supply chain may continue to be adversely affected if the COVID-19 pandemic persists.

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

Issuer Purchases of Equity Securities

 

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

 

January (January 1 - January 31)

 

 

 

 

$

 

 

 

 

 

 

 

February (February 1 - February 28)

 

 

 

 

 

 

 

 

 

 

 

 

March (March 1 - March 31)

 

 

26,923

 

 

 

12.73

 

 

 

 

 

 

 

Total

 

 

26,923

 

 

12.73

 

 

 

 

 

 

 

Use of Proceeds

Not applicable.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

None.

 

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Item 6. EXHIBITS

 

Exhibit

Number

 

Exhibit Description

 

 

 

  31.1*

 

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

 

 

 

  31.2*

 

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

 

 

 

  32.1**

 

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

 

 

 

  32.2**

 

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

 

 

 

101.INS*

 

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

101.SCH*

 

Inline XBRL Taxonomy Extension Schema Document

101.CAL*

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

 

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

  104*

 

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

 

* Filed herewith.

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

 

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SIGNATURES

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

 

 

 

TPI COMPOSITES, INC.

 

 

 

 

 

 

 

 

 

 

Date: May 5, 2022

 

By:

 

/s/ Adan Gossar

 

 

 

 

Adan Gossar

 

 

 

 

Interim Chief Financial Officer

 

 

 

 

(Principal Financial Officer)

 

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