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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 September 30, 2023

OR

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

Commission File Number 001-37839

 

img145779452_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)

9200 E. Pima Center Parkway, Suite 250

Scottsdale, AZ 85258

(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 October 31, 2023, there were 42,571,228 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 September 30, 2023 and December 31, 2022

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2023 and 2022

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Changes in Mezzanine Equity and Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022

 

7

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022

10

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

12

 

 

 

 

 

ITEM 2.

 

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

28

 

 

 

 

 

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

41

 

 

 

 

 

ITEM 4.

 

Controls and Procedures

42

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Legal Proceedings

43

 

 

 

 

 

ITEM 1A.

 

Risk Factors

43

 

 

 

 

 

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

43

 

 

 

 

 

ITEM 3.

 

Defaults Upon Senior Securities

43

 

 

 

 

 

ITEM 4.

 

Mine Safety Disclosures

43

 

 

 

 

 

ITEM 5.

 

Other Information

43

 

 

 

 

 

ITEM 6.

 

Exhibits

44

 

 

 

 

 

SIGNATURES

 

45

 

 

1


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). 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,” “targets,” “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:

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;
the sufficiency of our cash and cash equivalents to meet our liquidity needs;
the increasing cost and availability of additional capital, should such capital be needed;
the current status 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 absorb or mitigate the impact of wage inflation in the countries in which we operate;
our ability to procure adequate supplies of raw materials and components to fulfill our wind blade 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 and energy policy;
changes in global economic trends and uncertainty, geopolitical risks, and demand or supply disruptions from global events;
changes in macroeconomic and market conditions, including the potential impact of any pandemic, risk of recession, rising interest rates and inflation, supply chain constraints, commodity prices and exchange rates, and the impact of such changes on our business and results of operations;
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;
our ability to keep up with market changes and innovations;
our ability to successfully open new manufacturing facilities and expand existing facilities on time and on budget;
the impact of the pace of new product and wind blade model introductions on our business and our results of operations;
our ability to identify and execute a strategic alternative to enable the growth of our automotive business;
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 associates and key personnel;

2


 

our ability to maintain good working relationships with our associates, and avoid labor disruptions, strikes and other disputes with labor unions that represent certain of our associates; and
the potential impact of one or more of our customers becoming bankrupt or insolvent, or experiencing other financial problems.

These forward-looking statements are only predictions. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, levels of activity, performance or achievements to materially differ from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. We have described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the United States Securities and Exchange Commission (SEC) on February 22, 2023 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)

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(in thousands, except par value data)

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

160,649

 

 

$

133,546

 

Restricted cash

 

 

9,300

 

 

 

9,854

 

Accounts receivable

 

 

135,660

 

 

 

184,809

 

Contract assets

 

 

184,379

 

 

 

215,939

 

Prepaid expenses

 

 

27,321

 

 

 

29,119

 

Other current assets

 

 

34,484

 

 

 

26,052

 

Inventories

 

 

5,779

 

 

 

10,661

 

Current assets of discontinued operations

 

 

4,857

 

 

 

35,182

 

Total current assets

 

 

562,429

 

 

 

645,162

 

Property, plant and equipment, net

 

 

128,071

 

 

 

136,841

 

Operating lease right of use assets

 

 

134,732

 

 

 

152,312

 

Other noncurrent assets

 

 

30,219

 

 

 

27,861

 

Total assets

 

$

855,451

 

 

$

962,176

 

 

 

 

 

 

 

Liabilities, Mezzanine Equity and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

247,562

 

 

$

280,499

 

Accrued warranty

 

 

42,955

 

 

 

22,347

 

Current maturities of long-term debt

 

 

63,290

 

 

 

59,975

 

Current operating lease liabilities

 

 

21,912

 

 

 

22,220

 

Contract liabilities

 

 

1,792

 

 

 

17,100

 

Current liabilities of discontinued operations

 

 

7,954

 

 

 

54,440

 

Total current liabilities

 

 

385,465

 

 

 

456,581

 

Long-term debt, net of current maturities

 

 

128,834

 

 

 

1,198

 

Noncurrent operating lease liabilities

 

 

117,038

 

 

 

133,363

 

Other noncurrent liabilities

 

 

15,272

 

 

 

10,670

 

Total liabilities

 

 

646,609

 

 

 

601,812

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

Mezzanine equity:

 

 

 

 

 

 

Series A Preferred Stock, $0.01 par value, 400 shares authorized; 350 shares
   issued and outstanding at September 30, 2023 and December 31, 2022; liquidation
   preference of $
488,625 at September 30, 2023 and $475,735 at December 31, 2022

 

 

356,679

 

 

 

309,877

 

Stockholders’ equity:

 

 

 

 

 

 

Common shares, $0.01 par value, 100,000 shares authorized, 43,091 shares issued
   and
42,571 shares outstanding at September 30, 2023 and 100,000 shares authorized,
   
42,369 shares issued and 42,044 shares outstanding at December 31, 2022

 

 

431

 

 

 

424

 

Paid-in capital

 

 

351,448

 

 

 

407,570

 

Accumulated other comprehensive loss

 

 

(10,834

)

 

 

(15,387

)

Accumulated deficit

 

 

(478,748

)

 

 

(334,569

)

Treasury stock, at cost, 520 shares at September 30, 2023 and 325 shares at
   December 31, 2022

 

 

(10,134

)

 

 

(7,551

)

Total stockholders’ equity

 

 

(147,837

)

 

 

50,487

 

Total liabilities, mezzanine equity and stockholders’ equity

 

$

855,451

 

 

$

962,176

 

See accompanying notes to our unaudited condensed consolidated financial statements.

4


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(in thousands, except per share data)

 

Net sales

 

$

372,860

 

 

$

384,438

 

 

$

1,158,197

 

 

$

1,120,465

 

Cost of sales

 

 

379,219

 

 

 

380,729

 

 

 

1,203,867

 

 

 

1,099,368

 

Startup and transition costs

 

 

4,817

 

 

 

4,821

 

 

 

10,174

 

 

 

22,417

 

Total cost of goods sold

 

 

384,036

 

 

 

385,550

 

 

 

1,214,041

 

 

 

1,121,785

 

Gross loss

 

 

(11,176

)

 

 

(1,112

)

 

 

(55,844

)

 

 

(1,320

)

General and administrative expenses

 

 

28,709

 

 

 

8,030

 

 

 

42,510

 

 

 

22,578

 

Loss on sale of assets and asset impairments

 

 

5,857

 

 

 

2,969

 

 

 

15,269

 

 

 

6,142

 

Restructuring charges, net

 

 

1,167

 

 

 

(189

)

 

 

3,490

 

 

 

(390

)

Loss from continuing operations

 

 

(46,909

)

 

 

(11,922

)

 

 

(117,113

)

 

 

(29,650

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(1,628

)

 

 

(1,210

)

 

 

(6,034

)

 

 

(2,872

)

Foreign currency income (loss)

 

 

(579

)

 

 

8,207

 

 

 

(3,278

)

 

 

14,306

 

Miscellaneous income

 

 

393

 

 

 

991

 

 

 

1,546

 

 

 

997

 

Total other income (expense)

 

 

(1,814

)

 

 

7,988

 

 

 

(7,766

)

 

 

12,431

 

Loss from continuing operations before income taxes

 

 

(48,723

)

 

 

(3,934

)

 

 

(124,879

)

 

 

(17,219

)

Income tax provision

 

 

(8,040

)

 

 

(2,852

)

 

 

(12,205

)

 

 

(11,678

)

Net loss from continuing operations

 

 

(56,763

)

 

 

(6,786

)

 

 

(137,084

)

 

 

(28,897

)

Preferred stock dividends and accretion

 

 

(16,031

)

 

 

(14,976

)

 

 

(46,802

)

 

 

(43,658

)

Net loss from continuing operations attributable to common stockholders

 

 

(72,794

)

 

 

(21,762

)

 

 

(183,886

)

 

 

(72,555

)

Net income (loss) from discontinued operations

 

 

(52

)

 

 

5,319

 

 

 

(7,095

)

 

 

6,120

 

Net loss attributable to common stockholders

 

$

(72,846

)

 

$

(16,443

)

 

$

(190,981

)

 

$

(66,435

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares of common stock outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

42,570

 

 

 

41,984

 

 

 

42,448

 

 

 

41,950

 

Diluted

 

 

42,570

 

 

 

41,984

 

 

 

42,448

 

 

 

41,950

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.71

)

 

$

(0.52

)

 

$

(4.33

)

 

$

(1.73

)

Diluted

 

$

(1.71

)

 

$

(0.52

)

 

$

(4.33

)

 

$

(1.73

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) from discontinued operations per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.00

)

 

$

0.13

 

 

$

(0.17

)

 

$

0.15

 

Diluted

 

$

(0.00

)

 

$

0.13

 

 

$

(0.17

)

 

$

0.15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.71

)

 

$

(0.39

)

 

$

(4.50

)

 

$

(1.58

)

Diluted

 

$

(1.71

)

 

$

(0.39

)

 

$

(4.50

)

 

$

(1.58

)

 

See accompanying notes to our unaudited condensed consolidated financial statements.

 

5


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Net loss from continuing operations attributable to common stockholders

 

$

(72,794

)

 

$

(21,762

)

 

$

(183,886

)

 

$

(72,555

)

Net income (loss) from discontinued operations

 

 

(52

)

 

 

5,319

 

 

 

(7,095

)

 

 

6,120

 

Net loss attributable to common stockholders

 

 

(72,846

)

 

 

(16,443

)

 

 

(190,981

)

 

 

(66,435

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(3,052

)

 

 

(7,903

)

 

 

(1,858

)

 

 

28,120

 

Reclassification of foreign currency translation
   adjustments from disposition and exit of business
   activities, net of tax of $
0

 

 

901

 

 

 

 

 

 

901

 

 

 

 

Unrealized gain (loss) on hedging derivatives, net of taxes of
   $
0 for each of the presented periods

 

 

318

 

 

 

(582

)

 

 

2,261

 

 

 

1,574

 

Reclassification of (gain) loss on hedging derivatives,
   net of taxes of $
0 for each of the presented periods

 

 

3,307

 

 

 

(187

)

 

 

3,249

 

 

 

(1,325

)

Comprehensive loss

 

$

(71,372

)

 

$

(25,115

)

 

$

(186,428

)

 

$

(38,066

)

 

See accompanying notes to our unaudited condensed consolidated financial statements.

 

6


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

Nine Months Ended September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2022

 

 

350

 

 

$

309,877

 

 

 

 

42,369

 

 

$

424

 

 

$

407,570

 

 

$

(15,387

)

 

$

(334,569

)

 

$

(7,551

)

 

$

50,487

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,127

)

 

 

 

 

 

(22,127

)

Preferred stock dividends

 

 

 

 

 

10,706

 

 

 

 

 

 

 

 

 

 

(10,706

)

 

 

 

 

 

 

 

 

 

 

 

(10,706

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,010

 

 

 

 

 

 

 

 

 

2,010

 

Common stock
repurchased
for treasury

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,549

)

 

 

(2,549

)

Issuances under share-
based compensation
plan

 

 

 

 

 

 

 

 

 

627

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

Share-based
compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,720

 

 

 

 

 

 

 

 

 

 

 

 

2,720

 

Accretion of Series A
Preferred Stock

 

 

 

 

 

4,467

 

 

 

 

 

 

 

 

 

 

(4,467

)

 

 

 

 

 

 

 

 

 

 

 

(4,467

)

Capped call transactions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,590

)

 

 

 

 

 

 

 

 

 

 

 

(18,590

)

Balance at
   March 31, 2023

 

 

350

 

 

 

325,050

 

 

 

 

42,996

 

 

 

430

 

 

 

376,527

 

 

 

(13,377

)

 

 

(356,696

)

 

 

(10,100

)

 

 

(3,216

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(65,237

)

 

 

 

 

 

(65,237

)

Preferred stock dividends

 

 

 

 

 

11,118

 

 

 

 

 

 

 

 

 

 

(11,118

)

 

 

 

 

 

 

 

 

 

 

 

(11,118

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,069

 

 

 

 

 

 

 

 

 

1,069

 

Common stock
repurchased
for treasury

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(34

)

 

 

(34

)

Issuances under share-
based compensation
plan

 

 

 

 

 

 

 

 

 

93

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Share-based
compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,926

 

 

 

 

 

 

 

 

 

 

 

 

3,926

 

Accretion of Series A
Preferred Stock

 

 

 

 

 

4,480

 

 

 

 

 

 

 

 

 

 

(4,480

)

 

 

 

 

 

 

 

 

 

 

 

(4,480

)

Balance at
   June 30, 2023

 

 

350

 

 

 

340,648

 

 

 

 

43,089

 

 

 

431

 

 

 

364,855

 

 

 

(12,308

)

 

 

(421,933

)

 

 

(10,134

)

 

 

(79,089

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(56,815

)

 

 

 

 

 

(56,815

)

Preferred stock dividends

 

 

 

 

 

11,549

 

 

 

 

 

 

 

 

 

 

(11,549

)

 

 

 

 

 

 

 

 

 

 

 

(11,549

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,474

 

 

 

 

 

 

 

 

 

1,474

 

Common stock
repurchased
for treasury

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7


 

Issuances under share-
based compensation
plan

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based
compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,624

 

 

 

 

 

 

 

 

 

 

 

 

2,624

 

Accretion of Series A
Preferred Stock

 

 

 

 

 

4,482

 

 

 

 

 

 

 

 

 

 

(4,482

)

 

 

 

 

 

 

 

 

 

 

 

(4,482

)

Balance at
   September 30, 2023

 

 

350

 

 

$

356,679

 

 

 

 

43,091

 

 

$

431

 

 

$

351,448

 

 

$

(10,834

)

 

$

(478,748

)

 

$

(10,134

)

 

$

(147,837

)

 

 

 

Nine Months Ended September 30, 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

)

 

 

141,031

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,510

)

 

 

 

 

 

(5,510

)

Preferred stock dividends

 

 

 

 

 

9,975

 

 

 

 

 

 

 

 

 

 

(9,975

)

 

 

 

 

 

 

 

 

 

 

 

(9,975

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,033

)

 

 

 

 

 

 

 

 

(9,033

)

Common stock
repurchased
for treasury

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(45

)

 

 

(45

)

Issuances under share-
based compensation
plan

 

 

 

 

 

 

 

 

 

33

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Share-based
compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,726

 

 

 

 

 

 

 

 

 

 

 

 

3,726

 

Accretion of Series A
Preferred Stock

 

 

 

 

 

4,575

 

 

 

 

 

 

 

 

 

 

(4,575

)

 

 

 

 

 

 

 

 

 

 

 

(4,575

)

Balance at
   June 30, 2022

 

 

350

 

 

 

279,656

 

 

 

 

37,557

 

 

 

376

 

 

 

429,763

 

 

 

(16,965

)

 

 

(290,574

)

 

 

(6,980

)

 

 

115,620

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,467

)

 

 

 

 

 

(1,467

)

Preferred stock dividends

 

 

 

 

 

10,361

 

 

 

 

 

 

 

 

 

 

(10,361

)

 

 

 

 

 

 

 

 

 

 

 

(10,361

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,672

)

 

 

 

 

 

 

 

 

(8,672

)

Common stock
repurchased
for treasury

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8


 

Issuances under share-
based compensation
plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common
stock from the
exercise of warrants

 

 

 

 

 

 

 

 

 

4,664

 

 

 

46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

46

 

Share-based
compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,726

 

 

 

 

 

 

 

 

 

 

 

 

3,726

 

Accretion of Series A
Preferred Stock

 

 

 

 

 

4,615

 

 

 

 

 

 

 

 

 

 

(4,615

)

 

 

 

 

 

 

 

 

 

 

 

(4,615

)

Balance at
   September 30, 2022

 

 

350

 

 

$

294,632

 

 

 

 

42,221

 

 

$

422

 

 

$

418,513

 

 

$

(25,637

)

 

$

(292,041

)

 

$

(6,980

)

 

$

94,277

 

 

See accompanying notes to our unaudited condensed consolidated financial statements.

 

9


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(144,179

)

 

$

(22,777

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

29,798

 

 

 

34,175

 

Provision for credit losses

 

 

20,929

 

 

 

 

Loss on sale of assets and asset impairments

 

 

16,748

 

 

 

7,093

 

Share-based compensation expense

 

 

9,278

 

 

 

10,781

 

Amortization of debt issuance costs

 

 

552

 

 

 

 

Deferred income taxes

 

 

(1,937

)

 

 

5,747

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

28,122

 

 

 

(36,880

)

Contract assets and liabilities

 

 

3,179

 

 

 

(26,623

)

Operating lease right of use assets and operating lease liabilities

 

 

(8,577

)

 

 

(2,581

)

Inventories

 

 

6,358

 

 

 

(3,838

)

Prepaid expenses

 

 

3,637

 

 

 

212

 

Other current assets

 

 

(8,248

)

 

 

(4,402

)

Other noncurrent assets

 

 

5,824

 

 

 

2,227

 

Accounts payable and accrued expenses

 

 

(70,043

)

 

 

(27,071

)

Accrued warranty

 

 

20,608

 

 

 

(21,808

)

Other noncurrent liabilities

 

 

2,043

 

 

 

650

 

Net cash used in operating activities

 

 

(85,908

)

 

 

(85,095

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(15,846

)

 

 

(11,492

)

Proceeds from sale of business

 

 

12,836

 

 

 

 

Net cash used in investing activities

 

 

(3,010

)

 

 

(11,492

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of convertible notes

 

 

132,500

 

 

 

 

Purchase of capped calls

 

 

(18,590

)

 

 

 

Payments of debt issuance costs

 

 

(4,810

)

 

 

 

Repayments of revolving and term loans

 

 

 

 

 

(8,109

)

Proceeds from working capital loans

 

 

33,927

 

 

 

25,044

 

Repayments of working capital loans

 

 

(35,479

)

 

 

(20,701

)

Principal repayments of finance leases

 

 

(1,038

)

 

 

(5,055

)

Net proceeds from (repayments of) other debt

 

 

5,102

 

 

 

(3,704

)

Proceeds from exercise of stock options

 

 

 

 

 

48

 

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

 

 

(2,583

)

 

 

(388

)

Net cash provided by (used in) financing activities

 

 

109,029

 

 

 

(12,865

)

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

 

 

700

 

 

 

(3,807

)

Net change in cash, cash equivalents and restricted cash

 

 

20,811

 

 

 

(113,259

)

Cash, cash equivalents and restricted cash, beginning of year

 

 

153,069

 

 

 

252,218

 

Cash, cash equivalents and restricted cash, end of period

 

$

173,880

 

 

$

138,959

 

 

 

See accompanying notes to our unaudited condensed consolidated financial statements.

 

 

 

10


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Supplemental cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

8,151

 

 

$

3,406

 

Cash paid for income taxes, net of refunds

 

 

15,742

 

 

 

19,908

 

Noncash investing and financing activities:

 

 

 

 

 

 

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

 

 

2,344

 

 

 

11,628

 

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

 

 

197

 

 

 

 

Accrued capital expenditures in accounts payable

 

 

2,574

 

 

 

1,793

 

Paid-in-kind preferred stock dividends and accretion

 

 

46,802

 

 

 

43,658

 

 

 

Reconciliation of Cash, Cash Equivalents and Restricted Cash:

 

September 30,

 

 

December 31,

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

  Cash and cash equivalents

 

$

160,649

 

 

$

133,546

 

 

$

86,812

 

 

$

216,236

 

  Restricted cash

 

 

9,300

 

 

 

9,854

 

 

 

9,822

 

 

 

10,053

 

  Cash and cash equivalents of discontinued operations

 

 

3,931

 

 

 

9,669

 

 

 

42,325

 

 

 

25,929

 

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

 

$

173,880

 

 

$

153,069

 

 

$

138,959

 

 

$

252,218

 

 

 

See accompanying notes to our unaudited condensed consolidated financial statements.

11


 

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 Türkiye 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 the 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 an offset to the currency translation adjustment account. See Note 1(b) to our Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2022 for further information on the functional currency change for our operations in Türkiye.

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, 2022 included in our Annual Report on Form 10-K. Although we believe the disclosures that are made are adequate to make the information presented herein not misleading, 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. 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 September 30, 2023, and the results of our operations, comprehensive income (loss) and cash flows for the periods presented. Interim results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year. Certain prior period amounts in the condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation.

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

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

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

Recently Issued Accounting Pronouncements

Supplier Finance Programs

In September 2022, the FASB issued ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50), which requires the disclosure of the key terms of outstanding supplier finance programs and a roll forward of the related obligations. The new standard does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. We adopted this standard on January 1, 2023, except for the roll forward requirement, which becomes effective January 1, 2024. The new standard did not have a material impact on our condensed consolidated financial statements.

The Company has determined that no other recent accounting pronouncements apply to our operations or could otherwise have a material impact on our consolidated financial statements.

12


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 3. Discontinued Operations

In December 2022, the Company committed to a restructuring plan to rebalance our organization and optimize our global manufacturing footprint. Changing economic and geopolitical factors, including increased logistics costs and tariffs imposed on components of wind turbines from China, including wind blades, has had an adverse impact on demand for our wind blades manufactured in our Chinese facilities. In connection with our restructuring plan, we ceased production at our Yangzhou, China manufacturing facility as of December 31, 2022 and are in the final stages of shutting down our business operations in China. Our business operations in China comprised the entirety of our Asia reporting segment. This shut down has had a meaningful effect on our global manufacturing footprint and consolidated financial results. Accordingly, the historical results of our Asia reporting segment have been presented as discontinued operations in our Consolidated Statements of Operations and Consolidated Balance Sheets. During the three months ended September 30, 2023, we completed the sale of our Taicang, China operations and received net proceeds of $12.8 million resulting in a net gain on the sale of $0.4 million.

The following table presents the carrying amounts of major classes of assets and liabilities that were included in discontinued operations:

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Cash and cash equivalents

 

$

3,931

 

 

$

9,669

 

Accounts receivable

 

 

897

 

 

 

2,716

 

Prepaid expenses

 

 

 

 

 

1,877

 

Inventories

 

 

17

 

 

 

1,501

 

Property, plant and equipment, net

 

 

 

 

 

17,678

 

Other classes of assets that are not major

 

 

12

 

 

 

1,741

 

Total assets of discontinued operations

 

$

4,857

 

 

$

35,182

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

4,385

 

 

$

26,942

 

Accrued restructuring

 

 

3,359

 

 

 

17,764

 

Operating lease liabilities

 

 

 

 

 

9,524

 

Other classes of liabilities that are not major

 

 

210

 

 

 

210

 

Total liabilities of discontinued operations

 

$

7,954

 

 

$

54,440

 

The following table presents the components of net income (loss) from discontinued operations:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(In thousands)

 

 

(In thousands)

 

Net sales

 

$

749

 

 

$

74,833

 

 

$

2,950

 

 

$

176,044

 

Cost of sales

 

 

1,197

 

 

 

65,049

 

 

 

8,600

 

 

 

158,462

 

Startup and transition costs

 

 

 

 

 

 

 

 

 

 

 

7,994

 

Total cost of goods sold

 

 

1,197

 

 

 

65,049

 

 

 

8,600

 

 

 

166,456

 

Gross profit (loss)

 

 

(448

)

 

 

9,784

 

 

 

(5,650

)

 

 

9,588

 

(Gain) loss on sale of assets and asset impairments

 

 

(442

)

 

 

602

 

 

 

1,479

 

 

 

951

 

Restructuring charges, net

 

 

(57

)

 

 

102

 

 

 

1,403

 

 

 

2,706

 

Income (loss) from discontinued operations

 

 

51

 

 

 

9,080

 

 

 

(8,532

)

 

 

5,931

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

 

1

 

 

 

61

 

 

 

42

 

 

 

41

 

Foreign currency income (loss)

 

 

(64

)

 

 

3,155

 

 

 

(217

)

 

 

7,152

 

Miscellaneous income (expense)

 

 

(40

)

 

 

282

 

 

 

1,612

 

 

 

1,127

 

Total other income

 

 

(103

)

 

 

3,498

 

 

 

1,437

 

 

 

8,320

 

Income (loss) before income taxes

 

 

(52

)

 

 

12,578

 

 

 

(7,095

)

 

 

14,251

 

Income tax provision

 

 

 

 

 

(7,259

)

 

 

 

 

 

(8,131

)

Net income (loss) from discontinued operations

 

$

(52

)

 

$

5,319

 

 

$

(7,095

)

 

$

6,120

 

 

13


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents summarized cash flows from discontinued operations:

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Net cash provided by (used in) operating activities from discontinued operations

 

$

(5,517

)

 

$

18,460

 

Net cash used in investing activities from discontinued operations

 

 

(185

)

 

 

(1,920

)

Additional non-cash items related to operating activities from discontinued operations:

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

4,844

 

Share-based compensation expense

 

 

135

 

 

 

505

 

The following is a summary of our restructuring liability activity related to discontinued operations for the periods presented:

 

 

 

Severance

 

 

Other

 

 

Total

 

 

 

(in thousands)

 

Balance at December 31, 2022

 

$

15,757

 

 

$

2,007

 

 

$

17,764

 

Restructuring charges, net

 

 

(17

)

 

 

1,475

 

 

 

1,458

 

Payments

 

 

(9,184

)

 

 

(2,096

)

 

 

(11,280

)

Balance at March 31, 2023

 

 

6,556

 

 

 

1,386

 

 

 

7,942

 

Restructuring charges, net

 

 

 

 

 

 

 

 

 

Payments

 

 

(3,293

)

 

 

(200

)

 

 

(3,493

)

Balance at June 30, 2023

 

 

3,263

 

 

 

1,186

 

 

 

4,449

 

Restructuring charges, net

 

 

 

 

 

(55

)

 

 

(55

)

Payments

 

 

(971

)

 

 

(64

)

 

 

(1,035

)

Balance at September 30, 2023

 

$

2,292

 

 

$

1,067

 

 

$

3,359

 

 

Note 4. 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 – (d) Revenue Recognition, to the Notes to Consolidated Financial Statements within our Annual Report on Form 10-K for the year ended December 31, 2022.

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

 

 

 

Three Months Ended September 30, 2023

 

 

 

U.S.

 

 

Mexico

 

 

EMEA

 

 

India

 

 

Total

 

 

 

(in thousands)

 

Wind blade, tooling and other wind
   related sales

 

$

 

 

$

156,077

 

 

$

146,593

 

 

$

59,561

 

 

$

362,231

 

Automotive sales

 

 

2,619

 

 

 

 

 

 

 

 

 

 

 

 

2,619

 

Field service, inspection and
   repair services sales

 

 

4,565

 

 

 

784

 

 

 

2,661

 

 

 

 

 

 

8,010

 

Total net sales

 

$

7,184

 

 

$

156,861

 

 

$

149,254

 

 

$

59,561

 

 

$

372,860

 

 

 

 

Three Months Ended September 30, 2022

 

 

 

U.S.

 

 

Mexico

 

 

EMEA

 

 

India

 

 

Total

 

 

 

(in thousands)

 

Wind blade, tooling and other wind
   related sales

 

$

1,151

 

 

$

163,833

 

 

$

124,845

 

 

$

65,967

 

 

$

355,796

 

Automotive sales

 

 

10,542

 

 

 

 

 

 

 

 

 

 

 

 

10,542

 

Field service, inspection and
   repair services sales

 

 

15,062

 

 

 

535

 

 

 

2,503

 

 

 

 

 

 

18,100

 

Total net sales

 

$

26,755

 

 

$

164,368

 

 

$

127,348

 

 

$

65,967

 

 

$

384,438

 

 

14


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

 

Nine Months Ended September 30, 2023

 

 

 

U.S.

 

 

Mexico

 

 

EMEA

 

 

India

 

 

Total

 

 

 

(in thousands)

 

Wind blade, tooling and other wind
   related sales

 

$

 

 

$

477,306

 

 

$

446,044

 

 

$

189,207

 

 

$

1,112,557

 

Automotive sales

 

 

20,130

 

 

 

 

 

 

 

 

 

 

 

 

20,130

 

Field service, inspection and
   repair services sales

 

 

19,034

 

 

 

1,173

 

 

 

5,303

 

 

 

 

 

 

25,510

 

Total net sales

 

$

39,164

 

 

$

478,479

 

 

$

451,347

 

 

$

189,207

 

 

$

1,158,197

 

 

 

 

Nine Months Ended September 30, 2022

 

 

 

U.S.

 

 

Mexico

 

 

EMEA

 

 

India

 

 

Total

 

 

 

(in thousands)

 

Wind blade, tooling and other wind
   related sales

 

$

1,317

 

 

$

483,199

 

 

$

402,582

 

 

$

158,102

 

 

$

1,045,200

 

Automotive sales

 

 

34,059

 

 

 

 

 

 

 

 

 

 

 

 

34,059

 

Field service, inspection and
   repair services sales

 

 

33,593

 

 

 

3,550

 

 

 

4,061

 

 

 

2

 

 

 

41,206

 

Total net sales

 

$

68,969

 

 

$

486,749

 

 

$

406,643

 

 

$

158,104

 

 

$

1,120,465

 

 

For a further discussion regarding our operating segments, see Note 17, Segment Reporting.

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. 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:

 

 

 

September 30,

 

 

December 31,

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

 

(in thousands)

 

Gross contract assets

 

$

197,939

 

 

$

231,487

 

 

$

(33,548

)

Less: reclassification from contract liabilities

 

 

(13,560

)

 

 

(15,548

)

 

 

1,988

 

Contract assets

 

$

184,379

 

 

$

215,939

 

 

$

(31,560

)

 

 

 

 

September 30,

 

 

December 31,

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

 

(in thousands)

 

Gross contract liabilities

 

$

15,352

 

 

$

32,648

 

 

$

(17,296

)

Less: reclassification to contract assets

 

 

(13,560

)

 

 

(15,548

)

 

 

1,988

 

Contract liabilities

 

$

1,792

 

 

$

17,100

 

 

$

(15,308

)

 

 

15


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Contract assets decreased by $31.6 million from December 31, 2022 to September 30, 2023, primarily due to a $12.8 million impairment of contract assets associated with our bus body supply agreement with Proterra, Inc. (Proterra), one of our customers in our automotive business line that filed for bankruptcy during the three months ended September 30, 2023, as well as a decrease in customer specific material purchases during the nine months ended September 30, 2023. Contract liabilities, net of the amounts reclassed to contract assets decreased by $15.3 million from December 31, 2022 to September 30, 2023. For the nine months ended September 30, 2023, we recognized $17.1 million of revenue related to customer advances, which was included in the corresponding contract liability balance at the beginning of the period.

Performance Obligations

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

As of September 30, 2023, the aggregate amount of the transaction price allocated to the remaining performance obligations to be satisfied in future periods was approximately $0.9 billion. This total transaction price excludes approximately $19.4 million of variable consideration related to one of our customer supply agreements, which has been constrained primarily due to uncertainty associated with production volume during the remaining term. Had the variable consideration not been constrained, approximately $12.8 million of the $19.4 million revenue would have been recognized as of September 30, 2023. We estimate the constraint will be resolved in subsequent periods when our customer provides additional information relevant to forecasted future production. We estimate that we will recognize the remaining performance obligations as revenue as follows:

 

 

 

$

 

 

% of Total

 

 

 

(in thousands)

 

Year Ending December 31,

 

 

 

 

 

 

Remainder of 2023

 

$

265,094

 

 

 

31.2

%

2024

 

 

486,194

 

 

 

57.1

 

2025

 

 

99,868

 

 

 

11.7

 

  Total remaining performance obligations

 

$

851,156

 

 

 

100

%

For the three and nine months ended September 30, 2023, net revenue recognized from our performance obligations satisfied in previous periods decreased by $0.1 million and $15.6 million, respectively. For the three months ended September 30, 2022, net revenue recognized from our performance obligations satisfied in previous periods increased by $0.3 million. For the nine months ended September 30, 2022, net revenue recognized from our performance obligations satisfied in previous periods decreased by $10.3 million. The decreases for the three and nine months ended September 30, 2023 primarily relate to changes in certain of our estimated total contract values and related direct costs to complete the performance obligations.

Note 5. 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 16, Concentration of Customers.

In January 2024, we will be required to start paying dividends quarterly in cash to the holders of our Series A Preferred Stock (the Series A Preferred Stockholders).

There have been numerous government initiatives over the past few years aimed at expanding the use of renewable energy, including the Inflation Reduction Act (IRA) in the U.S, and several policy initiatives in the European Union (EU) that are expected to accelerate the expansion of renewable energy and green technologies, simplify regulations, speed up permitting and promote cross-border projects to accelerate climate neutrality. Despite these favorable long-term policy trends, we expect reduced demand in the near term while the wind industry awaits clarity on the implementation guidance related to key components of the IRA, clarity around more robust policies in the EU, and industry headwinds caused by rising interest rates and inflation.

We maintain our U.S. cash in bank deposit and money market mutual fund 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 2023 and 2022. U.S. money market mutual fund accounts are not guaranteed by the FDIC. At September 30, 2023 and December 31,

16


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2022, we had $111.3 million and $124.4 million, respectively, of cash in bank deposit and money market mutual fund accounts in U.S. banks, which were in excess of FDIC limits. We have not experienced losses to date in any such accounts.

We also maintain cash in bank deposit accounts outside the U.S. that are not subject to FDIC limits. At September 30, 2023, this included $43.1 million in Türkiye, $4.6 million in India, $1.0 million in Mexico and $0.7 million in other countries. As of December 31, 2022, this included $2.4 million in Türkiye, $4.7 million in India, $1.4 million in Mexico and $0.7 million in other countries. We have not experienced losses to date in these accounts. In addition, at September 30, 2023 and December 31, 2022, we had short-term deposits in interest bearing accounts in the U.S. of $9.3 million and $9.9 million, respectively, which are reported as restricted cash in our condensed consolidated balance sheets. In addition, at September 30, 2023 and December 31, 2022, we had unrestricted cash and cash equivalents related to our discontinued operations of $3.9 million and $9.7 million, respectively.

Note 6. Accrued Warranty

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Warranty accrual at beginning of period

 

$

49,288

 

 

$

35,578

 

 

$

22,347

 

 

$

42,020

 

Accrual during the period

 

 

3,105

 

 

 

3,365

 

 

 

9,183

 

 

 

10,057

 

Cost of warranty services provided during the period

 

 

(22,500

)

 

 

(15,778

)

 

 

(36,334

)

 

 

(28,177

)

Changes in estimate for pre-existing warranties,
    including expirations during the period
    and foreign exchange impact

 

 

13,062

 

 

 

(2,953

)

 

 

47,759

 

 

 

(3,688

)

Warranty accrual at end of period

 

$

42,955

 

 

$

20,212

 

 

$

42,955

 

 

$

20,212

 

The increase in the change in estimate for pre-existing warranties during the three and nine months ended September 30, 2023 is primarily related to a single warranty campaign with a current customer.

Note 7. Debt

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

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

5.25% Convertible senior unsecured notes—U.S.

 

$

132,500

 

 

$

 

Unsecured financing—EMEA

 

 

48,793

 

 

 

43,556

 

Secured and unsecured working capital—India

 

 

13,695

 

 

 

15,246

 

Equipment finance leases—Mexico

 

 

1,270

 

 

 

1,909

 

Equipment finance leases—EMEA

 

 

54

 

 

 

443

 

Other equipment finance leases

 

 

70

 

 

 

19

 

Total debt—principal

 

 

196,382

 

 

 

61,173

 

Less: Debt issuance costs

 

 

(4,258

)

 

 

 

Total debt, net of debt issuance costs

 

 

192,124

 

 

 

61,173

 

Less: Current maturities of long-term debt

 

 

(63,290

)

 

 

(59,975

)

Long-term debt, net of current maturities

 

$

128,834

 

 

$

1,198

 

 

Convertible Senior Unsecured Notes:

Convertible Notes and Indenture

In March 2023, we issued and sold an aggregate of $132.5 million principal amount of convertible senior unsecured notes due in 2028 (the Notes) in a private offering to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the Securities Act). The Notes consisted of a $115.0 million initial placement and an over-allotment option that provided the initial purchasers an option to purchase an additional $17.5 million principal amount of Notes, which was fully exercised. The net proceeds from the issuance of the Notes was $109.1 million, net of $4.8 million in debt issuance

17


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

costs and $18.6 million in cash used to purchase the capped call transactions discussed below. The debt issuance costs are amortized to interest expense over the term of the Notes.

The Notes were issued pursuant to an Indenture, dated March 3, 2023 (the Indenture), between the Company and U.S. Bank Trust Company, National Association, as trustee. The Indenture includes customary covenants and sets forth certain events of default after which the Notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving the Company after which the Notes become automatically due and payable. The Notes do not contain any specific financial covenants.

The Notes bear interest at a rate of 5.25% per year, payable semiannually in arrears on March 15 and September 15 of each year, beginning on September 15, 2023. The Notes will mature on March 15, 2028, unless earlier converted, redeemed, or repurchased.

The Notes are convertible into cash, shares of the Company’s common stock, par value $0.01 per share (the Common Stock) or a combination of cash and shares of Common Stock, at the Company’s election, at an initial conversion rate of 66.5425 shares of Common Stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $15.03 per share of Common Stock. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the Indenture.

Before September 15, 2027, noteholders will have the right to convert all or any portion of their Notes, in multiples of $1,000 principal amounts, only under the following circumstances:

during any calendar quarter commencing after the calendar quarter ending on June 30, 2023, if the last reported sale price of our Common Stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter, is greater than or equal to 130% of the applicable conversion price of the Notes on each such trading day;
during the five-business day period immediately after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each day of five consecutive trading day period was less than 98% of the product of the last reported sale price of our Common Stock and the applicable conversion rate of the Notes on such trading day;
on a notice of redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, in which case we may be required to increase the conversion rate for the Notes so surrendered for conversion in connection with such redemption notice; or
on the occurrence of specified corporate events.

On or after September 15, 2027, the Notes are convertible at the option of the noteholders at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date.

The Company may not redeem the Notes prior to March 20, 2026. The Company may redeem for cash all or any portion of the Notes, at its option, on or after March 20, 2026 and prior to the 51st scheduled trading day immediately preceding the maturity date, if the last reported sale price of the Common Stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes, which means that the Company is not required to redeem or retire the Notes periodically.

We accounted for the issuance of the Notes as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives.

In connection with the issuance and sale of the Notes, the Series A Preferred Stockholders agreed to waive compliance with all covenants under the Certificate of Designations with respect to the Company’s sale and issuance of the Notes and the Company’s planned capital expenditures and incurrence of additional indebtedness of up to $17.0 million to acquire wind turbines that will provide renewable energy for our manufacturing facilities in Türkiye.

 

Capped Call Transactions

18


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On February 28, 2023, in connection with the pricing of the Notes, the Company entered into privately negotiated capped call transactions (the Base Capped Call Transactions) with certain initial purchasers of the Notes or their respective affiliates and certain other financial institutions (the Option Counterparties). On March 1, 2023, in connection with the initial purchasers’ exercise of their option to purchase additional Notes, the Company entered into additional privately negotiated capped call transactions with the Option Counterparties (the Additional Capped Call Transactions, and with the Base Capped Call Transactions, the Capped Call Transactions). The Capped Call Transactions initially cover, subject to customary anti-dilution adjustments, the number of shares of the Common Stock that underlie the Notes. The Capped Call Transactions are expected generally to reduce or offset the potential dilution to the Common Stock upon conversion of any Notes and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap. The initial cap price of the Capped Call Transactions was $23.12 per share, which represents a premium of 100% over the reported sale price of the Common Stock on The Nasdaq Global Market of $11.56 per share on February 28, 2023, and is subject to certain adjustments under the terms of the capped call transactions.

The cost of the Capped Call Transactions was $18.6 million and was recorded as a reduction to our additional paid-in-capital in our condensed consolidated balance sheets. The Capped Call Transactions will not be remeasured as long as they continue to meet the conditions for equity classification. As of September 30, 2023, the Capped Call Transactions were out-of-the-money.

Unsecured Financing – EMEA:

In April 2023, we entered into a credit agreement with a Turkish financial institution to provide up to 10.0 million Euro of unsecured financing, letters of credit and other non-cash items. During the three months ended September 30, 2023, we borrowed 9.5 million Euro against this credit facility. Interest on each borrowing accrues at a fixed rate in effect at the time of each borrowing and is payable monthly until the borrowing is repaid. As of September 30, 2023, there was 9.5 million Euro (approximately $10.1 million) outstanding under this credit agreement, and a weighted average interest rate on outstanding borrowings of 8.82%.

Secured and Unsecured Working Capital – India:

In June 2023, we entered into a working capital facility with an Indian financial institution to provide up to 1.25 billion Indian rupee (approximately $15.0 million as of September 30, 2023) of unsecured financing. During the nine months ended September 30, 2023, we borrowed 1.15 billion Indian rupee (approximately $14.1 million) against this credit facility. Interest on the unsecured borrowing accrues at a fixed rate in effect at the time of each borrowing and is payable monthly until the borrowing is repaid. As of September 30, 2023, there was 750 million Indian rupee (approximately $9.2 million) outstanding under this credit facility, and a weighted average interest rate on outstanding borrowings of 7.26%.

Note 8. Share-Based Compensation Plans

During the nine months ended September 30, 2023, we issued to certain employees an aggregate of 625,114 timed-based restricted stock units (RSUs), an additional 169,326 time-based RSUs with a guaranteed award value, 91,338 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, 2023 through December 31, 2025, 121,710 PSUs that vest upon achievement of certain cumulative total shareholder return (TSR) targets measured from January 1, 2023 through December 31, 2025 and 75,487 stock options. Of the 625,114 time-based RSUs, 90,396 of these vest 100% on the first anniversary of the grant date, and 534,718 of these vest over a three-year period with 25% of the RSUs vesting on the first and second anniversary of the grant date, and 50% vesting on the third anniversary of the grant date. The 169,326 time-based RSUs with a guaranteed award value vest over a two-year period with 50% on the first and second anniversary of the grant date, respectively, and additional shares may be issued on the second anniversary of the grant date to maintain the guaranteed award value. Each of the time-based and performance-based RSU 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.

19


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Cost of goods sold

 

$

935

 

 

$

746

 

 

$

2,176

 

 

$

2,236

 

General and administrative expenses

 

 

1,593

 

 

 

2,838

 

 

 

6,967

 

 

 

8,041

 

Total share-based compensation expense

 

$

2,528

 

 

$

3,584

 

 

$

9,143

 

 

$

10,277

 

 

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

RSUs

 

$

2,176

 

 

$

2,989

 

 

$

7,367

 

 

$

8,396

 

Stock options

 

 

284

 

 

 

221

 

 

 

736

 

 

 

550

 

PSUs

 

 

68

 

 

 

374

 

 

 

1,040

 

 

 

1,331

 

Total share-based compensation expense

 

$

2,528

 

 

$

3,584

 

 

$

9,143

 

 

$

10,277

 

 

Note 9. 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 10 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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Total operating lease cost

 

$

9,993

 

 

$

10,036

 

 

$

30,140

 

 

$

30,098

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance lease cost

 

 

 

 

 

 

 

 

 

 

 

 

  Amortization of assets under finance leases

 

$

987

 

 

$

1,198

 

 

$

3,035

 

 

$

3,104

 

  Interest on finance leases

 

 

25

 

 

 

57

 

 

 

90

 

 

 

249

 

Total finance lease cost

 

$

1,012

 

 

$

1,255

 

 

$

3,125

 

 

$

3,353

 

 

20


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Total lease assets and liabilities were as follows:

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Operating Leases

 

 

 

 

 

 

Operating lease right of use assets

 

$

134,732

 

 

$

152,312

 

 

 

 

 

 

 

 

Current operating lease liabilities

 

$

21,912

 

 

$

22,220

 

Noncurrent operating lease liabilities

 

 

117,038

 

 

 

133,363

 

   Total operating lease liabilities

 

$

138,950

 

 

$

155,583

 

 

 

 

 

 

 

 

Finance Leases

 

 

 

 

 

 

Property, plant and equipment, gross

 

$

35,850

 

 

$

35,948

 

Less: accumulated depreciation

 

 

(27,763

)

 

 

(24,272

)

Total property, plant and equipment, net

 

$

8,087

 

 

$

11,676

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

802

 

 

$

1,174

 

Long-term debt, net of current maturities

 

 

592

 

 

 

1,197

 

   Total finance lease liabilities

 

$

1,394

 

 

$

2,371

 

 

Future minimum lease payments under noncancelable leases as of September 30, 2023 were as follows:

 

 

 

Operating

 

 

Finance

 

 

 

Leases

 

 

Leases

 

 

 

(in thousands)

 

Year Ending December 31,

 

 

 

 

 

 

Remainder of 2023

 

$

9,327

 

 

$

219

 

2024

 

 

32,463

 

 

 

813

 

2025

 

 

31,915

 

 

 

440

 

2026

 

 

30,471

 

 

 

27

 

2027

 

 

25,978

 

 

 

13

 

Thereafter

 

 

53,523

 

 

 

 

  Total future minimum lease payments

 

 

183,677

 

 

 

1,512

 

Less: interest

 

 

(44,727

)

 

 

(118

)

  Total lease liabilities

 

$

138,950

 

 

$

1,394

 

 

Supplemental cash flow information related to leases was as follows:

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

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

 

 

 

 

 

 

  Operating cash flows from operating leases

 

$

28,883

 

 

$

29,120

 

  Operating cash flows from finance leases

 

 

82

 

 

 

249

 

  Financing cash flows from finance leases

 

 

1,038

 

 

 

5,055

 

 

21


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Other information related to leases was as follows:

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Weighted-Average Remaining Lease Term (In Years):

 

 

 

 

 

 

  Operating leases

 

 

5.9

 

 

 

6.4

 

  Finance leases

 

 

1.8

 

 

 

2.1

 

 

 

 

 

 

 

 

Weighted-Average Discount Rate:

 

 

 

 

 

 

  Operating leases

 

 

8.4

%

 

 

8.3

%

  Finance leases

 

 

5.0

%

 

 

6.4

%

 

As of September 30, 2023, we have additional leases related to our corporate office and field services facility totaling approximately $4.5 million which have not yet commenced, but which we expect will commence in the fourth quarter of 2023 with initial terms ranging from 7 to 8 years.

Note 10. Financial Instruments

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 sometimes enter into foreign exchange derivative contracts, including forward contracts and option contracts. We do not use such contracts for speculative or trading purposes.

Mexican Peso

In May 2023, we purchased a series of call option contracts to mitigate cash flow variability associated with forecasted expenses in the Mexican Peso against changes in the U.S. Dollar to Mexican Peso exchange rate. A premium obligation of $3.2 million was incurred at hedge initiation, with payment deferred until December 2023. The premium is amortized against our earnings on a straight-line basis over a period of seven months, the period including the expiry dates of the purchased call option contracts, through cost of sales within our consolidated statements of operations. These foreign exchange call option contracts qualified for accounting as cash flow hedges in accordance with Accounting Standards Codification Topic 815, Derivatives and Hedging, and we designated them as such.

With regards to our foreign exchange call option contracts, for the three and nine months ended September 30, 2023, $0.5 million and $1.8 million, respectively, of premium amortization was recorded through cost of sales within our condensed consolidated statements of operations, as compared to $0.3 million and $1.2 million, respectively, in the comparative prior year periods.

As of September 30, 2023, the notional values associated with our foreign exchange call option contracts qualifying as cash flow hedges were approximately 0.8 billion Mexican Pesos (approximately $42.1 million). There were no outstanding foreign exchange call option contracts as of December 31, 2022.

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

 

 

 

Condensed Consolidated

 

September 30,

 

 

December 31,

 

Financial Instrument

 

Balance Sheet Line Item

 

2023

 

 

2022

 

 

 

 

 

(in thousands)

 

Foreign exchange forward contracts

 

Other current assets

 

$

2,364

 

 

$

 

 

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

 

 

Nine Months Ended

 

Other Comprehensive

 

Statement of Operations

 

September 30,

 

 

September 30,

 

Loss Component

 

Line Item

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

(in thousands)

 

Foreign exchange forward
  contracts

 

Cost of sales

 

$

(1,235

)

 

$

(187

)

 

$

(1,293

)

 

$

(1,325

)

 

22


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 11. Restructuring Charges, Net

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

 

 

 

Three Months Ended September 30, 2023

 

 

 

U.S.

 

 

Mexico

 

 

EMEA

 

 

Total

 

 

 

(in thousands)

 

Severance

 

$

331

 

 

$

216

 

 

$

644

 

 

$

1,191

 

Other restructuring costs

 

 

(24

)

 

 

 

 

 

 

 

 

(24

)

Total restructuring charges, net

 

$

307

 

 

$

216

 

 

$

644

 

 

$

1,167

 

 

 

 

Three Months Ended September 30, 2022

 

 

 

U.S.

 

 

Mexico

 

 

EMEA

 

 

Total

 

 

 

(in thousands)

 

Severance

 

$

 

 

$

(496

)

 

$

307

 

 

$

(189

)

Other restructuring costs

 

 

 

 

 

 

 

 

 

 

 

 

Total restructuring charges, net

 

$

 

 

$

(496

)

 

$

307

 

 

$

(189

)

 

 

 

Nine Months Ended September 30, 2023

 

 

 

U.S.

 

 

Mexico

 

 

EMEA

 

 

Total

 

 

 

(in thousands)

 

Severance

 

$

306

 

 

$

316

 

 

$

2,892

 

 

$

3,514

 

Other restructuring costs

 

 

(24

)

 

 

 

 

 

 

 

 

(24

)

Total restructuring charges, net

 

$

282

 

 

$

316

 

 

$

2,892

 

 

$

3,490

 

 

 

 

Nine Months Ended September 30, 2022

 

 

 

U.S.

 

 

Mexico

 

 

EMEA

 

 

Total

 

 

 

(in thousands)

 

Severance

 

$

100

 

 

$

(1,041

)

 

$

307

 

 

$

(634

)

Other restructuring costs

 

 

244

 

 

 

 

 

 

 

 

 

244

 

Total restructuring charges, net

 

$

344

 

 

$

(1,041

)

 

$

307

 

 

$

(390

)

 

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

 

 

 

U.S.

 

 

Mexico

 

 

EMEA

 

 

Total

 

 

 

(in thousands)

 

Balance at December 31, 2022

 

$

457

 

 

$

 

 

$

30

 

 

$

487

 

Restructuring charges, net

 

 

(25

)

 

 

100

 

 

 

 

 

 

75

 

Payments

 

 

(432

)

 

 

(100

)

 

 

(27

)

 

 

(559

)

Balance at March 31, 2023

 

 

 

 

 

 

 

 

3

 

 

 

3

 

Restructuring charges, net

 

 

 

 

 

 

 

 

2,248

 

 

 

2,248

 

Payments

 

 

 

 

 

 

 

 

(692

)

 

 

(692

)

Balance at June 30, 2023

 

 

 

 

 

 

 

 

1,559

 

 

 

1,559

 

Restructuring charges, net

 

 

307

 

 

 

216

 

 

 

644

 

 

 

1,167

 

Payments

 

 

(307

)

 

 

(216

)

 

 

(2,169

)

 

 

(2,692

)

Balance at September 30, 2023

 

$

 

 

$

 

 

$

34

 

 

$

34

 

 

There was no material restructuring activity for our India segment for the three and nine months ended September 30, 2023 and 2022.

Note 12. Income Taxes

For the three and nine months ended September 30, 2023, we reported an income tax provision of $8.0 million and $12.2 million, respectively, as compared to an income tax provision of $2.9 million and $11.7 million, respectively, in the comparative prior year period. The increase during the three and nine months ended September 30, 2023, resulted primarily from the change in the mix of earnings of foreign jurisdictions.

23


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

No changes in tax law occurred during the nine months ended September 30, 2023, which had a material impact on our income tax provision. During the three months ended September 30, 2023, we no longer assert permanent reinvestment on $43.0 million of unremitted earnings in one of our foreign subsidiaries that we expect to repatriate to the U.S. and consequently recognized a $4.3 million deferred tax liability. We continue to maintain our assertion to indefinitely reinvest the remaining earnings and profits in our foreign subsidiaries. Accordingly, no deferred tax liability has been accrued with respect to such remaining unremitted earnings.

Note 13. Net Loss Per Common Share

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(in thousands, except per share data)

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

$

(56,763

)

 

$

(6,786

)

 

$

(137,084

)

 

$

(28,897

)

Preferred stock dividends and accretion

 

 

(16,031

)

 

 

(14,976

)

 

 

(46,802

)

 

 

(43,658

)

Net loss from continuing operations attributable to common stockholders

 

 

(72,794

)

 

 

(21,762

)

 

 

(183,886

)

 

 

(72,555

)

Net income (loss) from discontinued operations

 

 

(52

)

 

 

5,319

 

 

 

(7,095

)

 

 

6,120

 

Net loss attributable to common stockholders

 

$

(72,846

)

 

$

(16,443

)

 

$

(190,981

)

 

$

(66,435

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average shares outstanding

 

 

42,570

 

 

 

41,984

 

 

 

42,448

 

 

 

41,950

 

Effect of dilutive awards

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted-average shares outstanding

 

 

42,570

 

 

 

41,984

 

 

 

42,448

 

 

 

41,950

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.71

)

 

$

(0.52

)

 

$

(4.33

)

 

$

(1.73

)

Diluted

 

$

(1.71

)

 

$

(0.52

)

 

$

(4.33

)

 

$

(1.73

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.00

)

 

$

0.13

 

 

$

(0.17

)

 

$

0.15

 

Diluted

 

$

(0.00

)

 

$

0.13

 

 

$

(0.17

)

 

$

0.15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.71

)

 

$

(0.39

)

 

$

(4.50

)

 

$

(1.58

)

Diluted

 

$

(1.71

)

 

$

(0.39

)

 

$

(4.50

)

 

$

(1.58

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Dilutive shares excluded from the calculation
   due to net losses in the period

 

 

84

 

 

 

893

 

 

 

268

 

 

 

568

 

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

 

 

762

 

 

 

111

 

 

 

147

 

 

 

196

 

 

We use the if-converted method for calculating any potential dilutive effect of the Notes on diluted net loss per common share. The Notes would have a diluted impact on net income per share when the average price of our Common Stock for a given period exceeds the respective conversion price of the Notes. During the nine months ended September 30, 2023, we had 8,816,881 potentially issuable shares of Common Stock related to our Notes that were not included in the computation of diluted net loss per common share as the effect of including these shares in the calculation would have been anti-dilutive.

 

24


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 14. Stockholders’ Equity

Accumulated Other Comprehensive Loss

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

 

 

 

Nine Months Ended September 30, 2023

 

 

 

Foreign

 

 

Foreign

 

 

 

 

 

 

currency

 

 

exchange

 

 

 

 

 

 

translation

 

 

forward

 

 

Total

 

 

 

adjustments

 

 

contracts

 

 

AOCL

 

 

 

(in thousands)

 

Balance at December 31, 2022

 

$

(10,845

)

 

$

(4,542

)

 

$

(15,387

)

Other comprehensive income before reclassifications

 

 

2,010

 

 

 

 

 

 

2,010

 

Amounts reclassified from AOCL

 

 

 

 

 

 

 

 

 

Net tax effect

 

 

 

 

 

 

 

 

 

Net current period other comprehensive income

 

 

2,010

 

 

 

 

 

 

2,010

 

Balance at March 31, 2023

 

 

(8,835

)

 

 

(4,542

)

 

 

(13,377

)

Other comprehensive income (loss) before reclassifications

 

 

(816

)

 

 

1,943

 

 

 

1,127

 

Amounts reclassified from AOCL

 

 

 

 

 

(58

)

 

 

(58

)

Net tax effect

 

 

 

 

 

 

 

 

 

Net current period other comprehensive income (loss)

 

 

(816

)

 

 

1,885

 

 

 

1,069

 

Balance at June 30, 2023

 

 

(9,651

)

 

 

(2,657

)

 

 

(12,308

)

Other comprehensive income (loss) before reclassifications

 

 

(3,052

)

 

 

318

 

 

 

(2,734

)

Amounts reclassified from AOCL

 

 

901

 

 

 

3,307

 

 

 

4,208

 

Net tax effect

 

 

 

 

 

 

 

 

 

Net current period other comprehensive income (loss)

 

 

(2,151

)

 

 

3,625

 

 

 

1,474

 

Balance at September 30, 2023

 

$

(11,802

)

 

$

968

 

 

$

(10,834

)

 

During the three months ended September 30, 2023, we reclassified $0.9 million from cumulative translation adjustments and reclassified $4.5 million of losses on net investment hedges from accumulated other comprehensive loss and included the amounts in determining net loss for the period as a result of the substantially complete liquidation of our China operations.

 

 

 

Nine Months Ended September 30, 2022

 

 

 

Foreign

 

 

Foreign

 

 

 

 

 

 

currency

 

 

exchange

 

 

 

 

 

 

translation

 

 

forward

 

 

Total

 

 

 

adjustments

 

 

contracts

 

 

AOCL

 

 

 

(in thousands)

 

Balance at December 31, 2021

 

$

(48,530

)

 

$

(5,476

)

 

$

(54,006

)

Other comprehensive income before reclassifications

 

 

43,369

 

 

 

3,345

 

 

 

46,714

 

Amounts reclassified from AOCL

 

 

 

 

 

(640

)

 

 

(640

)

Net tax effect

 

 

 

 

 

 

 

 

 

Net current period other comprehensive income

 

 

43,369

 

 

 

2,705

 

 

 

46,074

 

Balance at March 31, 2022

 

 

(5,161

)

 

 

(2,771

)

 

 

(7,932

)

Other comprehensive loss before reclassifications

 

 

(7,346

)

 

 

(1,189

)

 

 

(8,535

)

Amounts reclassified from AOCL

 

 

 

 

 

(498

)

 

 

(498

)

Net tax effect

 

 

 

 

 

 

 

 

 

Net current period other comprehensive loss

 

 

(7,346

)

 

 

(1,687

)

 

 

(9,033

)

Balance at June 30, 2022

 

 

(12,507

)

 

 

(4,458

)

 

 

(16,965

)

Other comprehensive loss before reclassifications

 

 

(7,903

)

 

 

(582

)

 

 

(8,485

)

Amounts reclassified from AOCL

 

 

 

 

 

(187

)

 

 

(187

)

Net tax effect

 

 

 

 

 

 

 

 

 

Net current period other comprehensive loss

 

 

(7,903

)

 

 

(769

)

 

 

(8,672

)

Balance at September 30, 2022

 

$

(20,410

)

 

$

(5,227

)

 

$

(25,637

)

 

25


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 15. 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 current procedural posture of this claim, we have determined that the ultimate outcome cannot be reasonably estimated at this time.

Collective Bargaining Agreements

Certain of our associates in Türkiye and Matamoros, Mexico are covered by collective bargaining agreements. Our collective bargaining agreement with our associates in Türkiye is in effect through December 2024. We have separate collective bargaining agreements for each of our Matamoros, Mexico manufacturing facilities. Our collective bargaining agreement at one of our Matamoros, Mexico manufacturing facilities is in effect through March 2025 and our collective bargaining agreement for our other facility in Matamoros, Mexico that we took over from Nordex is in effect through April 2025.

Proterra Bankruptcy

On August 7, 2023, we were notified that Proterra Inc. (Proterra), one of our customers in our automotive business line, filed for bankruptcy protection under Chapter 11 of the U.S. bankruptcy code, and Proterra rejected its bus body supply agreement with us as part of its bankruptcy reorganization. Net sales from this bus body supply agreement were less than 2% and 3% of our consolidated net sales for the nine-month periods ended September 30, 2023 and 2022, respectively. Our results of operations during the three months ended September 30, 2023 were adversely impacted by Proterra's bankruptcy as we recorded a charge for credit losses on contract assets of $12.8 million, a charge for credit losses on accounts receivable of $8.1 million, a charge for inventory of $1.7 million, an impairment charge of $0.7 million related to fixed assets, and severance charges totaling $0.4 million.

Note 16. 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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Customer

 

Net sales

 

 

% of Total

 

 

Net sales

 

 

% of Total

 

 

Net sales

 

 

% of Total

 

 

Net sales

 

 

% of Total

 

Vestas

 

$

152,537

 

 

 

40.9

%

 

$

136,491

 

 

 

35.5

%

 

$

429,924

 

 

 

37.1

%

 

$

412,050

 

 

 

36.8

%

Nordex

 

 

99,702

 

 

 

26.7

 

 

 

120,003

 

 

 

31.2

 

 

 

353,286

 

 

 

30.5

 

 

 

355,629

 

 

 

31.7

 

GE

 

 

93,182

 

 

 

25.0

 

 

 

80,976

 

 

 

21.1

 

 

 

273,335

 

 

 

23.6

 

 

 

220,379

 

 

 

19.7

 

 

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

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Customer

 

% of Total

 

 

% of Total

 

Nordex

 

 

60.5

%

 

 

65.2

%

Enercon

 

 

16.0

 

 

 

10.9

 

Vestas

 

 

11.9

 

 

 

7.7

 

 

26


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 17. Segment Reporting

Our operating segments are defined geographically into four geographic operating segments—(1) the U.S., (2) Mexico, (3) Europe, the Middle East and Africa (EMEA) and (4) India. For a detailed discussion of our operating segments, refer to the discussion in Note 22, Segment Reporting, to the Notes to Consolidated Financial Statements within our Annual Report on Form 10-K for the year ended December 31, 2022.

Our U.S. and India segments operate in the U.S. dollar. Our Mexico segment operates in its local currency and includes a U.S. parent company that operates in the U.S. dollar. Our EMEA segment operates in the Euro, effective January 1, 2022. Prior to this, our EMEA segment operated in the Turkish Lira.

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Net sales by segment:

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

7,184

 

 

$

26,755

 

 

$

39,164

 

 

$

68,969

 

Mexico

 

 

156,861

 

 

 

164,368

 

 

 

478,479

 

 

 

486,749

 

EMEA

 

 

149,254

 

 

 

127,348

 

 

 

451,347

 

 

 

406,643

 

India

 

 

59,561

 

 

 

65,967

 

 

 

189,207

 

 

 

158,104

 

Total net sales

 

$

372,860

 

 

$

384,438

 

 

$

1,158,197

 

 

$

1,120,465

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales by geographic location:

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

7,184

 

 

$

26,755

 

 

$

39,164

 

 

$

68,969

 

Mexico

 

 

156,861

 

 

 

164,368

 

 

 

478,479

 

 

 

486,749

 

Türkiye

 

 

147,328

 

 

 

126,504

 

 

 

447,640

 

 

 

405,552

 

Spain

 

 

1,926

 

 

 

844

 

 

 

3,707

 

 

 

1,091

 

India

 

 

59,561

 

 

 

65,967

 

 

 

189,207

 

 

 

158,104

 

Total net sales

 

$

372,860

 

 

$

384,438

 

 

$

1,158,197

 

 

$

1,120,465

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. (1)

 

$

(29,118

)

 

$

(10,510

)

 

$

(41,646

)

 

$

(36,803

)

Mexico

 

 

(35,808

)

 

 

(21,030

)

 

 

(121,521

)

 

 

(59,002

)

EMEA

 

 

10,803

 

 

 

11,019

 

 

 

28,875

 

 

 

54,738

 

India

 

 

7,214

 

 

 

8,599

 

 

 

17,179

 

 

 

11,417

 

Total loss from continuing operations

 

$

(46,909

)

 

$

(11,922

)

 

$

(117,113

)

 

$

(29,650

)

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Property, plant and equipment, net:

 

 

 

 

 

 

U.S.

 

$

24,126

 

 

$

23,076

 

Mexico

 

 

51,562

 

 

 

56,495

 

EMEA

 

 

23,361

 

 

 

27,005

 

India

 

 

29,022

 

 

 

30,265

 

Total property, plant and equipment, net

 

$

128,071

 

 

$

136,841

 

 

(1) The losses from operations in our U.S. segment includes corporate general and administrative costs of $28.7 million and $42.5 million, respectively, for the three and nine months ended September 30, 2023, and $8.0 million and $22.6 million, respectively, in the comparative prior year periods.

 

27


 

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 for the year ended December 31, 2022, 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 automotive market. We are headquartered in Scottsdale, Arizona and operate factories throughout the United States, Mexico, Türkiye, 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 four geographic operating segments—(1) the United States (U.S.), (2) Mexico, (3) Europe, the Middle East and Africa (EMEA) and (4) India. See Note 17, Segment Reporting, to our condensed consolidated financial statements for more details about our operating segments.

As previously announced in December 2022, changing economic and geopolitical factors, including increased logistics costs and tariffs imposed on components of wind turbines from China, including wind blades, had an adverse impact on demand for our wind blades manufactured in our Chinese facilities. As a result, we ceased production at our Yangzhou, China manufacturing facility as of December 31, 2022 and are in the final stages of shutting down our business operations in China. Our business operations in China comprised the entirety of our historically reported Asia segment. Accordingly, the historical results of our Asia reporting segment have been presented as discontinued operations in our financial statements.

KEY TRENDS AND RECENT DEVELOPMENTS AFFECTING OUR BUSINESS

 

Geopolitical events around the world have accelerated regional needs for energy independence and security. Climate change also continues to drive the need for renewable energy solutions and net-zero carbon emissions. Over the course of the past few years, we have seen numerous government policy initiatives aimed at expanding the use of renewable energy, including the passing of the Inflation Reduction Act (IRA) in the U.S. and several policy initiatives in the European Union (EU) that are expected to simplify regulations, speed up permitting and promote cross-border projects to accelerate climate neutrality. We expect these recent trends in governmental policy will enable long-term revenue growth in the wind industry. As the majority of our wind blades are installed in the U.S. and Europe, these policy trends are expected to have a material impact on our business and the pace of long-term growth.

 

Despite these favorable long-term policy trends, we expect reduced demand in the near term while the wind industry awaits clarity on the implementation guidance related to key components of the IRA and clarity around more robust policies in the EU. In addition, permitting, transmission, transmission queues, the ability of the broader wind industry supply chain to ramp volume, rising interest rates and inflation, and the cost and availability of capital are further factors limiting the timing of the wind market recovery. Specific to our customers, we currently expect to have six lines in transition and four lines in startup during 2024 as our customers prepare for stronger demand beginning in 2025, which will impact utilization and output during 2024. Furthermore, we expect demand from one of our customers to be down in the near term as they consider their existing inventory levels and contemplate changes in geographic demand, which are expected to result in lower volumes from the underutilization of certain lines and a reduction in overall lines from that customer.

 

While the accelerated pace of new product introductions within the industry over the last five years and the push for larger turbines getting to market quicker has significantly reduced the levelized cost of wind energy, it is also a contributing factor to quality issues that have recently surfaced in the wind industry. As we disclosed during the second quarter of 2023, we recorded a charge for a change in estimate for warranties of $32.7 million, which was primarily related to a single warranty campaign with a current customer.

28


 

During the three months ended September 30, 2023, we recorded an additional $13.5 million charge for a change in estimate due to a revision in estimated costs related to the charge we recorded in the second quarter of 2023.

 

As we disclosed in the first quarter of 2023, we started to see increased inspection and repair costs due to enhanced customer inspection criteria requirements. With the quality issues in the wind industry that have been in the public eye over the past couple of quarters, most of our customers, and some of their customers, are requiring additional quality control checks and measures that are adding cost and time to the production process, which increased our manufacturing costs by $3.9 million and $13.6 million in the three and nine months ended September 30, 2023, respectively, and is expected to increase our manufacturing costs by $16.9 million for the full year 2023. Additionally, we have diverted many of our field services technicians from revenue-generating work to warranty inspection and repair, which further impacted our overall financial results during the three and nine months ended September 30, 2023, and will continue to impact our overall financial results for the balance of 2023. Overall, we expect our field service sales to be down about 40% in 2023 as compared to 2022 as our technicians focus on the warranty inspection and repair activities.

 

Our results of operations for the three and nine months ended September 30, 2023 have also been adversely impacted by the performance of our Matamoros, Mexico manufacturing facility that we took over from Nordex in July 2021. During the three months ended September 30, 2023, production was temporarily paused due to extreme heat and humidity issues at this facility. Net sales for the three and nine months ended September 30, 2023 were negatively impacted by approximately $6.0 million and $14.8 million, respectively, due to lost production days. As of September 30, 2023, production has recommenced at this facility. We experienced a loss from operations of $5.8 million and $25.6 million at this facility for the three and nine months ended September 30, 2023, respectively, and a loss from operations of $10.7 million and $28.3 million, respectively, for the comparative prior year periods. The loss from operations for the nine months ended September 30, 2023, was reduced by the impact of a positive cumulative catch-up adjustment of approximately $2.2 million during the first quarter as a result of a modification to our customer contract that resulted in changes in certain of our estimated total contract values and related costs to complete the performance obligations. In addition, we recorded a positive cumulative catch-up adjustment of approximately $5.2 million during the third quarter as a result of additional fees received from our customer related to the temporary production pause.

 

During the nine months ended September 30, 2023, the overall pricing for the raw materials that we source has decreased compared to the same period in 2022. With our contract structure and shared cost approach with our customers, we expect to have a net benefit from this reduction in material pricing in 2023 as compared to 2022.

 

Ongoing inflationary pressures have caused and may continue to cause many of our production expenses to increase, which adversely impacts our results of operations. The governments of Mexico and Türkiye increased minimum wages approximately 20% and 55%, respectively, effective January 1, 2023 and there may be further wage increases enacted throughout the year. Further, in May 2023 we agreed to an amendment to our collective bargaining agreement with our associates in Türkiye which resulted in significant increased wages for these associates. During the nine months ended September 30, 2023, these total wage increases in Türkiye have increased our labor costs at these facilities by approximately 70%, net of favorable foreign currency fluctuations, compared the same period in 2022. While our customer contracts allow us to pass a portion of these increases to our customers, we will not be able to recover 100% of the increases labor costs caused by this wage inflation. If our manufacturing facilities in these countries continue to experience wage inflation at these levels and the increased costs in local currency are not offset with favorable foreign currency fluctuations, such elevated wages will have a material impact on our results of operations.

 

As previously disclosed, we were notified on August 7, 2023 that Proterra Inc. (Proterra), one of our customers in our automotive business line, filed for bankruptcy protection under Chapter 11 of the U.S. bankruptcy code, and Proterra rejected its bus body supply agreement with us as part of its bankruptcy reorganization. Net sales from this bus body supply agreement were less than 2% and 3% of our consolidated net sales for the nine-month periods ended September 30, 2023 and 2022, respectively. However, our results of operations during the three months ended September 30, 2023 were adversely impacted by Proterra's bankruptcy. We recorded a charge for credit losses on contract assets of $12.8 million, a charge for credit losses on accounts receivable of $8.1 million, a charge for inventory of $1.7 million, an impairment charge of $0.7 million related to fixed assets, and severance charges totaling $0.4 million.

 

We continue to believe there is an increasing demand for composite products for electric vehicles and we have made significant investments to expand our automotive business during the last several years. From 2018 to 2022, we invested approximately $81 million in our automotive business, and experienced significant losses and operational challenges during this expansion. We expect to invest an additional $10 million to $15 million in this business in 2023 and we expect to continue to operate at a loss for the year. We expect to launch three new production programs in the fourth quarter of 2023 that include the production of large structural panels for a commercial truck, a full battery enclosure for a commercial truck and high voltage battery pack thermal barriers for a light-duty truck. We continue to explore strategic alternatives for our automotive business to enable us to scale faster and remain focused on improving these operations.

29


 

KEY METRICS USED BY MANAGEMENT TO MEASURE PERFORMANCE

In addition to measures of financial performance presented in our consolidated financial statements in accordance with GAAP, we use certain other financial measures and operating metrics to analyze our performance. These “non-GAAP” financial measures consist of EBITDA, adjusted EBITDA, free cash flow and net cash (debt), which help us evaluate growth trends, establish budgets, assess operational efficiencies, oversee our overall liquidity, and evaluate our overall financial performance. The key operating metrics consist of wind blade sets produced, estimated megawatts of energy capacity to be generated by wind blade sets produced, utilization, dedicated manufacturing lines, and manufacturing lines installed, which help us evaluate our operational performance. We believe that these measures are useful to investors in evaluating our 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 for the year ended December 31, 2022.

KEY FINANCIAL MEASURES

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Net sales

 

$

372,860

 

 

$

384,438

 

 

$

1,158,197

 

 

$

1,120,465

 

Net loss from continuing operations

 

 

(56,763

)

 

 

(6,786

)

 

 

(137,084

)

 

 

(28,897

)

EBITDA (1)

 

 

(37,513

)

 

 

6,895

 

 

 

(89,047

)

 

 

14,983

 

Adjusted EBITDA (1)

 

 

(27,382

)

 

 

5,052

 

 

 

(57,867

)

 

 

16,706

 

Capital expenditures (2)

 

 

 

 

 

 

 

 

15,846

 

 

 

11,492

 

Free cash flow (1)(2)

 

 

 

 

 

 

 

 

(101,754

)

 

 

(96,587

)

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Total debt—principal

 

$

196,382

 

 

$

61,173

 

Net cash (debt) (1)

 

 

(31,802

)

 

 

82,042

 

 

 

(1)
See below for more information and a reconciliation of EBITDA, adjusted EBITDA, free cash flow and net cash (debt) to net loss from continuing operations attributable to common stockholders, net cash provided by (used in) operating activities and total debt, net of debt issuance costs, respectively, the most directly comparable financial measures calculated and presented in accordance with GAAP.
(2)
Capital expenditures and free cash flow include amounts from discontinued operations. Refer to Condensed Consolidated Statements of Cash Flows for more information.

30


 

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

EBITDA and adjusted EBITDA are reconciled as follows:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Net loss attributable to common stockholders

 

$

(72,846

)

 

$

(16,443

)

 

$

(190,981

)

 

$

(66,435

)

Net loss (income) from discontinued operations

 

 

52

 

 

 

(5,319

)

 

 

7,095

 

 

 

(6,120

)

Net loss from continuing operations attributable
   to common stockholders

 

 

(72,794

)

 

 

(21,762

)

 

 

(183,886

)

 

 

(72,555

)

Preferred stock dividends and accretion

 

 

16,031

 

 

 

14,976

 

 

 

46,802

 

 

 

43,658

 

Net loss from continuing operations

 

 

(56,763

)

 

 

(6,786

)

 

 

(137,084

)

 

 

(28,897

)

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

9,582

 

 

 

9,619

 

 

 

29,798

 

 

 

29,330

 

Interest expense, net

 

 

1,628

 

 

 

1,210

 

 

 

6,034

 

 

 

2,872

 

Income tax provision

 

 

8,040

 

 

 

2,852

 

 

 

12,205

 

 

 

11,678

 

EBITDA

 

 

(37,513

)

 

 

6,895

 

 

 

(89,047

)

 

 

14,983

 

Share-based compensation expense

 

 

2,528

 

 

 

3,584

 

 

 

9,143

 

 

 

10,277

 

Foreign currency loss (income)

 

 

579

 

 

 

(8,207

)

 

 

3,278

 

 

 

(14,306

)

Loss on sale of assets and asset impairments

 

 

5,857

 

 

 

2,969

 

 

 

15,269

 

 

 

6,142

 

Restructuring charges, net

 

 

1,167

 

 

 

(189

)

 

 

3,490

 

 

 

(390

)

Adjusted EBITDA

 

$

(27,382

)

 

$

5,052

 

 

$

(57,867

)

 

$

16,706

 

 

Free cash flow is reconciled as follows:

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Net cash used in operating activities

 

$

(85,908

)

 

$

(85,095

)

Capital expenditures

 

 

(15,846

)

 

 

(11,492

)

Free cash flow

 

$

(101,754

)

 

$

(96,587

)

 

Net cash (debt) is reconciled as follows:

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Cash and cash equivalents

 

$

160,649

 

 

$

133,546

 

Cash and cash equivalents of discontinued operations

 

 

3,931

 

 

 

9,669

 

Less total debt—principal

 

 

(196,382

)

 

 

(61,173

)

Net cash (debt)

 

$

(31,802

)

 

$

82,042

 

KEY OPERATING METRICS

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Sets

 

 

666

 

 

 

570

 

 

 

1,982

 

 

 

1,792

 

Estimated megawatts

 

 

2,892

 

 

 

2,542

 

 

 

8,750

 

 

 

7,908

 

Utilization

 

 

85

%

 

 

75

%

 

 

84

%

 

 

78

%

Dedicated manufacturing lines

 

 

37

 

 

 

36

 

 

 

37

 

 

 

36

 

Manufacturing lines installed

 

 

37

 

 

 

36

 

 

 

37

 

 

 

36

 

 

 

31


 

RESULTS OF OPERATIONS

The following table summarizes our operating results as a percentage of net sales for the three and nine months ended September 30, 2023 and 2022 that have been derived from our condensed consolidated statements of operations:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net sales

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

Cost of sales

 

 

101.7

 

 

 

99.0

 

 

 

103.9

 

 

 

98.1

 

Startup and transition costs

 

 

1.3

 

 

 

1.3

 

 

 

0.9

 

 

 

2.0

 

Total cost of goods sold

 

 

103.0

 

 

 

100.3

 

 

 

104.8

 

 

 

100.1

 

Gross loss

 

 

(3.0

)

 

 

(0.3

)

 

 

(4.8

)

 

 

(0.1

)

General and administrative expenses

 

 

7.7

 

 

 

2.1

 

 

 

3.7

 

 

 

2.0

 

Loss on sale of assets and asset impairments

 

 

1.6

 

 

 

0.8

 

 

 

1.3

 

 

 

0.5

 

Restructuring charges, net

 

 

0.3

 

 

 

(0.1

)

 

 

0.3

 

 

 

0.0

 

Loss from continuing operations

 

 

(12.6

)

 

 

(3.1

)

 

 

(10.1

)

 

 

(2.6

)

Total other income (expense)

 

 

(0.5

)

 

 

2.1

 

 

 

(0.7

)

 

 

1.1

 

Loss before income taxes

 

 

(13.1

)

 

 

(1.0

)

 

 

(10.8

)

 

 

(1.5

)

Income tax provision

 

 

(2.1

)

 

 

(0.8

)

 

 

(1.0

)

 

 

(1.1

)

Net loss from continuing operations

 

 

(15.2

)

 

 

(1.8

)

 

 

(11.8

)

 

 

(2.6

)

Preferred stock dividends and accretion

 

 

(4.3

)

 

 

(3.9

)

 

 

(4.1

)

 

 

(3.9

)

Net loss attributable to common stockholders from continuing operations

 

 

(19.5

)

 

 

(5.7

)

 

 

(15.9

)

 

 

(6.5

)

Net income (loss) from discontinued operations

 

 

0.0

 

 

 

1.4

 

 

 

(0.6

)

 

 

0.6

 

Net loss attributable to common stockholders

 

 

(19.5

)%

 

 

(4.3

)%

 

 

(16.5

)%

 

 

(5.9

)%

Net sales

Consolidated discussion

The following table summarizes our net sales by product/service for the three and nine months ended September 30, 2023 and 2022:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

September 30,

 

 

Change

 

 

September 30,

 

 

Change

 

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

Wind blade, tooling
   and other wind
   related sales

 

$

362,231

 

 

$

355,796

 

 

$

6,435

 

 

 

1.8

%

 

$

1,112,557

 

 

$

1,045,200

 

 

$

67,357

 

 

 

6.4

%

Automotive sales

 

 

2,619

 

 

 

10,542

 

 

 

(7,923

)

 

 

(75.2

)

 

 

20,130

 

 

 

34,059

 

 

 

(13,929

)

 

 

(40.9

)

Field service, inspection
   and repair services sales

 

 

8,010

 

 

 

18,100

 

 

 

(10,090

)

 

 

(55.7

)

 

 

25,510

 

 

 

41,206

 

 

 

(15,696

)

 

 

(38.1

)

Total net sales

 

$

372,860

 

 

$

384,438

 

 

$

(11,578

)

 

 

(3.0

)%

 

$

1,158,197

 

 

$

1,120,465

 

 

$

37,732

 

 

 

3.4

%

 

The increase in net sales of wind blades, tooling and other wind related sales (collectively “Wind”) for the three months ended September 30, 2023, as compared to the same period in 2022, was primarily due to an increase in the number of wind blades produced, favorable foreign currency fluctuations, and an increase in tooling sales in preparation for manufacturing line startups and transitions. The increase in wind blade volume was primarily driven by lower production in the prior comparative period due to a temporary production stoppage in the third quarter of 2022 in one of our Mexico plants as a customer implemented a blade redesign and a brief labor disruption in Türkiye in the third quarter of 2022 as we worked with the union to resolve inflationary pressures on wages. These higher blade sales were partially offset by lower average sales prices due to the impact of raw material and logistic cost reductions on our blade prices. The increase in net sales of Wind during the nine months ended September 30, 2023, as compared to the same period in 2022, was also due to an increase in the number of wind blades produced, favorable foreign currency fluctuations, and an increase in tooling sales, partially offset by lower average sales prices, and a decrease in other wind related sales for mold decommissioning services. The decrease in automotive sales for the three and nine months ended September 30, 2023 was primarily due to a decrease in the number of composite bus bodies produced as a result of Proterra’s bankruptcy during the third quarter of 2023, the rejection of our bus body supply agreement during Proterra’s bankruptcy proceedings, and a decrease in sales of other automotive products due to our customers’ supply chain constraints and delays in transitions of new product launches. The decrease in field

32


 

service, inspection and repair services (collectively “Field Services”) for the three and nine months ended September 30, 2023, as compared to the same periods in 2022, was primarily due to a reduction in technicians deployed to revenue generating projects due to an increase in time spent on non-revenue generating inspection and repair activities. The fluctuating U.S. dollar against the Euro in our Türkiye operations had a favorable impact of 2.9% and 0.7% on consolidated net sales for the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022.

Segment discussion

The following table summarizes our net sales by our four geographic operating segments for the three and nine months ended September 30, 2023 and 2022:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

September 30,

 

 

Change

 

 

September 30,

 

 

Change

 

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

U.S.

 

$

7,184

 

 

$

26,755

 

 

$

(19,571

)

 

 

(73.1

)%

 

$

39,164

 

 

$

68,969

 

 

$

(29,805

)

 

 

(43.2

)%

Mexico

 

 

156,861

 

 

 

164,368

 

 

 

(7,507

)

 

 

(4.6

)

 

 

478,479

 

 

 

486,749

 

 

 

(8,270

)

 

 

(1.7

)

EMEA

 

 

149,254

 

 

 

127,348

 

 

 

21,906

 

 

 

17.2

 

 

 

451,347

 

 

 

406,643

 

 

 

44,704

 

 

 

11.0

 

India

 

 

59,561

 

 

 

65,967

 

 

 

(6,406

)

 

 

(9.7

)

 

 

189,207

 

 

 

158,104

 

 

 

31,103

 

 

 

19.7

 

Total net sales

 

$

372,860

 

 

$

384,438

 

 

$

(11,578

)

 

 

(3.0

)%

 

$

1,158,197

 

 

$

1,120,465

 

 

$

37,732

 

 

 

3.4

%

U.S. Segment

The following table summarizes our net sales by product/service for the U.S. segment for the three and nine months ended September 30, 2023 and 2022:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

September 30,

 

 

Change

 

 

September 30,

 

 

Change

 

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

Wind blade, tooling
   and other wind
   related sales

 

$

 

 

$

1,151

 

 

$

(1,151

)

 

NM

 

 

$

 

 

$

1,317

 

 

$

(1,317

)

 

NM

 

Automotive sales

 

 

2,619

 

 

 

10,542

 

 

 

(7,923

)

 

 

(75.2

)

 

 

20,130

 

 

 

34,059

 

 

 

(13,929

)

 

 

(40.9

)

Field service, inspection
   and repair services sales

 

 

4,565

 

 

 

15,062

 

 

 

(10,497

)

 

 

(69.7

)

 

 

19,034

 

 

 

33,593

 

 

 

(14,559

)

 

 

(43.3

)

Total net sales

 

$

7,184

 

 

$

26,755

 

 

$

(19,571

)

 

 

(73.1

)%

 

$

39,164

 

 

$

68,969

 

 

$

(29,805

)

 

 

(43.2

)%

NM – not meaningful

 

The decrease in the U.S. segment’s automotive sales for the three and nine months ended September 30, 2023 as compared to the same periods in 2022, was primarily due to a decrease in the number of composite bus bodies produced as a result of Proterra’s bankruptcy during the third quarter of 2023, the rejection of our bus body supply agreement during Proterra’s bankruptcy proceedings, and a decrease in sales of other automotive products. The decrease in the U.S. segment’s Field Services sales for the three and nine months ended September 30, 2023, was primarily due to a reduction in technicians deployed to revenue generating projects due to an increase in time spent on non-revenue generating inspection and repair activities.

33


 

Mexico Segment

The following table summarizes our net sales by product/service for the Mexico segment for the three and nine months ended September 30, 2023 and 2022:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

September 30,

 

 

Change

 

 

September 30,

 

 

Change

 

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

Wind blade, tooling
   and other wind
   related sales

 

$

156,077

 

 

$

163,833

 

 

$

(7,756

)

 

 

(4.7

)%

 

$

477,306

 

 

$

483,199

 

 

$

(5,893

)

 

 

(1.2

)%

Field service, inspection
   and repair services sales

 

 

784

 

 

 

535

 

 

 

249

 

 

 

46.5

 

 

 

1,173

 

 

 

3,550

 

 

 

(2,377

)

 

 

(67.0

)

Total net sales

 

$

156,861

 

 

$

164,368

 

 

$

(7,507

)

 

 

(4.6

)%

 

$

478,479

 

 

$

486,749

 

 

$

(8,270

)

 

 

(1.7

)%

 

The decrease in the Mexico segment’s net sales of Wind for the three and nine months ended September 30, 2023 as compared to the same periods in 2022, was primarily due to lower average sales prices due to the impact of raw material and logistic cost reductions on our blade prices, and a decrease in other wind related sales for mold decommissioning services in the prior comparative period. This decrease was partially offset by an increase in the number of wind blades produced due to a temporary production stoppage in the third quarter of 2022 in one of our Mexico plants as a customer implemented a blade redesign, and an increase in tooling sales in preparation for manufacturing line startups and transitions. The decrease in the Mexico segment’s Field Services sales for the nine months ended September 30, 2023 as compared to the same period in 2022, was primarily due to a reduction in technicians deployed to revenue generating projects due to an increase in time spent on non-revenue generating inspection and repair activities.

EMEA Segment

The following table summarizes our net sales by product/service for the EMEA segment for the three and nine months ended September 30, 2023 and 2022:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

September 30,

 

 

Change

 

 

September 30,

 

 

Change

 

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

Wind blade, tooling
   and other wind
   related sales

 

$

146,593

 

 

$

124,845

 

 

$

21,748

 

 

 

17.4

%

 

$

446,044

 

 

$

402,582

 

 

$

43,462

 

 

 

10.8

%

Field service, inspection
   and repair services sales

 

 

2,661

 

 

 

2,503

 

 

 

158

 

 

 

6.3

 

 

 

5,303

 

 

 

4,061

 

 

 

1,242

 

 

 

30.6

 

Total net sales

 

$

149,254

 

 

$

127,348

 

 

$

21,906

 

 

 

17.2

%

 

$

451,347

 

 

$

406,643

 

 

$

44,704

 

 

 

11.0

%

 

The increase in the EMEA segment’s net sales of Wind for the three and nine months ended September 30, 2023, as compared to the same periods in 2022, was primarily due to an increase in the number of wind blades produced due to a brief labor disruption in Türkiye in the third quarter of 2022 as we worked with the union to resolve inflationary pressures on wages, favorable foreign currency fluctuations, and higher average sales prices due to the impact of inflation on wind blade prices. The increase was partially offset by an adverse cumulative catch-up adjustment as a result of changes in certain of our estimated costs to complete our performance obligations. The increase in the EMEA segment’s Field Services sales for the three and nine months ended September 30, 2023 as compared to the same periods in 2022, was primarily due to an increase in demand for such services in this region and the commencement of our service center in Spain during 2022. The fluctuating U.S. dollar relative to the Euro had a favorable impact of 7.3% and 1.8% on the EMEA segment’s net sales, respectively, during the three and nine months ended September 30, 2023 as compared to the same periods in 2022.

34


 

India Segment

The following table summarizes our net sales by product/service for the India segment for the three and nine months ended September 30, 2023 and 2022:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

September 30,

 

 

Change

 

 

September 30,

 

 

Change

 

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

Wind blade, tooling
   and other wind
   related sales

 

$

59,561

 

 

$

65,967

 

 

$

(6,406

)

 

 

(9.7

)%

 

$

189,207

 

 

$

158,102

 

 

$

31,105

 

 

 

19.7

%

Field service, inspection
   and repair services
   sales

 

 

 

 

 

 

 

 

 

 

NM

 

 

 

 

 

 

2

 

 

 

(2

)

 

NM

 

Total net sales

 

$

59,561

 

 

$

65,967

 

 

$

(6,406

)

 

 

(9.7

)%

 

$

189,207

 

 

$

158,104

 

 

$

31,103

 

 

 

19.7

%

 

The decrease in the India segment’s net sales of Wind during the three months ended September 30, 2023, as compared to the same period in 2022, was primarily due to lower average sales prices due to the impact of raw material and logistic cost reductions on our blade prices, and was partially offset by an increase in the number of wind blades produced. The increase in the India segment’s net sales of Wind during the nine months ended September 30, 2023, as compared to the same period in 2022, was primarily due to an increase in the number of wind blades produced due to the transition of two of our manufacturing lines from one type of wind blade to a new type of wind blade during the prior comparative period, partially offset by lower average sales prices due to the impact of raw material and logistic cost reductions on our blade prices.

Total cost of goods sold

The following table summarizes our total cost of goods sold for the three and nine months ended September 30, 2023 and 2022:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

September 30,

 

 

Change

 

 

September 30,

 

 

Change

 

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

Cost of sales

 

$

379,219

 

 

$

380,729

 

 

$

(1,510

)

 

 

(0.4

)%

 

$

1,203,867

 

 

$

1,099,368

 

 

$

104,499

 

 

 

9.5

%

Transition costs

 

 

4,817

 

 

 

4,821

 

 

 

(4

)

 

 

(0.1

)

 

 

10,174

 

 

 

22,417

 

 

 

(12,243

)

 

 

(54.6

)

Total startup and transition costs

 

 

4,817

 

 

 

4,821

 

 

 

(4

)

 

 

(0.1

)

 

 

10,174

 

 

 

22,417

 

 

 

(12,243

)

 

 

(54.6

)

Total cost of goods sold

 

$

384,036

 

 

$

385,550

 

 

$

(1,514

)

 

 

(0.4

)

 

$

1,214,041

 

 

$

1,121,785

 

 

$

92,256

 

 

 

8.2

 

 % of net sales

 

 

103.0

%

 

 

100.3

%

 

 

 

 

 

2.7

%

 

 

104.8

%

 

 

100.1

%

 

 

 

 

 

4.7

%

 

Total cost of goods sold as a percentage of net sales increased by approximately 2.7% and 4.7% during the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022, primarily driven by an increase of $13.1 million and $47.8 million, respectively, of total warranty costs due to changes in previous estimates primarily associated with a single campaign with a current customer, an increase in operating costs due to additional quality control measures implemented in certain of our manufacturing facilities, increased labor costs in Türkiye and Mexico as a result of wage increases, continued cost challenges at facilities in Matamoros, Mexico, and unfavorable foreign currency fluctuations. These unfavorable items were partially offset by reduced startup and transition costs and cost savings initiatives. The fluctuating U.S. dollar against the Euro, Turkish Lira, and Mexican Peso had a combined unfavorable impact of 0.7% and a combined favorable impact of 0.5% on consolidated cost of goods sold for the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022.

General and administrative expenses

The following table summarizes our general and administrative expenses for the three and nine months ended September 30, 2023 and 2022:

35


 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

September 30,

 

 

Change

 

 

September 30,

 

 

Change

 

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

General and
   administrative
   expenses

 

$

28,709

 

 

$

8,030

 

 

$

20,679

 

 

NM

 

 

$

42,510

 

 

$

22,578

 

 

$

19,932

 

 

 

88.3

%

 % of net sales

 

 

7.7

%

 

 

2.1

%

 

 

 

 

 

5.6

%

 

 

3.7

%

 

 

2.0

%

 

 

 

 

 

1.7

%

 

General and administrative expenses as a percentage of net sales increased by 5.6% and 1.7% during the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022, and was primarily driven by $20.9 million of credit losses on contract assets and accounts receivable from the Proterra bankruptcy impacting our automotive business.

Loss on sale of assets and asset impairments

The following table summarizes our loss on sale of assets and asset impairments for the three and nine months ended September 30, 2023 and 2022:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

September 30,

 

 

Change

 

 

September 30,

 

 

Change

 

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

Loss on sale
   of receivables

 

$

5,153

 

 

$

2,944

 

 

$

2,209

 

 

 

75.0

%

 

$

14,543

 

 

$

6,072

 

 

$

8,471

 

 

 

139.5

%

Loss on sale of
   other assets

 

 

704

 

 

 

25

 

 

 

679

 

 

NM

 

 

 

726

 

 

 

70

 

 

 

656

 

 

NM

 

Total loss on sale of
   assets and asset
   impairments

 

$

5,857

 

 

$

2,969

 

 

$

2,888

 

 

 

97.3

 

 

$

15,269

 

 

$

6,142

 

 

$

9,127

 

 

 

148.6

 

% of net sales

 

 

1.6

%

 

 

0.8

%

 

 

 

 

 

0.8

%

 

 

1.3

%

 

 

0.5

%

 

 

 

 

 

0.8

%

 

The increase in loss on sale of assets and asset impairments for the three and nine months ended September 30, 2023, as compared to the same periods in 2022, was primarily due to an increase in the volume of receivables sold through our accounts receivable financing arrangements with certain of our customers, and an increase in the agreed-upon discount rates, as well as an increase in asset impairments in our automotive business from the Proterra bankruptcy during the third quarter of 2023.

Restructuring charges, net

The following table summarizes our restructuring charges, net for the three and nine months ended September 30, 2023 and 2022:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

September 30,

 

 

Change

 

 

September 30,

 

 

Change

 

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

Restructuring charges, net

 

$

1,167

 

 

$

(189

)

 

$

1,356

 

 

NM

 

 

$

3,490

 

 

$

(390

)

 

$

3,880

 

 

NM

 

 % of net sales

 

 

0.3

%

 

 

0.0

%

 

 

 

 

 

0.3

%

 

 

0.3

%

 

 

0.0

%

 

 

 

 

 

0.3

%

 

The increase in restructuring charges, net for the three and nine months ended September 30, 2023, as compared to the same periods in 2022 was primarily due to an increase in severance costs at one of our Türkiye facilities, and severance costs at our Rhode Island facility.

36


 

Income (loss) from operations

Segment discussion

The following table summarizes our income (loss) from operations by our four geographic operating segments for the three and nine months ended September 30, 2023 and 2022:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

September 30,

 

 

Change

 

 

September 30,

 

 

Change

 

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

U.S.

 

$

(29,118

)

 

$

(10,510

)

 

$

(18,608

)

 

 

(177.1

)%

 

$

(41,646

)

 

$

(36,803

)

 

$

(4,843

)

 

 

(13.2

)%

Mexico

 

 

(35,808

)

 

 

(21,030

)

 

 

(14,778

)

 

 

(70.3

)

 

 

(121,521

)

 

 

(59,002

)

 

 

(62,519

)

 

 

(106.0

)

EMEA

 

 

10,803

 

 

 

11,019

 

 

 

(216

)

 

 

(2.0

)

 

 

28,875

 

 

 

54,738

 

 

 

(25,863

)

 

 

(47.2

)

India

 

 

7,214

 

 

 

8,599

 

 

 

(1,385

)

 

 

(16.1

)

 

 

17,179

 

 

 

11,417

 

 

 

5,762

 

 

 

50.5

 

Total loss from
   continuing operations

 

$

(46,909

)

 

$

(11,922

)

 

$

(34,987

)

 

NM

 

 

$

(117,113

)

 

$

(29,650

)

 

$

(87,463

)

 

NM

 

 % of net sales

 

 

(12.6

)%

 

 

(3.1

)%

 

 

 

 

 

(9.5

)%

 

 

(10.1

)%

 

 

(2.6

)%

 

 

 

 

NM

 

 

U.S. Segment

The increase in the loss from operations in the U.S. segment for the three and nine months ended September 30, 2023 as compared to the same periods in 2022 was primarily due to credit losses and asset impairment charges in our automotive business as a result of Proterra’s bankruptcy during the third quarter of 2023, the rejection of our bus body supply agreement during Proterra’s bankruptcy proceedings, increased labor costs, and a decrease in the volume of field service, inspection and repair services, partially offset by a decrease in non-restructuring related operating costs at our Newton, Iowa manufacturing facility.

Mexico Segment

The increase in loss from operations in the Mexico segment for the three and nine months ended September 30, 2023, as compared to the same periods in 2022 was primarily due to increased warranty costs and additional quality control measures implemented in certain manufacturing facilities, increased labor costs, continued cost challenges at our facilities in Matamoros, Mexico, and unfavorable foreign currency fluctuations. These unfavorable items were partially offset by reduced startup and transition costs, and additional fees received from our customer related to the temporary production pause at one of our Matamoros, Mexico facilities. The fluctuating U.S. dollar relative to the Mexican Peso had an unfavorable impact of 3.0% and 2.1% on the Mexico segment’s cost of goods sold for the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022.

EMEA Segment

The decrease in income from operations in the EMEA segment for the three and nine months ended September 30, 2023, as compared to the same period in 2022 was primarily due to inflation impacting operating costs that we were not able to pass on to our customers, increased labor costs as a result of wage increases in Türkiye, and an adverse cumulative catch-up adjustment as a result of changes in certain of our estimated costs to complete our performance obligations. This decrease was partially offset by an increase in the volume of wind blades produced due to a brief labor disruption in Türkiye in the third quarter of 2022 as we worked with the union to resolve inflationary pressures on wages, an increase in wind blade prices, a decrease in startup and transition costs and favorable foreign currency fluctuations. The fluctuating U.S. dollar relative to the Turkish Lira and Euro had a favorable impact of 3.5% and 5.1% on the EMEA segment's cost of goods sold, respectively, for the three and nine months ended September 30, 2023, as compared to the same period in 2022.

India Segment

The decrease in income from operations in the India segment for the three months ended September 30, 2023, as compared to the same period in 2022, was primarily due to lower average sales prices due to the impact of raw material and logistic cost reductions on our blade prices and was partially offset by an increase in the number of wind blades produced. The increase in income from operations in the India segment for the nine months ended September 30, 2023, as compared to the same period in 2022, was primarily due to an increase in the volume of wind blades produced and operational efficiencies as the facility was ramping up production in early 2022.

37


 

Other income (expense)

The following table summarizes our total other income (expense) for the three and nine months ended September 30, 2023 and 2022:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

September 30,

 

 

Change

 

 

September 30,

 

 

Change

 

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

Interest expense, net

 

$

(1,628

)

 

$

(1,210

)

 

$

(418

)

 

 

(34.5

)%

 

$

(6,034

)

 

$

(2,872

)

 

$

(3,162

)

 

 

(110.1

)%

Foreign currency
   income (loss)

 

 

(579

)

 

 

8,207

 

 

 

(8,786

)

 

 

(107.1

)

 

 

(3,278

)

 

 

14,306

 

 

 

(17,584

)

 

 

(122.9

)

Miscellaneous
   income (expense)

 

 

393

 

 

 

991

 

 

 

(598

)

 

 

(60.3

)

 

 

1,546

 

 

 

997

 

 

 

549

 

 

 

55.1

 

Total other
   income (expense)

 

$

(1,814

)

 

$

7,988

 

 

$

(9,802

)

 

 

(122.7

)

 

$

(7,766

)

 

$

12,431

 

 

$

(20,197

)

 

 

(162.5

)

 % of net sales

 

 

-0.5

%

 

 

2.1

%

 

 

 

 

 

(2.6

)%

 

 

-0.7

%

 

 

1.1

%

 

 

 

 

 

(1.8

)%

 

The increase in total other expense for the three and nine months ended September 30, 2023, as compared to the same periods in 2022, was primarily due to foreign currency fluctuations and an increase in interest expense, net due to the issuance of $132.5 million of convertible senior unsecured notes.

Income taxes

The following table summarizes our income taxes for the three and nine months ended September 30, 2023 and 2022:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

September 30,

 

 

Change

 

 

September 30,

 

 

Change

 

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

Income tax provision

 

$

(8,040

)

 

$

(2,852

)

 

$

(5,188

)

 

 

(181.9

)%

 

$

(12,205

)

 

$

(11,678

)

 

$

(527

)

 

 

(4.5

)%

Effective tax rate

 

 

(2.2

)%

 

 

(0.7

)%

 

 

 

 

 

(1.5

)%

 

 

(1.1

)%

 

 

(1.0

)%

 

 

 

 

 

(0.1

)%

 

See Note 12, Income Taxes, to our condensed consolidated financial statements for more details about our income taxes for the three and nine months ended September 30, 2023 and 2022.

Net loss from continuing operations

The following table summarizes our net loss from continuing operations for the three and nine months ended September 30, 2023 and 2022:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

September 30,

 

 

Change

 

September 30,

 

 

Change

 

 

2023

 

 

2022

 

 

$

 

 

%

 

2023

 

 

2022

 

 

$

 

 

%

 

 

(in thousands)

 

 

 

 

(in thousands)

 

 

 

Net loss from
   continuing operations

 

$

(56,763

)

 

$

(6,786

)

 

$

(49,977

)

 

NM

 

$

(137,084

)

 

$

(28,897

)

 

$

(108,187

)

 

NM

 

The increase in the net loss from continuing operations for the three and nine months ended September 30, 2023, as compared to the same periods in 2022, was due to the reasons set forth above, primarily increased warranty costs and additional quality control measures implemented at certain of our Mexico facilities, credit losses and asset impairment charges in our automotive business as a result of Proterra’s bankruptcy during the third quarter of 2023, and increased labor costs and inflation impacts on operating costs at our Türkiye facilities that we were not able to pass on to our customers.

Net income (loss) from discontinued operations

38


 

The following table summarizes our net income (loss) from discontinued operations for the three and nine months ended September 30, 2023 and 2022:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

September 30,

 

 

Change

 

 

September 30,

 

 

Change

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

2023

 

 

2022

 

 

$

 

 

%

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

Net income (loss)
   from
   discontinued
   operations

 

$

(52

)

 

$

5,319

 

 

$

(5,371

)

 

 

(101.0

)%

 

$

(7,095

)

 

$

6,120

 

 

$

(13,215

)

 

NM

 

The change in net income (loss) from discontinued operations for the three and nine months ended September 30, 2023, as compared to the same periods in 2022, was primarily due to the closure of production at our Yangzhou, China facility at the end of 2022. During the three months ended September 30, 2023, we completed the sale of our Taicang, China facility, received proceeds of $12.8 million, and recorded a net gain on the sale of $0.4 million.

LIQUIDITY AND CAPITAL RESOURCES

Our primary needs for liquidity have been, and in the future will continue to be, capital expenditures, purchases of raw materials, new facility startup costs, costs related to our Matamoros, Mexico manufacturing facility that we took over from Nordex in July 2021, the impact of transitions, working capital, debt service costs, dividend payments to Series A Preferred Stockholders, warranty costs and restructuring costs associated with the optimization of our global footprint. Our capital expenditures have been primarily related to machinery and equipment for new facilities or facility expansions. 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.

In March 2023, we issued and sold an aggregate of $132.5 million principal amount of 5.25% convertible senior unsecured notes due in 2028, the full amount of which is outstanding as of September 30, 2023. The net proceeds from the issuance of the Notes was $109.1 million, net of $4.8 million in debt issuance costs and $18.6 million in cash used to purchase the capped call transactions discussed further in Note 7, Debt. The Notes mature on March 15, 2028 unless repurchased, redeemed, or converted in accordance with their terms prior to such date. The requirements were not satisfied as of September 30, 2023 and as a result, the Notes were not eligible for optional conversion during the third quarter of 2023. We intend to use the net proceeds from the issuance of the Notes for working capital, capital expenditures, and/or general corporate purposes, including the repayment of debt. We intend to allocate an amount equal to the net proceeds from this issuance to finance or refinance, in whole or in part, projects that support the transition to a low-carbon economy, especially those that support the generation of renewable energy and the electrification of transport (the eligible green projects).

We had net proceeds under all of our various financing arrangements of $111.6 million for the nine months ended September 30, 2023 as compared to net repayments under our financing arrangements of $12.5 million in the comparable period of 2022, primarily due to the issuance of the Notes. As of September 30, 2023 and December 31, 2022, we had $192.1 million and $61.2 million in outstanding indebtedness, net of issuance costs, respectively. As of September 30, 2023, we had an aggregate of $85.0 million of remaining capacity for cash and non-cash financing, including $80.9 million of remaining availability for cash borrowing under our various credit facilities. Based upon current and anticipated levels of operations, we believe that cash on hand, available credit facilities, cash flow from operations and our option to issue additional Series A Preferred Stock 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. The Certificate of Designations for the Series A Preferred Stock contains certain covenants and consent rights including, but not limited to, obtaining approval from the Series A Preferred Stockholders to incur indebtedness above $80.0 million (excluding the Notes), a cash on hand balance requirement of $50.0 million in the U.S., an individual limit of $10.0 million for any single capital expenditure project, an annual total capital expenditure limit of $30.0 million, and compliance with a fixed charge coverage ratio target effective December 2023. The Series A Preferred Stockholders agreed to waive compliance with all covenants under the Certificate of Designations with respect to the Company’s sale and issuance of the Notes and the Company’s planned capital expenditures and incurrence of additional indebtedness of up to $17.0 million to acquire wind turbines that will provide renewable energy for our manufacturing facilities in Türkiye.

At September 30, 2023 and December 31, 2022, we had unrestricted cash, cash equivalents and short-term investments totaling $160.6 million and $133.5 million, respectively. The September 30, 2023 balance includes $49.4 million of cash located outside of the

39


 

United States, including $43.1 million in Türkiye, $4.6 million in India, $1.0 million in Mexico and $0.7 million in other countries. In addition to these amounts, at September 30, 2023 we had $3.9 million of unrestricted cash and cash equivalents related to our discontinued operations. At December 31, 2022, we had unrestricted cash and cash equivalents related to our discontinued operations of $9.7 million, all located outside of the U.S.

Our ability to repatriate funds from China related to our discontinued operations to the U.S. is subject to a number of restrictions imposed by the Chinese government. After all assets and liabilities related to our discontinued operations have been disposed of and/or sold, and after all legal and Chinese-statutory requirements have been met, our subsidiaries in China may distribute any remaining shareholders’ equity, including retained earnings, to our subsidiary in Switzerland. During the three months ended September 30, 2023, we completed the sale of our Taicang, China operations and our subsidiary in Switzerland received proceeds of $12.8 million.

Financing Facilities

Our total principal amount of debt outstanding as of September 30, 2023 was $196.4 million, including our convertible senior notes, secured and unsecured financing, working capital and term loan agreements and equipment finance leases. See Note 7, Debt, 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 nine months ended September 30, 2023 and 2022:

 

 

 

Nine Months Ended

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

 

(in thousands)

 

Net cash used in operating activities

 

$

(85,908

)

 

$

(85,095

)

 

$

(813

)

Net cash used in investing activities

 

 

(3,010

)

 

 

(11,492

)

 

 

8,482

 

Net cash provided by (used in) financing activities

 

 

109,029

 

 

 

(12,865

)

 

 

121,894

 

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

 

 

700

 

 

 

(3,807

)

 

 

4,507

 

Net change in cash, cash equivalents and restricted cash

 

$

20,811

 

 

$

(113,259

)

 

$

134,070

 

Operating Cash Flows

Net cash used in operating activities increased by $0.8 million for the nine months ended September 30, 2023, as compared to the same period in 2022, primarily as a result of increased operating losses and payments for China restructuring activities, offset by working capital improvements and a decrease in contract assets.

Investing Cash Flows

Net cash used in investing activities decreased by $8.5 million for the nine months ended September 30, 2023, as compared to the same period in 2022, primarily as a result of the proceeds from the sale of our Taicang, China facility in the current period, partially offset by increased capital expenditures at our existing manufacturing facilities in preparation for upcoming manufacturing line transitions.

Financing Cash Flows

Net cash provided by financing activities increased by $121.9 million for the nine months ended September 30, 2023, as compared to the same period in 2022, primarily as a result of the proceeds from the issuance of the Notes.

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.

40


 

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 segments' 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 September 30, 2023:

 

Year Of Initial Agreement

 

Segment(s) Related To

 

Current Annual Discount Rate

2014

 

 Mexico

 

 LIBOR plus 0.75%

2019

 

 Asia and Mexico

 

 LIBOR plus 1.00%

2020

 

 EMEA

 

 EURIBOR plus 1.95%

2020

 

 India

 

 LIBOR plus 1.00%

2020

 

 U.S.

 

 SOFR plus 0.29%

2021

 

 Mexico

 

 SOFR plus 0.29%

2022

 

 EMEA

 

 EURIBOR plus 1.97%

 

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 and nine months ended September 30, 2023, $278.2 million and $785.9 million, respectively, of receivables were sold under the accounts receivable assignment agreements described above as compared to $245.0 million and $697.6 million, respectively, in the comparative prior year period.

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 for the year ended December 31, 2022.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2, Basis of Presentation, under the heading “Recently Issued 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 Mexico, Türkiye, India and Europe. 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 $7.2 million for the nine months ended September 30, 2023.

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

Resin, resin systems, and carbon fiber are the primary commodities for which we do not have fixed pricing. Approximately 59% of the resin and resin systems, and approximately 91% 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 and resin systems we believe that a 10% change in the current forecasted price of resin and resin systems for the customers in which we are exposed to fluctuating prices would have an impact to income from operations of

41


 

approximately $6.2 million for the full year 2023. With respect to our other customer supply agreements, our customers typically receive approximately 70% of the cost savings or increases resulting from a change in the price of resin, resin systems.

Interest Rate Risk. As of September 30, 2023, 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 Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(b) promulgated under the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the design and operating effectiveness as of September 30, 2023 of our disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2023.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

42


 

PART II. OTHER INFORMATION

See Note 15, 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

There have been no material changes to the Risk Factors (Part I, Item 1A) in our Annual Report on Form 10-K for the year ended December 31, 2022, as amended by our disclosure to the Risk Factors (Part II, Item 1A) in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, which could materially affect our business, financial condition, and/or future results.

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

Unregistered Sales of Equity Securities

Not applicable.

Issuer Purchases of Equity Securities

Not applicable.

Use of Proceeds

Not applicable.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

None.

 

43


 

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.

 

44


 

SIGNATURES

Pursuant to the requirements 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: November 2, 2023

 

By:

 

/s/ Ryan Miller

 

 

 

 

Ryan Miller

 

 

 

 

Chief Financial Officer

 

 

 

 

(Principal Financial Officer)

 

45


 

Exhibit 31.1

CERTIFICATION

I, William E. Siwek, certify that:

1. I have reviewed this quarterly report on Form 10-Q of TPI Composites, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 2, 2023

 

By:

/s/ William E. Siwek

 

 

 

William E. Siwek

 

 

 

Chief Executive Officer

 

 

 

(Principal Executive Officer)

 

 

 


 

Exhibit 31.2

CERTIFICATION

I, Ryan Miller, certify that:

1. I have reviewed this quarterly report on Form 10-Q of TPI Composites, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 2, 2023

 

By:

/s/ Ryan Miller

 

 

 

Ryan Miller

 

 

 

Chief Financial Officer

 

 

 

(Principal Financial Officer)

 

 


 

Exhibit 32.1

Certification Pursuant To

18 U.S.C. Section 1350,

As Adopted Pursuant To

Section 906 of the Sarbanes-Oxley Act of 2002

I, William E. Siwek, Chief Executive Officer of TPI Composites, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

1. the report on Form 10-Q of TPI Composites, Inc. for the nine months ended September 30, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m or 78o(d)); and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of TPI Composites, Inc.

Date: November 2, 2023

 

By:

/s/ William E. Siwek

 

 

 

William E. Siwek

 

 

 

Chief Executive Officer

 

 

 

(Principal Executive Officer)

 

 


 

Exhibit 32.2

Certification Pursuant To

18 U.S.C. Section 1350,

As Adopted Pursuant To

Section 906 of the Sarbanes-Oxley Act of 2002

I, Ryan Miller, Chief Financial Officer of TPI Composites, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

 

1. the report on Form 10-Q of TPI Composites, Inc. for the nine months ended September 30, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m or 78o(d)); and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of TPI Composites, Inc.

Date: November 2, 2023

 

By:

/s/ Ryan Miller

 

 

 

Ryan Miller

 

 

 

Chief Financial Officer

 

 

 

(Principal Financial Officer)