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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, 2020

OR

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

Commission File Number 001-37839

 

TPI Composites, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-1590775

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

8501 N. Scottsdale Rd.

Gainey Center II, Suite 100

Scottsdale, AZ 85253

(480305-8910

(Address, including zip code, and telephone number,

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

 

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01

 TPIC

NASDAQ Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

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

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

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

 

 

Smaller reporting company

 

 

Emerging growth company

 

 

 

 

 

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

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

As of October 31, 2020, there were 35,740,796 shares of common stock outstanding.     

 

 

 

1


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

INDEX

 

 

 

 

 

Page

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

ITEM 1.

  

Condensed Consolidated Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

  

Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

 

5

 

 

 

 

 

 

  

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019

 

6

 

 

 

 

 

 

  

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019

 

7

 

 

 

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019

 

8

 

 

 

 

 

 

  

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019

 

10

 

 

 

 

 

 

  

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

12

 

 

 

 

 

ITEM 2.

  

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

 

25

 

 

 

 

 

ITEM 3.

  

Quantitative and Qualitative Disclosures About Market Risk

 

37

 

 

 

 

 

ITEM 4.

  

Controls and Procedures

 

38

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

  

Legal Proceedings

 

39

 

 

 

 

 

ITEM 1A.

  

Risk Factors

 

39

 

 

 

 

 

ITEM 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

 

39

 

 

 

 

 

ITEM 3.

  

Defaults Upon Senior Securities

 

39

 

 

 

 

 

ITEM 4.

  

Mine Safety Disclosures

 

39

 

 

 

 

 

ITEM 5.

  

Other Information

 

39

 

 

 

 

 

ITEM 6.

  

Exhibits

 

40

 

 

 

 

 

SIGNATURES

 

41

 

 

2


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

 

the potential impact of the Coronavirus on our business and results of operations;

 

growth of the wind energy market and our addressable market;

 

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;  

 

the sufficiency of our cash and cash equivalents to meet our liquidity needs;

 

our ability to attract and retain customers for our products, and to optimize product pricing;

 

our ability to effectively manage our growth strategy and future expenses, including our startup and transition costs;

 

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 and product recalls;

 

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 in wind energy markets;

 

our ability to successfully open new manufacturing facilities and expand existing facilities on time and on budget;

 

the impact of the accelerated pace of new product and wind blade model introductions on our business and our results of operations;

 

our ability to successfully expand our transportation business and execute upon our strategy of entering new markets outside of wind energy;

 

worldwide economic conditions and their impact on customer demand;

 

our ability to maintain, protect and enhance our intellectual property;

 

our ability to comply with existing, modified or new laws and regulations applying to our business, including the imposition of new taxes, duties or similar assessments on our products;

 

the attraction and retention of qualified employees and key personnel;

 

our ability to maintain good working relationships with our employees, and avoid labor disruptions, strikes and other disputes with labor unions that represent certain of our employees;

 

our ability to procure adequate supplies of raw materials and components to fulfill our wind blade volume commitments to our customers; 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 filed with the United States Securities and Exchange Commission (SEC) on March 2, 2020 the principal risks and uncertainties that

3


 

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.

 

 

4


 

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,

 

 

 

2020

 

 

2019

 

 

 

(in thousands, except par value data)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

149,422

 

 

$

70,282

 

Restricted cash

 

 

1,987

 

 

 

992

 

Accounts receivable

 

 

149,985

 

 

 

184,012

 

Contract assets

 

 

211,569

 

 

 

166,515

 

Prepaid expenses

 

 

15,950

 

 

 

10,047

 

Other current assets

 

 

21,794

 

 

 

29,843

 

Inventories

 

 

14,569

 

 

 

6,731

 

Total current assets

 

 

565,276

 

 

 

468,422

 

Property, plant, and equipment, net

 

 

210,024

 

 

 

205,007

 

Operating lease right of use assets

 

 

168,590

 

 

 

122,351

 

Other noncurrent assets

 

 

41,794

 

 

 

30,897

 

Total assets

 

$

985,684

 

 

$

826,677

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

310,344

 

 

$

293,104

 

Accrued warranty

 

 

53,596

 

 

 

47,639

 

Current maturities of long-term debt

 

 

35,788

 

 

 

13,501

 

Current operating lease liabilities

 

 

25,569

 

 

 

16,629

 

Contract liabilities

 

 

2,010

 

 

 

3,008

 

Total current liabilities

 

 

427,307

 

 

 

373,881

 

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

 

 

201,780

 

 

 

127,888

 

Noncurrent operating lease liabilities

 

 

165,551

 

 

 

113,883

 

Other noncurrent liabilities

 

 

9,594

 

 

 

5,975

 

Total liabilities

 

 

804,232

 

 

 

621,627

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common shares, $0.01 par value, 100,000 shares authorized, 35,916

   shares issued and 35,740 shares outstanding at September 30, 2020

   and 100,000 shares authorized, 35,326 shares issued and 35,181

   shares outstanding at December 31, 2019

 

 

359

 

 

 

353

 

Paid-in capital

 

 

338,355

 

 

 

322,906

 

Accumulated other comprehensive loss

 

 

(37,946

)

 

 

(23,612

)

Accumulated deficit

 

 

(114,900

)

 

 

(90,689

)

Treasury stock, at cost, 176 shares at September 30, 2020 and 145 shares at

  December 31, 2019

 

 

(4,416

)

 

 

(3,908

)

Total stockholders’ equity

 

 

181,452

 

 

 

205,050

 

Total liabilities and stockholders’ equity

 

$

985,684

 

 

$

826,677

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

5


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(in thousands, except per share data)

 

Net sales

 

$

474,113

 

 

$

383,836

 

 

$

1,204,566

 

 

$

1,014,387

 

Cost of sales

 

 

425,064

 

 

 

335,778

 

 

 

1,141,183

 

 

 

904,135

 

Startup and transition costs

 

 

8,576

 

 

 

22,127

 

 

 

31,530

 

 

 

63,206

 

Total cost of goods sold

 

 

433,640

 

 

 

357,905

 

 

 

1,172,713

 

 

 

967,341

 

Gross profit

 

 

40,473

 

 

 

25,931

 

 

 

31,853

 

 

 

47,046

 

General and administrative expenses

 

 

9,263

 

 

 

10,608

 

 

 

25,646

 

 

 

27,801

 

Realized loss on sale of assets and asset impairments

 

 

2,160

 

 

 

3,354

 

 

 

5,518

 

 

 

10,561

 

Restructuring charges (reversals), net

 

 

45

 

 

 

(149

)

 

 

343

 

 

 

3,725

 

Income from operations

 

 

29,005

 

 

 

12,118

 

 

 

346

 

 

 

4,959

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

15

 

 

 

43

 

 

 

55

 

 

 

125

 

Interest expense

 

 

(3,108

)

 

 

(2,130

)

 

 

(7,464

)

 

 

(6,403

)

Realized gain (loss) on foreign currency remeasurement

 

 

(17,127

)

 

 

3,719

 

 

 

(18,095

)

 

 

(1,050

)

Miscellaneous income

 

 

1,259

 

 

 

517

 

 

 

2,893

 

 

 

2,235

 

Total other income (expense)

 

 

(18,961

)

 

 

2,149

 

 

 

(22,611

)

 

 

(5,093

)

Income (loss) before income taxes

 

 

10,044

 

 

 

14,267

 

 

 

(22,265

)

 

 

(134

)

Income tax benefit (provision)

 

 

32,338

 

 

 

(18,838

)

 

 

(1,946

)

 

 

(14,713

)

Net income (loss)

 

$

42,382

 

 

$

(4,571

)

 

$

(24,211

)

 

$

(14,847

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

35,546

 

 

 

35,131

 

 

 

35,354

 

 

 

35,024

 

Diluted

 

 

37,423

 

 

 

35,131

 

 

 

35,354

 

 

 

35,024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.19

 

 

$

(0.13

)

 

$

(0.68

)

 

$

(0.42

)

Diluted

 

$

1.13

 

 

$

(0.13

)

 

$

(0.68

)

 

$

(0.42

)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

6


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(in thousands)

 

Net income (loss)

 

$

42,382

 

 

$

(4,571

)

 

$

(24,211

)

 

$

(14,847

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(1,662

)

 

 

(895

)

 

 

(13,175

)

 

 

(3,765

)

Unrealized gain (loss) on hedging derivatives, net of taxes of $(1,100), $202, $0, and $967, respectively

 

 

2,961

 

 

 

(754

)

 

 

(1,159

)

 

 

(3,635

)

Comprehensive income (loss)

 

$

43,681

 

 

$

(6,220

)

 

$

(38,545

)

 

$

(22,247

)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 


7


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

Nine Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Paid-in

 

 

other comprehensive

 

 

Accumulated

 

 

Treasury stock,

 

 

Total stockholders'

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

loss

 

 

deficit

 

 

at cost

 

 

equity

 

 

 

(in thousands)

 

Balance at December 31, 2019

 

 

35,326

 

 

$

353

 

 

$

322,906

 

 

$

(23,612

)

 

$

(90,689

)

 

$

(3,908

)

 

$

205,050

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(492

)

 

 

 

 

 

(492

)

Share-based compensation expense

 

 

 

 

 

 

 

 

2,970

 

 

 

 

 

 

 

 

 

 

 

 

2,970

 

Issuances under share-based compensation

plan

 

 

109

 

 

 

1

 

 

 

861

 

 

 

 

 

 

 

 

 

 

 

 

862

 

Common stock repurchased for treasury

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(459

)

 

 

(459

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(16,893

)

 

 

 

 

 

 

 

 

(16,893

)

Balance at March 31, 2020

 

 

35,435

 

 

 

354

 

 

 

326,737

 

 

 

(40,505

)

 

 

(91,181

)

 

 

(4,367

)

 

 

191,038

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(66,101

)

 

 

 

 

 

(66,101

)

Share-based compensation expense

 

 

 

 

 

 

 

 

2,186

 

 

 

 

 

 

 

 

 

 

 

 

2,186

 

Issuances under share-based compensation

plan

 

 

81

 

 

 

1

 

 

 

510

 

 

 

 

 

 

 

 

 

 

 

 

511

 

Common stock repurchased for treasury

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(49

)

 

 

(49

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

1,260

 

 

 

 

 

 

 

 

 

1,260

 

Balance at June 30, 2020

 

 

35,516

 

 

 

355

 

 

 

329,433

 

 

 

(39,245

)

 

 

(157,282

)

 

 

(4,416

)

 

 

128,845

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

42,382

 

 

 

 

 

 

42,382

 

Share-based compensation expense

 

 

 

 

 

 

 

 

2,434

 

 

 

 

 

 

 

 

 

 

 

 

2,434

 

Issuances under share-based compensation

plan

 

 

395

 

 

 

4

 

 

 

6,488

 

 

 

 

 

 

 

 

 

 

 

 

6,492

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

1,299

 

 

 

 

 

 

 

 

 

1,299

 

Balance at September 30, 2020

 

 

35,911

 

 

$

359

 

 

$

338,355

 

 

$

(37,946

)

 

$

(114,900

)

 

$

(4,416

)

 

$

181,452

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

8


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - CONTINUED

(Unaudited)

 

 

 

Nine Months Ended September 30, 2019