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As filed with the Securities and Exchange Commission on June 17, 2016.

Registration No. 333-            

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

TPI Composites, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   3511   20-1590775
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

TPI Composites, Inc.

8501 N. Scottsdale Rd.

Gainey Center II, Suite 100

Scottsdale, AZ 85253

(480) 305-8910

(Address, including zip code, and telephone number,

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

 

 

Steven C. Lockard

Chief Executive Officer

TPI Composites, Inc.

8501 N. Scottsdale Rd.

Gainey Center II, Suite 100

Scottsdale, AZ 85253

(480) 305-8910

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

H. David Henken, Esq.

Bradley C. Weber, Esq.

Ryan S. Sansom, Esq.

Goodwin Procter LLP

Exchange Place

Boston, MA 02109

(617) 570-1000

 

William E. Siwek

Chief Financial Officer

Steven Fishbach, Esq.

General Counsel

TPI Composites, Inc.

8501 N. Scottsdale Rd.

Gainey Center II, Suite 100

Scottsdale, AZ 85253

(480) 305-8910

 

Sandra L. Flow, Esq.

Cleary Gottlieb Steen & Hamilton LLP

One Liberty Plaza

New York, NY 10006

(212) 225-2000

 

 

Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.   ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering.   ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering.   ¨

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

 

Large accelerated filer   ¨   Accelerated filer   ¨   Non-accelerated filer   x   Smaller reporting company   ¨
  (Do not check if a smaller reporting company)

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of Securities To Be Registered   Proposed Maximum
Aggregate Offering Price (1)
  Amount of Registration Fee (2)

Common Stock, $0.01 par value per share

  $150,000,000   $15,105

 

 

 

(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933. Includes the offering price attributable to additional shares that the underwriters have the option to purchase.
(2) Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, dated June 17, 2016

PRELIMINARY    PROSPECTUS

 

LOGO

 

 

This is the initial public offering of TPI Composites, Inc. We are selling                  shares of our common stock.

We expect the public offering price to be between $         and $         per share. Currently, no public market exists for the shares. After pricing of the offering, we expect that the shares will trade on The NASDAQ Global Market under the symbol “TPIC”.

We are an “emerging growth company” under federal securities laws and, as such, will be subject to reduced public company disclosure standards. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”

Investing in our common stock involves risks that are described in the “ Risk Factors ” section beginning on page 18 of this prospectus.

 

 

 

    

Per Share

      

Total

 

Public offering price

   $           $     

Underwriting discount (1)

   $           $     

Proceeds, before expenses, to us

   $           $     

 

  (1) See “Underwriting” beginning on page 158 of this prospectus for additional information regarding total underwriter compensation.

The underwriters may also exercise their option to purchase up to an additional                  shares from us at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The shares will be ready for delivery on or about                     , 2016.

 

 

 

J.P. Morgan   Morgan Stanley

 

Cowen and Company   Raymond James     

Canaccord Genuity

 

 

The date of this prospectus is                     , 2016.


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TABLE OF CONTENTS

 

    

Page

 

Prospectus Summary

     1   

Risk Factors

     18   

Special Note Regarding Forward-Looking Statements

     47   

Use of Proceeds

     48   

Dividend Policy

     49   

Capitalization

     50   

Dilution

     52   

Selected Consolidated Financial and Other Data

     54   

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

     57   

Business

     105   

Management

     120   

Executive Compensation

     131   

Certain Relationships and Related Party Transactions

     140   

Principal Stockholders

     145   

Description of Capital Stock

     148   

Shares Eligible for Future Sale

     152   

Certain Material U.S. Federal Income and Estate Tax Considerations to Non-U.S. Holders

     155   

Underwriting

     158   

Legal Matters

     165   

Experts

     165   

Where You Can Find More Information

     165   

Index to Financial Statements

     F-1   

 

 

We and the underwriters have not authorized anyone to provide any information other than that contained in this prospectus or any free writing prospectus prepared by us or on our behalf. We and the underwriters are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date on the front cover of this prospectus regardless of the time of delivery of this prospectus or of any sale of our common stock.

 

 

INDUSTRY AND MARKET DATA

This prospectus contains statistical data, estimates and forecasts that are based on independent industry publications, such as those published by the American Wind Energy Association, or AWEA, Bloomberg New Energy Finance, or BNEF, International Energy Agency, or IEA, MAKE Consulting, or MAKE, Energy Information Administration, or EIA, Lazard Ltd, or Lazard, or other publicly available information, as well as other information based on our internal sources. Although we believe that the third-party sources referred to in this prospectus are reliable, neither we nor the underwriters have independently verified the information provided by these third parties. While we are not aware of any misstatements regarding any third-party information presented in this prospectus, their estimates, in particular as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties, and are subject to change based on various factors, including those discussed under the section titled “Risk Factors” and elsewhere in this prospectus.

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes included elsewhere in this prospectus. You should consider, among other things, the matters described in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in each case included elsewhere in this prospectus. Unless the context otherwise requires, we use the terms “TPI Composites,” “TPI,” “we,” “us” and “our” in this prospectus to refer to TPI Composites, Inc. and its consolidated subsidiaries.

TPI Composites, Inc.

Company Overview

We are the largest U.S.-based independent manufacturer of composite wind blades. We enable many of the industry’s leading wind turbine original equipment manufacturers, or OEMs, who have historically relied on in-house production, to outsource the manufacturing of some of their wind blades through our global footprint of advanced manufacturing facilities strategically located to serve large and growing wind markets in a cost-effective manner. Given the importance of wind energy capture, turbine reliability and cost to power producers, the size, quality and performance of wind blades have become highly strategic to our OEM customers. As a result, we have become a key supplier to our OEM customers in the manufacture of wind blades and related precision molding and assembly systems. We have entered into long-term supply agreements pursuant to which we dedicate capacity at our facilities to our customers in exchange for their commitment to purchase minimum annual volumes of wind blade sets, which consist of three wind blades. As of March 31, 2016, our long-term supply agreements provide for estimated minimum aggregate volume commitments from our customers of $1.5 billion and encourage our customers to purchase additional volume up to, in the aggregate, an estimated total contract value of over $3.0 billion through the end of 2021. This collaborative dedicated supplier model provides us with contracted volumes that generate significant revenue visibility, drive capital efficiency and allow us to produce wind blades at a lower total delivered cost, while ensuring critical dedicated capacity for our customers.

Our OEM customers include General Electric International, Inc. and its affiliates (GE Wind), Vestas Wind Systems A/S (Vestas), Gamesa Wind US LLC (Gamesa) and Nordex SE (or Nordex, which, in April 2016, acquired Acciona Windpower, S.A., or Acciona, for whom we also manufacture wind blades). Prior to 2013, we had one OEM customer that, according to data from MAKE, represented approximately 10% of the global wind energy market based on megawatts, or MWs, of energy capacity installed. Although we do not supply all of their wind blade volume, according to data from MAKE our OEM customers collectively accounted for approximately 32% of the global onshore wind energy market and approximately 56% of that market excluding China over the three years ended December 31, 2015, based on MWs of energy capacity installed. The wind power generation industry is experiencing significant growth in countries belonging to the Organization for Economic Cooperation and Development, or OECD, as well as in emerging growth markets. To meet this growth in demand reliably in a capital-efficient and cost-effective manner, many OEMs are shifting from manufacturing wind blades themselves to the outsourced manufacture of their wind blades. Our collaborative approach, advanced composite technology and global manufacturing footprint have allowed us to capitalize on this trend by replacing or augmenting the in-house capabilities of our customers and efficiently delivering wind blades when and where required. Our facilities in the United States, China, Mexico and Turkey create a geographically-diverse, global production platform to meet our customers’ needs in key large and growing wind markets. We intend to continue expanding in certain existing markets and in new locations that represent growth opportunities for the wind energy market and our customers. We believe our geographic and customer diversification, together with our long-term

 



 

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agreements, allow us to take advantage of growth trends and help to insulate us from potential short-term fluctuations or legislative changes in any one market.

Our wind blade and precision molding and assembly systems manufacturing businesses accounted for over 99%, over 99%, 99%, and 97% of our total net sales in the three months ended March 31, 2016 and in the years ended December 31, 2015, 2014 and 2013, respectively. We also leverage our advanced composite technology and the expertise gained from our history of innovation to supply high strength, lightweight and durable composite solutions for the transportation market.

Global Wind Energy Market

The wind power generation industry has grown rapidly and expanded worldwide in recent years to meet high global demand for clean electricity. According to BNEF, from 2000 to 2015, the cumulative global power generating capacity in gigawatts, or GWs, grew at an average annual rate of 25%. Cumulative installed capacity is led by China (approximately 139 GWs), the United States (approximately 74 GWs) and Germany (approximately 45 GWs). In addition, from 2008 to 2015, the cumulative global power generating capacity of wind turbine installations in GWs increased by more than three and a half times. Wind energy is now used in over 80 countries, 24 of which have more than 1 GW installed. The rapid growth in the wind power generation industry has been driven by population growth and the associated increase in electricity demand, widespread emphasis on expanded use of renewable energy, the increasing effectiveness and cost-competitiveness of wind energy and accelerated urbanization in developing countries, among other factors. We believe that recent U.S. and global policy initiatives aimed at reducing fossil fuel consumption through the expansion of renewable energy, coupled with corporate commitments to cost-effective environmentally and socially responsible electricity consumption, will drive additional growth. In 2015, U.S. corporate, non-profit and government entities procured an aggregate of 2.4 GWs of wind capacity via power purchase agreements, which represents an increase of 12 times since 2008, according to BNEF. The Paris Agreement achieved at the 21st Conference of Parties, or COP21, of the United Nations Framework Convention on Climate Change, the U.S. Environmental Protection Agency’s, or EPA’s, Clean Power Plan and the long-term extension of the Production Tax Credit for Renewable Energy, or PTC, are all recent examples of policies that promote the growth of renewable energy. Overall, renewable technologies, including hydroelectric, are projected to increase their share of global electricity generation from 24% in 2015 to 45% by 2040 according to BNEF. Additionally, according to BNEF, onshore wind is expected to experience the largest increase in global market share over the same period, growing from 4% to 13% of the market.

 



 

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LOGO

Source: Bloomberg New Energy Finance. Regional onshore figures presented for 2015 only.

In 2015, the wind industry added approximately 62 GWs of generation capacity. According to BNEF, market diversification increased as a result of demand from newer markets in Asia, Latin America and non-EU Europe, which collectively represented 45.2% of capacity in 2015, as compared to 42.7% in 2014. Although Europe and the United States led early wind development, since 2010, the majority of wind turbines have been installed in non-OECD countries, particularly in Asia and Latin America, where wind generation capacity is growing. For example, cumulative wind generation capacity from 2013 to 2015 grew by 75.0% to 2.8 GWs in Mexico and by 64.1% to 4.5 GWs in Turkey, underpinned by strong wind resources, high electricity prices, robust energy demand and key regulatory policies tailored to incentivize usage, among other factors.

Onshore wind LCOE—which reflects the levelized cost of energy per megawatt hour of a generation project over its lifetime—is already on par with new combined cycle gas turbines and substantially below solar photovoltaic, according to Lazard. The advancement of wind turbine technology, including larger rotor diameters and higher hub heights, has increased energy capture, thus reducing LCOE for onshore wind. For a further discussion of LCOE, see “Our Industry—Global Wind Energy Market.” The proliferation of cost-effective wind generation enhances energy resource diversity and mitigates the price volatility associated with fossil fuels, thereby helping to stabilize overall electricity costs in the long term. Wind energy projects do not require any fuel, such as natural gas or coal, during operation, and we believe that they are generally constructed within a substantially shorter period of time relative to conventional generation resources. According to Lazard, the cost of onshore wind has declined by over 61% in the last six years. Costs are expected to continue to decline an additional 15% by 2021 according to MAKE due to progress in reducing the costs of wind turbines, improving capacity factors and lower operating and maintenance costs.

 



 

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The wind turbine industry, which constitutes our direct customer base, is concentrated among a few established players, with the top ten OEMs accounting for approximately 69% of the total global onshore market for the three years ended December 31, 2015 based on MWs installed, according to data from MAKE. We believe MWs installed is the most widely followed measure of market share in the wind turbine industry and also reflects the OEMs’ demand for wind blades. We currently have long-term supply agreements with four of these top ten OEMs and are developing new relationships with additional OEMs to grow our business. In addition, we expect growth in the industry itself – by the end of 2020, cumulative global installed wind capacity is projected to be over 750 GWs, with China accounting for approximately 35% of this capacity, according to BNEF. This represents a five-year compounded annual growth rate of approximately 12% for the global wind market including China, and a similar growth rate of 11% for the global wind market excluding China.

1 LOGO

 

 

1   Figures are rounded to nearest whole percent.
2   Figures for GE Wind are pro forma for the acquisition of Alstom S.A., which was completed in November 2015.
3   Figures for Nordex are pro forma for the acquisition of Acciona, which was completed in April 2016.

 



 

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LOGO

Historically, many wind turbine OEMs manufactured their own wind blades in-house to ensure a high level of quality and dedicated capacity, reflecting the importance of the wind blade supply to turbine production, concerns over protecting their proprietary wind blade designs and the scarcity of independent wind blade suppliers with sufficient manufacturing expertise and capacity. During 2007 and 2008, the U.S. and China markets grew at a rapid pace, which created additional demand in the wind turbine manufacturing supply chain. To balance supply and demand, many leading wind turbine OEMs established a production footprint in high-growth regions.

The current globalization of the wind industry presents a new set of challenges and opportunities for wind turbine OEMs. As opposed to establishing a manufacturing presence in each new core growth market, wind turbine OEMs are now focusing on supply chain efficiencies and their core competencies in the design, marketing and sale of wind turbines. In doing so, wind turbine OEMs are increasingly outsourcing the production of key components, such as wind blades, to select manufacturers to remain competitive and address growth markets. This approach enables wind turbine OEMs to lower their capital costs and shift the production components to manufacturers that possess highly specialized expertise in advanced composite, production and process technology. From a product perspective, wind turbine OEMs have adopted a variety of strategies, including the introduction of new turbine models with improved technology, warranty terms, more stringent performance guarantees, and tailor-made turbines for specific countries or regions. During the past three years, all of the top ten wind turbine suppliers in the world have introduced wind turbines with longer wind blade lengths and taller towers designed to capture more energy at the lower end of the wind speed scale. We believe that installation of wind turbines in regions with lower wind speeds is encouraged due to proximity to energy demand centers, thereby reducing the amount of transmission infrastructure required. We expect this trend of

 

1   Figures are rounded to nearest whole percent.
2   Figures for GE Wind are pro forma for the acquisition of Alstom S.A., which was completed in November 2015
3 Figures for Nordex are pro forma for the acquisition of Acciona, which was completed in April 2016.

 



 

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expansion to regions not traditionally classified as high wind resource regions to continue, which we believe will help us continue to expand our global footprint.

According to BNEF, the total wind blade industry generated $11.9 billion in revenues in 2014 and is projected to grow to $19.7 billion by 2040. We believe our addressable market will continue to expand, as outsourced wind blade manufacturing is expected to rise from 52% in 2013 to 59% in 2017, according to data from MAKE. As the wind energy market continues to expand globally and wind turbine OEMs continue to shift towards increased outsourcing of wind blade manufacturing, we believe we are well-positioned to continue the expansion of our global footprint.

Competitive Strengths

 

    Wind industry leader with cost-effective, global footprint. We are the largest U.S.-based independent manufacturer of composite wind blades and have developed a global footprint to serve the growing wind energy market worldwide. We currently have six advanced wind blade plants in strategic locations in the United States, China, Mexico and Turkey, with an additional plant in each of Mexico and Turkey expected to commence operations in the second half of 2016. We also have facilities in the United States and China that manufacture precision molding and assembly systems for wind blades. This geographically diverse footprint enables us to leverage our global scale and technological capabilities, serve regional markets and export to ports around the world in a cost-effective manner, thereby enabling our customers to capitalize on the benefits of outsourced wind blade manufacturing. We believe our extensive experience with delivering high quality wind blades to diverse, global markets creates a significant barrier to entry and is the foundation of our leadership position in the independent market for wind blade manufacturing. Moreover, the expansion of our manufacturing footprint in coordination with our customers allows us to scale our capacity to meet demand as well as ensure dedicated manufacturing capacity for each of our customers in our existing facilities or in new facilities located to optimize labor and transportation costs.

 

    Positioned to capitalize on significant growth trends in the wind energy market. We believe that our reputation as a reliable, global wind blade manufacturer and our focus on developing replicable and scalable manufacturing facilities and processes positions us to continue to capture opportunities in large and growing wind energy markets. Our ability to capitalize on recent growth trends in the wind energy market and OEM outsourcing has allowed us to grow our revenue 172% from 2013 to 2015 while expanding our global manufacturing footprint over the same period by opening four additional advanced wind blade manufacturing facilities. We believe this global growth and the emergence of new wind markets will continue to create opportunities for us as our customers focus on supply chain optimization and wind blade outsourcing as a critical component of their strategy.

 

   

Advanced composite technology and production expertise. Our significant expertise in advanced composite technology and production enables us to manufacture lightweight and durable wind blades with near-aerospace grade precision at an industrial cost. We have developed and use high-performance composite materials, precision molding and assembly systems, including modular tooling techniques, and advanced process technology, as well as sophisticated measurement, inspection, testing and quality assurance tools, which have allowed us to produce over 26,000 wind blades since 2001 with an excellent field performance record in a market where reliability is critical to our customers’ success. With our culture of continuing innovation and a collaborative “design for manufacturability” approach, we continue to address increasing physical dimensions and the need for rapid model changes, demanding technical specifications and strict quality control requirements for wind blades, which today are generally 50 to 60 meters or more in length. We also invest in ongoing simplification and selective automation of production processes

 



 

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for increased efficiency and precision. We have partnered with the U.S. Department of Energy, government laboratories, universities and our customers to innovate through cost sharing Advanced Manufacturing Innovation Initiative, or AMII programs. In 2015, we received an award of $3.0 million from the U.S. Department of Energy’s Office of Energy Efficiency & Renewable Energy to lead a team of industry and academic participants to design, develop and demonstrate an ultra-light composite vehicle door for high volume manufacturing production in conjunction with other industry and university participants. Our primary research and development facilities are in Fall River, Massachusetts and Warren, Rhode Island. We also conduct research and development in our various manufacturing facilities around the world. As of December 31, 2015, our highly experienced engineering and technical workforce includes professionals holding 441 engineering and technical degrees, most of whom have specialized in composites and wind energy for many years and have deep familiarity with the manufacturing of wind blades.

 

    Collaborative dedicated supplier model. Our deeply collaborative dedicated supplier model engenders stable, long-term relationships with customers, driving capital efficiency and helping to insulate us from potential short-term fluctuations or legislative changes in any one market. Our collaborative approach to manufacturing wind blades to meet our customers’ unique specifications, coupled with their investment in model-specific tooling in our facilities, promotes significant customer loyalty and creates higher switching costs. Our focused factory model, in which we contractually dedicate production lines to a specific customer in exchange for their commitment to purchase minimum annual volumes, also serves to protect the confidentiality of our customers’ proprietary wind blade and turbine designs. Our ability to manufacture the model-specific tooling for our customers further strengthens our role as a “one stop shop” for our customers, provides an efficient solution to their wind blade supply needs and allows us to produce high-quality wind blades at a lower total delivered cost. We work to continue to drive down the cost of materials and production through innovation and global sourcing, the benefit of which we share with our customers contractually in a manner that reduces LCOE for the customer and improves our margins, further strengthening our deep customer relationships. We manufacture wind blades for four of the largest global wind turbine suppliers: GE Wind, Vestas, Gamesa and Nordex 1 . According to data from MAKE, our customers represented approximately 32% of the global onshore wind energy market and approximately 56% of that market excluding China over the three years ended December 31, 2015, based upon MWs of energy installed. Additionally, our customers represented 82% of the U.S. onshore wind turbine market over the three years ended December 31, 2015, based on MWs of energy capacity installed. GE Wind, in particular, accounted for 54.6%, 53.3%, 73.2% and 91.2% of our total net sales for the three months ended March 31, 2016 and for the years ended December 31, 2015, 2014 and 2013, respectively.

 

    Long-term supply agreements provide significant revenue visibility. In our collaborative dedicated supplier model, we enter into long-term supply agreements that provide significant incentives for our customers to maximize the volume of wind blades purchased, through increased pricing at lower volumes that contribute to profitability at minimum volume levels. As of March 31, 2016, our existing wind blade supply agreements provide for estimated minimum aggregate volume commitments of $1.5 billion and encourage customers to purchase additional volume up to, in the aggregate, an estimated total contract value of over $3.0 billion through the end of 2021, which we believe provides us with significant future revenue visibility and helps to insulate us from potential short-term fluctuations or legislative changes in any one market due in part to the annual minimum purchase commitments of our customers contained in those agreements. These annual minimum purchase commitments generally require our customers to purchase a negotiated percentage of the

 

1   Includes Acciona, for whom we also manufacture wind blades, which Nordex acquired in April 2016.

 



 

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manufacturing capacity that we have agreed to dedicate to them. Generally, this percentage begins at 100% and declines after the first few years pursuant to the terms of the supply agreement, but generally remains above 50%. It is our experience that our customers will generally order wind blades from us in a volume that exceeds, sometimes substantially, the annual minimum purchase commitments in our supply agreements. Although some of our long-term supply agreements, including some of those with our majority customer, are subject to termination by our customers on short notice or, in one instance, no advance notice, we believe our strong relationships with leading global turbine OEMs, underpinned by these long-term supply agreements, provide significant stability and visibility into our future performance and growth.

 

    Compelling Return on Invested Capital. We believe our highly efficient manufacturing processes and customer arrangements are critical to achieving compelling returns on invested capital. We manufacture our customers’ unique wind blade models at locations where we invest in the plant facility and equipment, while our customers invest alongside us by purchasing model-specific tooling from us or other sources. This focused factory model allows us to concentrate on efficient manufacturing practices and drives cost saving initiatives throughout our facilities. Moreover, our customer relationships and long-term supply agreements result in relatively low sales and marketing and other similar general expenses. The focused factory model is replicated in each of our wind blade manufacturing facilities and is key to our strategy to expand our footprint in specific markets.

 

    Experienced management team with a strong track record of delivering growth. Our senior management team has significant experience managing high growth, international operations. Over the course of the past decade, the team has successfully positioned us as the largest independent U.S.-based manufacturer of wind blades and has developed and deepened customer relationships with leading OEMs in the global wind energy market. At the same time, our team has built a global manufacturing network with six wind blade factories and two precision molding and assembly systems facilities across three continents and has demonstrated the ability to enter new markets quickly and efficiently. Our executives are recognized as thought leaders in the wind energy industry and hold leadership positions in industry organizations, such as AWEA.

Business Strategy

Our long-term success will be driven by our competitive strengths and business strategy. The key elements of our strategy are as follows:

 

   

Grow our existing relationships and develop new relationships with leading industry OEMs. We plan to continue growing and expanding our relationships with existing customers who, according to data from MAKE, represented approximately 32% of the global onshore wind energy market, approximately 56% of that market excluding China, and over 82% of the U.S. onshore wind turbine market over the three years ended December 31, 2015, based on MWs of energy capacity installed, as well as developing new relationships with other leading industry OEMs. Over the course of our 15 years in the wind blade market, we have established a reputation as a highly reliable wind blade manufacturer. As a result, we are presented with opportunities to expand our existing relationships and develop new relationships with industry OEMs as they seek to capitalize on the benefits of outsourced wind blade manufacturing while maintaining high quality customization and dedicated capacity. In 2015, we extended the term of our existing Iowa and China supply agreements with GE Wind, and entered into a new supply agreement with Vestas in China, which we subsequently expanded in the fourth quarter of 2015. We also entered into a new supply agreement with Vestas to supply them with wind blades from our second manufacturing facility in Turkey, which we expect will be operational in the second half of 2016. In the first quarter of 2016, we extended the term of

 



 

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our Turkey and Mexico supply agreements with GE Wind, and expanded our relationship with Gamesa. We entered into a new supply agreement with Gamesa whereby we will continue to supply wind blades to them from our existing manufacturing facility in Mexico and will begin to supply wind blades from our second Mexico manufacturing facility, which we expect will be operational in the second half of 2016.

 

    Expand our footprint in large and growing wind markets, capitalize on the continuing outsourcing trend and evaluate strategic acquisitions. As the wind energy market continues to expand globally and wind turbine OEMs continue to shift towards increased outsourcing of wind blade manufacturing, we believe we are well-positioned to continue the expansion of our global footprint. We utilize our strengths in composites technology and manufacturing, combined with our collaborative dedicated supplier model to provide our customers with an efficient solution for their expansion in large and growing wind markets. Our quality, reliability and total delivered cost reduce sourcing risk for our customers. In addition, our demonstrated ability to expand into new markets and the strength of our manufacturing capabilities afford us the optionality either to build new factories or grow through strategic acquisitions.

 

    Focus on continuing innovation. We have a history of innovation in advanced composite technologies and production techniques and use several proprietary technologies related to wind blade manufacturing. With this culture of innovation and a collaborative “design for manufacturability” approach, we continue to address increasing physical dimensions, demanding technical specifications and strict quality control requirements for our customers’ most advanced wind blades. We also invest in ongoing simplification and selective automation of production processes for increased efficiency and precision. In addition, we plan to leverage our history of composite industry-first innovations to grow our business in the transportation market, in which there is a demand for high precision, structural composites manufacturing.

 

    Continue to drive down costs of wind energy. We continue to work with our customers on larger size wind blade models that maximize the capture of wind energy and drive down the LCOE. We also continue to utilize our advanced technology, regional manufacturing facilities strategically located to cost effectively serve large and growing wind markets and ability to source materials globally at competitive costs to deliver high-performing, composite wind blades at a lower total delivered cost. Our collaborative engineering approach and our advanced precision molding and assembly systems allow us to integrate our customer’s design requirements with cost-efficient, replicable and scalable manufacturing processes. We also continue to collaborate with our customers to drive down the cost of materials and production, the benefit of which we share with our customers contractually in a manner that reduces LCOE for customers, further strengthening our customer relationships and improving our margins.

Risks Related to Our Business

Our business is subject to many risks and uncertainties of which you should be aware before you decide to invest in our common stock. These risks are discussed more fully under “Risk Factors” in this prospectus. Some of these risks include, but are not limited to, the following:

 

    A significant portion of our business is derived from a small number of customers, and one wind blade customer in particular, therefore any loss of or reduction in purchase orders, failure of these customers to fulfill their obligations or our failure to secure long-term supply agreement renewals from these customers would materially harm our business.

 



 

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    Defects in materials and workmanship or wind blade failures could harm our reputation, expose us to product warranty or other liability claims, decrease demand for our wind blades, or materially harm existing or prospective customer relationships.

 

    We have experienced and could in the future experience quality or operational issues in connection with plant construction or expansion, wind blade model transition and wind blade manufacturing, which could result in losses and cause delays in our ability to complete our projects and may therefore materially harm our business, financial condition and results of operations.

 

    Demand for our wind blades may fluctuate for a variety of reasons, including the growth of the wind industry, and decreases in demand could materially harm our business and may not be sufficient to support our growth strategy.

 

    We may not be able to manage our future growth effectively, which may materially harm our business, operating results and financial condition.

 

    We operate a substantial portion of our business in international markets and we may be unable to effectively manage a variety of currency, legal, regulatory, economic, social and political risks associated with our global operations and those in developing markets.

 

    Our financial position, revenue, operating results and profitability are difficult to predict and may vary from quarter to quarter, which could cause our share price to decline significantly.

 

    We have a history of net losses and may not achieve or maintain profitability in the future.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

 

    an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal control over financial reporting;

 

    an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

    reduced disclosure about our executive compensation arrangements; and

 

    exemptions from the requirements to obtain a non-binding advisory vote on executive compensation or a shareholder approval of any golden parachute arrangements.

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.0 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission, or the SEC. We may choose to take advantage of some but not all of these exemptions.

 



 

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We have taken advantage of reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different from the information you receive from other public companies in which you hold stock. We have irrevocably elected to “opt out” of the exemption for the delayed adoption of certain accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Company and Other Information

We were founded in 1968 and have been providing composite wind blades for 15 years. Our knowledge and experience of composite materials and manufacturing originates with our predecessor company, Tillotson Pearson Inc., a leading manufacturer of high-performance sail and powerboats along with a wide range of composite structures used in other industrial applications. Following the separation from our boat building business in 2004, we reorganized in Delaware as LCSI Holding, Inc. We changed our corporate name to TPI Composites, Inc. in 2008. Today, we are headquartered in Scottsdale, Arizona, and we have expanded our global footprint to include domestic facilities in Newton, Iowa; Fall River, Massachusetts; Warren, Rhode Island; and Santa Teresa, New Mexico and international facilities in Dafeng, China; Taicang Port, China; Taicang City, China; Juarez, Mexico; and Izmir, Turkey. Together, as of May 31, 2016, we have approximately 3.2 million square feet of manufacturing space and over 5,600 employees, including materials and process engineers, manufacturing process engineers, quality assurance personnel and production workers.

Our principal executive offices are located at 8501 North Scottsdale Road, Gainey Center II, Suite 100, Scottsdale, Arizona 85253 and our telephone number is (480) 305-8910. Our website address is www.tpicomposites.com . The information contained on our website or that can be accessed through our website is not part of this prospectus, and investors should not rely on any such information in deciding whether to purchase our common stock.

This prospectus contains references to our trademarks. This prospectus contains additional trade names, trademarks and service marks of other companies. Those other trade names, trademarks and service marks are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies. Solely for convenience, the trademarks and trade names in this prospectus are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

 



 

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THE OFFERING

 

Common stock offered by us

                shares (                shares in the event the underwriters exercise their option to purchase additional shares in full).

 

Common stock to be outstanding immediately after this offering

                shares (                shares in the event the underwriters exercise their option to purchase additional shares in full).

 

Option to purchase additional shares from us

We have granted the underwriters an option for a period of 30 days to purchase up to an additional                 shares of our common stock at the public offering price, less underwriting discounts.

 

Use of proceeds

We estimate that we will receive net proceeds from this offering of approximately $         million, or $         million if the underwriters fully exercise their option to purchase additional shares, assuming an initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus and after deducting estimated underwriting discounts and estimated offering expenses payable by us.

 

  We intend to use the net proceeds from this offering for working capital and other general corporate purposes, including financing our existing manufacturing operations, expansion in existing and new geographies and repayment of certain indebtedness. Although we currently have no agreements or commitments for any specific acquisitions, we may also use a portion of the net proceeds to expand our current business through strategic alliances or acquisitions of other businesses, products or technologies. See “Use of Proceeds.”

 

Concentration of Ownership

Upon the completion of this offering, our executive officers and directors and stockholders holding more than 5% of our capital stock, and their affiliates, will beneficially own, in the aggregate, approximately     % of our outstanding shares of common stock.

 

Dividend Policy

We currently intend to retain earnings, if any, to finance the development and growth of our business and do not anticipate paying cash dividends on the common stock in the future.

 

Proposed trading symbol

We intend to have our common stock listed on The NASDAQ Global Market under the symbol “TPIC”.

 

Risk factors

You should read “Risk Factors” beginning on page 18 and other information included in this prospectus for a discussion of factors that you should consider carefully before deciding to invest in our common stock.

 



 

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The number of shares of common stock to be outstanding after this offering is based on 70,413 shares of common stock outstanding as of March 31, 2016 and excludes:

 

                     shares of common stock issuable upon exercise of outstanding options as of March 31, 2016 at a weighted-average exercise price of $         per share;

 

                    shares of common stock issuable upon the vesting of restricted stock units outstanding as of March 31, 2016;

 

                     shares of our common stock reserved for issuance in connection with the exercise of our outstanding warrants to purchase common stock issued on December 29, 2014, or the Common Warrants, which we issued in connection with our subordinated convertible promissory notes issued in December 2014, or the Subordinated Convertible Promissory Notes;

 

    884 shares of common stock issuable upon the exercise of outstanding warrants, other than our Common Warrants, to purchase common stock; and

 

                     shares of our common stock reserved for future issuance under our Amended and Restated 2015 Stock Option and Incentive Plan, or the 2015 Plan, and which contains provisions that automatically increase its share reserve each year.

Except as otherwise indicated, all information in this prospectus:

 

    gives effect to a             -for-             stock split of our common stock to be effected pursuant to our amended and restated certificate of incorporation prior to the completion of this offering;

 

    gives effect to the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 58,639 shares of our common stock upon the completion of this offering;

 

    assumes no exercise by the underwriters of their option to purchase up to an additional                 shares of our common stock in this offering; and

 

    assumes no exercise of the outstanding options described above.

 

 



 

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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

We have derived the summary consolidated statements of operations data for the three months ended March 31, 2016 and 2015 and the consolidated balance sheet data as of March 31, 2016 from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. The unaudited interim condensed consolidated financial statements were prepared on a basis consistent with our audited financial statements and include, in the opinion of management, all adjustments, consisting only of a normal recurring nature, that are necessary for a fair presentation of the financial information set forth in those statements. We have derived the summary consolidated statements of operations data for the years ended December 31, 2015, 2014 and 2013 from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future and the results in the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the full year or any other period. The following summary consolidated financial and other data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

    

Three Months Ended
March 31,

    

Year Ended December 31,

 
    

2016

    

2015

    

2015

    

2014

    

2013

 
     (in thousands, except share and per share data)  

Consolidated Statements of Operations Data:

              

Net sales

   $ 176,110       $ 95,589       $ 585,852       $ 320,747       $ 215,054   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cost of sales

     159,866         90,884         528,247         289,528         200,182   

Startup and transition costs

     3,306         4,154         15,860         16,567         6,607   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total cost of goods sold

     163,172         95,038         544,107         306,095         206,789   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     12,938         551         41,745         14,652         8,265   

General and administrative expenses

     4,749         3,208         14,126         9,175         7,566   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) from operations

     8,189         (2,657      27,619         5,477         699   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other income (expense):

              

Interest income

     21         59         161         186         155   

Interest expense

     (3,912      (3,551      (14,565      (7,236      (3,474

Loss on extinguishment of debt

     —           —           —           (2,946      —     

Realized gain (loss) on foreign currency remeasurement

     (439      163         (1,802      (1,743      (1,892

Miscellaneous income

     190         129         246         539         140   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other expense

     (4,140      (3,200      (15,960      (11,200      (5,071
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) before income taxes

     4,049         (5,857      11,659         (5,723      (4,372

Income tax benefit (provision)

     (2,303      120         (3,977      (925      3,346   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) before noncontrolling interest

     1,746         (5,737      7,682         (6,648      (1,026

Net loss attributable to noncontrolling interest (1)

     —           —           —           —           2,305   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

     1,746         (5,737      7,682         (6,648      1,279   

Net income attributable to preferred shareholders (2)

     2,437         2,356         9,423         13,930         14,149   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net loss attributable to common shareholders

   $ (691    $ (8,093    $ (1,741    $ (20,578    $ (12,870
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-average common shares outstanding, basic and diluted (3)

     11,774         11,774         11,774         11,774         11,774   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net loss per common share, basic and diluted (3)

   $ (59    $ (687    $ (148    $ (1,748    $ (1,093
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Pro forma weighted-average common shares outstanding, basic and diluted (unaudited)

              
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Pro forma net loss per common share, basic and diluted (unaudited)

              
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 



 

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Three Months Ended
March 31,

    

Year Ended December 31,

 
    

2016

    

2015

    

2015

    

2014

    

2013

 
     (in thousands, except other operating information)  

Other Financial Information:

              

Total billings (4)

   $ 174,538       $ 117,090       $ 600,107       $ 362,749       $ 221,057   

EBITDA (4)

   $ 10,951       $ 36       $ 37,479       $ 8,768       $ 6,502   

Adjusted EBITDA (4)

   $ 11,390       $ (127    $ 39,281       $ 13,457       $ 8,430   

Capital expenditures

   $ 10,888       $ 10,605       $ 26,361       $ 18,924       $ 7,065   

Total debt, net of debt issuance costs and discount

   $ 131,163       $ 115,287       $ 129,346       $ 120,849       $ 36,562   

Net debt (4)

   $ 101,392       $ 98,070       $ 90,667       $ 87,547       $ 26,590   

Other Operating Information:

              

Sets (5)

     486         303        
1,609
  
     966         648   

Estimated megawatts (6)

     1,113         645         3,595         2,029         1,173   

Total manufacturing line capacity (7)

     32         30         32         30         16   

Dedicated manufacturing lines (8)

     38         29         34         29         16   

Manufacturing lines in startup (9)

     0         8         10         9         2   

Manufacturing lines in transition (10)

     3         4         11         8         2   

 

(1) We commenced operations in Turkey as a 75% owner in TPI Kompozit Kanat San. Ve Tic. A.S., or TPI Turkey, in 2012 and in 2013, we became the sole owner of TPI Turkey with the acquisition of the remaining 25% interest.

 

(2) Represents the annual accrual of dividends on our convertible and senior redeemable preferred shares, the accretion to redemption amounts on our convertible preferred shares and warrant fair value adjustments.

 

(3) Since all the periods are net losses, the weighted-average common shares outstanding are the same under the basic and diluted per share calculations.

 

(4) See “Non-GAAP Financial Measures” below for more information.

 

(5) Number of wind blade sets (which consist of three wind blades) invoiced worldwide. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics Used By Management to Measure Performance” for more information.

 

(6) Estimated megawatts of energy capacity to be generated by wind blade sets invoiced in the period. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics Used By Management to Measure Performance” for more information.

 

(7) Number of manufacturing lines our facilities can accommodate. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics Used By Management to Measure Performance” for more information.

 

(8) Number of manufacturing lines dedicated to our customers under long-term supply agreements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics Used By Management to Measure Performance” for more information. Dedicated manufacturing lines may be greater than total manufacturing line capacity in instances where we have signed new supply agreements for manufacturing facilities that are under construction or have not yet been built.

 

(9) Number of manufacturing lines in a startup phase during the period. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics Used By Management to Measure Performance” for more information.

 

(10) Number of manufacturing lines that were being transitioned to a new wind blade model during the period. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics Used By Management to Measure Performance” for more information.

 



 

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As of
March 31, 2016

 
    

Actual

   

Pro

Forma (1)

    

Pro Forma

As Adjusted (2)(3)

 
     (in thousands)  

Consolidated Balance Sheet Data

       

Cash and cash equivalents

   $ 35,842      $                    $                    

Total assets

     358,462        

Total debt, net of debt issuance costs and discount

     131,163        

Total liabilities

     348,640        

Total convertible and senior redeemable preferred shares and warrants

     201,282        

Total shareholders’ equity (deficit)

     (191,460     

 

(1) Reflects the automatic conversion or redemption of all outstanding shares of our convertible preferred stock into 58,639 shares of our common stock and a         - for-         stock split of          shares of our common stock immediately prior to the closing of this offering, which will occur upon closing of this offering, as if the conversion had occurred and our amended and restated certificate of incorporation had become effective on March 31, 2016.

 

(2) Gives effect to (i) the pro forma adjustments set forth in footnote 1 above, (ii) the sale and issuance by us of                 shares of our common stock in this offering, based on an assumed initial public offering price of $         per share, the midpoint of the estimated offering price range reflected on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information set forth in the above table is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.

 

(3) Each $1.00 increase or decrease in the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the cash and cash equivalents, total assets and total shareholders’ equity (deficit) by $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase or decrease of 1.0 million shares in the number of shares offered by us would increase or decrease, as applicable, the cash and cash equivalents, total assets and total shareholders’ equity (deficit) by $         million assuming an initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Non-GAAP Financial Measures

In addition to providing results that are determined in accordance with GAAP, we have provided certain financial measures that are not in accordance with GAAP. Total billings, EBITDA, adjusted EBITDA and net debt are non-GAAP financial measures. We define total billings as the total amounts we have invoiced our customers for products and services for which we are entitled to payment under the terms of our long-term supply agreements or other contractual agreements. Under GAAP, we do not recognize revenue on our wind blade sales until the wind blades have been delivered to our customers. In many cases, customers request us to store their wind blades for a period of time after we have invoiced them. The revenues associated with these transactions are deferred and recognized upon delivery but we are contractually entitled to payment for those wind blades and, accordingly, invoice them when the blades are placed in storage.

 



 

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We define EBITDA as net income (loss) plus interest expense (net of interest income), income taxes and depreciation and amortization. We define adjusted EBITDA as EBITDA plus any share-based compensation expense, plus or minus any realized gains or losses from foreign currency remeasurement plus any loss on extinguishment of debt. EBITDA and adjusted EBITDA are calculated differently from EBITDA as used in our Credit Facility (as defined below).

We define net debt as the total principal amount of debt outstanding less unrestricted cash and cash equivalents. The total principal amount of debt outstanding is comprised of the long-term debt and current maturities of long-term debt as presented in our consolidated balance sheets adjusting for any debt issuance costs and discount.

Our use of total billings, EBITDA, adjusted EBITDA and net debt have limitations, and you should not consider total billings, EBITDA, adjusted EBITDA or net debt in isolation from or as a substitute for measures such as net sales, net income (loss) or total debt, net of debt issuance costs and discount reported under GAAP. See the “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics Used by Management to Measure Performance” for the related reconciliations of total billings, EBITDA, adjusted EBITDA and net debt.

 



 

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RISK FACTORS

An investment in our common stock involves a high degree of risk. You should consider carefully the following risks and other information contained in this prospectus, including our consolidated financial statements and related notes, before you decide whether to buy our common stock. If any of the events contemplated by the following discussion of risks should occur, our business, results of operations, financial condition and growth prospects could suffer significantly. As a result, the market price of our common stock could decline, and you may lose all or part of the money you paid to buy our common stock. The risks below are not the only ones we face. Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our business. Certain statements below are forward-looking statements. See “Special Note Regarding Forward-Looking Statements” in this prospectus.

Risks Related to Our Wind Blade Business

A significant portion of our business is derived from a small number of customers, and one wind blade customer in particular, therefore any loss of or reduction in purchase orders, failure of these customers to fulfill their obligations or our failure to secure long-term supply agreement renewals from these customers would materially harm our business.

Substantially all of our revenues are derived from four wind blade customers. One customer, GE Wind, accounted for 54.6%, 53.3%, 73.2% and 91.2% of our total net sales for the three months ended March 31, 2016 and for the years ended December 31, 2015, 2014 and 2013, respectively. In addition, three customers, Vestas, Nordex, and Gamesa accounted for 17.0%, 11.1% and 10.3% of our net sales for the three months ended March 31, 2016, respectively, and three customers, Nordex, Acciona (which was acquired by Nordex in April 2016) and Gamesa accounted for 15.7%, 10.8% and 10.3% of our net sales for the year ended December 31, 2015, respectively. Accordingly, we are substantially dependent on continued business from our current wind blade customers, and GE Wind in particular. GE Wind and other customers may not continue to purchase wind blades from us at similar volumes or on as favorable terms in the future. For example, GE Wind has in the past informed us of their intention to terminate a supply agreement. However, in that case, the agreement was not terminated but was instead renegotiated. If GE Wind or one or more of our other wind blade customers were to reduce or delay wind blade orders, fail to pay amounts due or satisfactorily perform their respective contractual obligations with us or otherwise terminate or fail to renew their long-term supply agreements with us, our business, financial condition and results of operations could be materially harmed.

Defects in materials and workmanship or blade failures could harm our reputation, expose us to product warranty or other liability claims, decrease demand for our wind blades, or materially harm existing or prospective customer relationships.

Defects in our wind blades, whether caused by a design, engineering, materials, manufacturing or component failure or deficiencies in our manufacturing processes, are unpredictable and an inherent risk in manufacturing technically advanced products. We have in the past experienced wind blade testing failures and defects at some of our facilities during the startup manufacturing phase of new products, and we may experience failures or defects in the future. For instance, customer qualification of our Iowa facility was delayed due to some wind blade testing failures in 2010, resulting in corresponding delays in our wind blade production at that facility. We have also experienced wind blade failures in the field. For example, in April 2015, a wind blade we manufactured failed in Finland. Any such customer qualification and wind blade testing failures or other product defects in the future could materially harm our existing and prospective customer relationships. Specifically, negative publicity about the quality of our wind blades or defects in the wind blades supplied to our customers could result in a reduction in wind blade orders, increased warranty claims, product liability claims and other damages or termination of our long-term supply agreements or business relationships with current or new customers. We may determine that resolving potential warranty claims through a negotiated settlement may be in the best interest of the business and long-term customer relationships. For example, in June 2016, we entered into

 

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a settlement agreement and release with one of our customers, Nordex, relating to the April 2015 wind blade failure referenced above. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Other Contingencies” for more information. Wind blades may also fail due to lightning strikes and other extreme weather, which could also result in negative publicity regarding our wind blades and wind energy in general. In addition, product defects may require costly repairs or replacement components, a change in our manufacturing processes or recall of previously manufactured wind blades, which could result in significant expense and materially harm our existing or prospective customer relationships. Further, defects or product liability claims, with or without merit, may result in negative publicity that could harm our future sales and our reputation in the industry. Any of the foregoing could materially harm our business, operating results and financial condition.

We have experienced and could in the future experience quality or operational issues in connection with plant construction or expansion, wind blade model transitions and wind blade manufacturing, which could result in losses and cause delays in our ability to complete our projects and may therefore materially harm our business, financial condition and results of operations.

We dedicate most of the capacity of our current wind blade manufacturing facilities to existing customers and, as a result, we may need to build additional manufacturing capacity or facilities to serve the needs of new customers or expanded needs of existing customers. We have entered into lease agreements with third parties to lease new manufacturing facilities in Mexico and Turkey, and we expect to commence operations at these new facilities in the second half of 2016. The construction of new plants and expansion of existing plants involves significant time, cost and other risks. We expect our plants to generate losses in their first 12 to 24 months of operations related to production startup expenses. Additionally, numerous factors can contribute, and have in the past contributed, to delays or difficulties in the startup of, or the adoption of our manufacturing lines to produce larger wind blade models, which we refer to as model transitions, in our manufacturing facilities, including permitting, construction or renovation delays, the engineering and fabrication of specialized equipment, the modification of our general production know-how and customer-specific manufacturing processes to address the specific wind blades to be tested and built, changing and evolving customer specifications and expectations and the hiring and training of plant personnel. If our production or the delivery by any third-party suppliers of any custom equipment is delayed, the construction or renovation of the facility, or the addition of the production line would be delayed. Any delays or difficulties in plant startup or expansion may result in cost overruns, production delays, contractual penalties, loss of revenues and impairment of customer relationships, which could materially harm our business, financial condition and results of operations.

Our long-term supply agreements with our customers are subject to termination on short notice and our failure to perform our obligations under these agreements or the termination of agreements would materially harm our business.

Our current long-term supply agreements expire between the end of 2017 and the end of 2021. Some of our long-term supply agreements contain provisions that allow for the termination of those agreements upon the customer providing us with 92 to 365 days’ advance written notice or, in one instance, upon no advance notice, or upon a material breach that goes uncured for up to 15 to 30 days. Additionally, our long-term supply agreements contain provisions allowing our customers to terminate these agreements upon our failure to deliver the contracted wind blade volumes or our failure to meet certain mutually agreed upon cost reductions. Our customers may not continue to maintain long-term supply agreements with us in the future. If one or more of our customers terminate or fail to renew their long-term supply agreements with us, it would materially harm our business, financial condition and results of operations.

We operate in an industry characterized by changing customer demands and associated transition costs, which could materially harm our business.

The wind energy industry is competitive and is characterized by evolving customer demands. As a result, we must adapt quickly to customer requests for changes to wind blade specifications, which increases our

 

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costs and can provide periods of reduced revenue and margins. For instance, to satisfy GE Wind’s need for bigger wind turbines with larger wind blades, we recently agreed, at GE Wind’s request, to implement model transitions at our U.S., China, Mexico and Turkey facilities, resulting in unplanned delays in wind blade production and associated transition costs at each of these facilities. We are generally able to share transition costs with the customer in connection with these changing customer demands, but any sharing is the subject of negotiation and the amount is not always contractually defined. If we do not receive transition payments from our customers sufficient to cover our transition costs or lost margins, our business, financial condition and results of operations could be materially harmed.

The concentration of customers in our wind business could enable one or more of our customers to attempt to substantially influence our policies, business and affairs going forward.

Our dependence on four wind blade customers, and GE Wind in particular, for substantially all of our revenues could encourage GE Wind or these customers to attempt to impose new or additional requirements on us that reduce the profitability of our long-term supply agreements with them or otherwise influence our policies, choice of and arrangements with raw material suppliers and other aspects of our business. Our customers could also attempt to influence the outcome of a corporate transaction if the transaction benefits a customer’s competitor or is otherwise perceived as not advantageous to a customer, which could have the effect of delaying, deterring, or preventing a transaction that could benefit us. In addition, consolidation of some of our customers may result in increased customer concentration and the potential loss of customers. For example, GE Wind acquired Alstom S.A.’s power business in 2015 and Nordex recently completed its acquisition of Acciona. Although we are not constrained by any exclusivity agreements with any of our existing wind blade customers, they may resist our development of new customer relationships, which could affect our relationships with them or our ability to secure new customers.

Demand for our wind blades may fluctuate for a variety of reasons, including the growth of the wind industry, and decreases in demand could materially harm our business and may not be sufficient to support our growth strategy.

Our revenues, business prospects and growth strategy heavily depend on the continued growth of the wind industry and our customers’ continuing demand for our wind blades. Customer demand could decrease from anticipated levels due to numerous factors outside of our control that may affect the development of the wind energy market generally, portions of the market or individual wind project developments, including:

 

    general economic conditions;

 

    the general availability and demand for electricity;

 

    wind energy market volatility;

 

    cost-effectiveness, availability and reliability of alternative sources of energy and competing methods of producing electricity, including non-renewable sources such as natural gas;

 

    foreign, federal and state governmental subsidies and tax or regulatory policies;

 

    the availability of financing for wind development projects;

 

    the development of electrical transmission infrastructure and the ability to implement a proper grid connection for wind development projects;

 

    foreign, federal and state laws and regulations regarding avian protection plans, noise or turbine setback requirements and other environmental laws and regulations;

 

    administrative and legal challenges to proposed wind development projects; and

 

    public perception and localized community responses to wind energy projects.

 

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In addition to factors affecting the wind energy market generally, our customers’ demand may also fluctuate based on other factors beyond our control. Any decline in customer demand below anticipated levels could materially harm our revenues and operating results and could delay or impede our growth strategy.

Changes in customers’ business focus could materially harm our business and results of operations.

Changes in our customers’ business focus could significantly reduce their demand for wind blades. For instance, General Electric, the parent corporation of GE Wind, is a highly diversified company that operates in a number of different industries and could decide to devote more resources to operations outside of wind energy or cease selling wind turbines altogether. If any of our customers change their business focus, it could materially harm our business and results of operations.

We have experienced in the past, and our future wind blade production could be affected by, operating problems at our facilities, which may materially harm our operating results and financial condition.

Our wind blade manufacturing processes and production capacity have in the past been, and could in the future be, disrupted by a variety of issues, including:

 

    production outages to conduct maintenance activities that cannot be performed safely during operations;

 

    prolonged power failures or reductions;

 

    breakdowns, failures or substandard performance of machinery and equipment;

 

    our inability to comply with material environmental requirements or permits;

 

    inadequate transportation infrastructure, including problems with railroad tracks, bridges, tunnels or roads;

 

    damage or production delays caused by earthquakes, fires, floods, tornadoes, hurricanes, extreme weather conditions such as windstorms, hailstorms, drought, temperature extremes, typhoons or other natural disasters or terrorism; and

 

    labor unrest.

The cost of repeated or prolonged interruptions, reductions in production capacity, or the repair or replacement of complex and sophisticated tooling and equipment may be considerable and could result in damages under or the termination of our long-term supply agreements or penalties for regulatory non-compliance, any of which could materially harm our business, operating results and financial condition.

We operate a substantial portion of our business in international markets and we may be unable to effectively manage a variety of currency, legal, regulatory, economic, social and political risks associated with our global operations and those in developing markets.

We currently operate manufacturing facilities in the United States, China, Mexico and Turkey, and we intend to further expand our operations worldwide to meet customer demand. We have entered into lease agreements with third parties to lease new manufacturing facilities in Mexico and Turkey, and we expect to commence operations at these new facilities in the second half of 2016. For the three months ended March 31, 2016 and for the years ended December 31, 2015 and 2014, 71%, 74% and 55%, respectively, of our net sales were derived from our international operations and we expect that a substantial portion of our projected revenue growth will be derived from those operations. Our overall success depends, in part, upon our ability to succeed in differing legal, regulatory, economic, social and political conditions. The global nature of our operations is subject to a variety of risks, including:

 

    difficulties in staffing and managing multiple international locations;

 

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    increased exposure to foreign currency exchange rate risk or currency exchange controls imposed by foreign countries;

 

    the risk of import, export and transportation regulations and tariffs on foreign trade and investment, including boycotts and embargoes;

 

    taxation and revenue policies or other restrictions, including royalty and tax increases, retroactive tax claims and the imposition of unexpected taxes;

 

    the imposition of, or rapid or unexpected adverse changes in, foreign laws, regulatory requirements or trade policies;

 

    restrictions on repatriation of earnings or capital or transfers of funds into or out of foreign countries;

 

    limited protection for intellectual property rights in some jurisdictions;

 

    inability to obtain adequate insurance;

 

    difficulty administering internal controls and legal and compliance practices in countries with different cultural norms and business practices; See “—In mid-2015, our Audit Committee conducted an internal investigation into allegations of improper business dealings in China. While the investigation did not substantiate the allegations, we ultimately terminated our former Senior Vice President-Asia, then serving as a consultant to the Company, in January 2016 for material violations of his agreements with us and of Company policies, which came to light subsequent to the completion of the internal investigation. Any misconduct that the initial investigation or our subsequent review of the activities of our former Senior Vice President-Asia failed to uncover could have a material adverse effect on our operations generally.”

 

    the possibility of being subjected to the jurisdiction of foreign courts in connection with legal disputes and the possible inability to subject foreign persons to the jurisdiction of courts in the United States;

 

    the misinterpretation of local contractual terms, renegotiation or modification of existing long-term supply agreements and enforcement of contractual terms in disputes before local courts;

 

    the inability to maintain or enforce legal rights and remedies at a reasonable cost or at all; and

 

    the potential for political unrest, expropriation, nationalization, revolution, war or acts of terrorism in countries in which we operate.

In particular, our operations in China are subject to a variety of specific risks which may adversely affect our business, including:

 

    the promotion by the Chinese government of indigenous businesses, through the implementation of favorable tax, lending, purchasing and other programs and through local content requirements (which require that wind turbine equipment purchased for wind farm projects in China contain at least a majority of locally-made components) and the uncertainty and inconsistency in the promotion of foreign investment and enterprise in China;

 

    the deterioration of the diplomatic and political relationships between the United States and China resulting from such factors as the opposition of the United States to censorship and other policies of the Chinese government, China’s growing trade surpluses with the United States and the potential introduction by the United States of trade restrictions that would impact Chinese imports and any retaliatory measures that could ensue;

 

    the uncertainty of the Chinese legal regime generally, and in particular in protecting intellectual property and contractual rights, in securing future land use rights, and the recent adoption of new labor, environmental and tax laws, the impacts of which are not yet fully understood; and

 

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    various restrictions on our ability to repatriate profits from China to other jurisdictions. See “Risks Related to our Business as a Whole—We may have difficulty making distributions and repatriating earnings from our Chinese manufacturing operations, which may also occur in some of our other locations.”

We also operate in developing markets, which have in the past experienced, and may in the future experience, social and political unrest. For example, Turkey has experienced problems with domestic terrorist and ethnic separatist groups. The issue of civil rights for Kurdish citizens remains a potential source of political instability, which may be exacerbated by continuing instability in the Middle East.

In addition, Juarez, Mexico, the location of our Mexico manufacturing facility, has been subject to violence related to drug trafficking, including kidnappings and killings. This could negatively impact our ability to hire and retain personnel, especially senior U.S. managers, to continue to work at the facility, or disrupt our operation in other ways, which could materially harm our business.

As we continue to operate our business globally, our success will depend, in part, on our ability to anticipate and effectively manage these and other related risks. We may be unsuccessful in developing and implementing policies and strategies that will be effective in managing these risks in each country where we do business or conduct operations. Our failure to manage these risks successfully could materially harm our business, operating results and financial condition.

Although a majority of our manufacturing facilities are located outside the United States, our business is still heavily dependent upon the demand for wind energy in the United States and any downturn in demand for wind energy in the United States could materially harm our business.

We have developed a global footprint to serve the growing wind energy market worldwide and have wind blade manufacturing facilities in the United States, China, Mexico and Turkey. Although a majority of our manufacturing facilities are located outside of the United States, we believe that historically more than half of the wind blades that we produced were deployed in wind farms located within the United States. Our Iowa and Mexico manufacturing facilities manufacture wind blades that are generally deployed within the United States. In addition, we export wind blades from our China manufacturing facility to the United States. Demand for wind energy and our wind blades in the United States could be adversely affected by a variety of reasons and factors, and any downturn in demand for wind energy and our wind blades in the United States could materially harm our business.

Our focus on wind energy markets in a limited number of geographic areas could result in a material harm to our business, financial condition and results of operations.

The wind energy industry continues to be dependent on developments within a relatively small number of markets and we have developed our global manufacturing footprint and long-term growth strategy to serve these markets. We cannot assure you that these wind energy markets will continue to demand increasing amounts of wind energy going forward. For example, the connection or access of wind turbines to a power grid is very important when locating wind turbines. In each of these markets, there are various laws, rules or regulations that govern the connection or access of wind turbines to the power grid. If the customers of our customers fail to obtain a connection or access to power grids on a timely basis and on economically reasonable terms and enter agreements to sell the electrical energy generated or the number of MW hours that any of these markets consumes declines, our business, financial condition and results of operations could be materially harmed. In addition, if one of those markets does not develop in line with our expectations, our business, financial condition and results of operations could be materially harmed.

 

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We may not achieve the long-term growth we anticipate if wind turbine OEMs do not continue to shift from in-house production of wind blades to outsourced wind blade suppliers and if we do not expand our customer relationships and add new customers.

Many wind turbine OEMs rely on in-house production of wind blades for some or all of their wind turbines. Our growth strategy depends in large part on the continued expansion of our relationships with our current wind blade customers, and the addition of new key customers. Some of our customers possess the financial, engineering and technical capabilities to produce their own wind blades and many source wind blades from multiple suppliers. Our existing customers may not expand their wind energy operations or, if they do, they may not choose us to supply them with new or additional quantities of wind blades. Our collaborative dedicated supplier model for the manufacture of wind blades is a significant departure from traditional vertically integrated methods. As is typical for rapidly evolving industries, customer demand for new business models is highly uncertain. For instance, although we have entered into long-term supply agreements with three customers, Vestas, Gamesa and Nordex (which acquired Acciona in April 2016), that also produce wind blades for their wind turbines in-house, we may not be able to maintain these customer relationships or enter into similar arrangements with new customers that produce wind blades in-house in the future. Our business and growth strategies depend in large part on the continuation of a current trend toward outsourcing manufacturing. If that trend does not continue or we are unsuccessful in persuading wind turbine OEMs to shift from in-house production to the outsourcing of their wind blade manufacturing, we may not achieve the long-term growth we anticipate and our market share could be limited.

A drop in the price of energy sources other than wind energy, or our inability to deliver wind blades that compete with the price of other energy sources, may materially harm our business, financial condition and results of operations.

We believe that a customer’s decision to purchase wind blades is to a significant degree driven by the relative cost of electricity generated by wind turbines compared to the applicable price of electricity from the utility grid and the cost of traditional and other renewable energy sources. Decreases in the prices of electricity from the relevant utility grid or from renewable energy sources other than wind energy would harm the market for wind blades. In particular, a drop in natural gas prices could lessen the appeal of wind-generated electricity. Technological advancements or the construction of a significant number of power generation plants, including nuclear, coal, natural gas or power plants utilizing other renewable energy technologies, government support for other forms of renewable energy or construction of additional electric transmission and distribution lines could reduce the price of electricity produced by competing methods, thereby making the purchase of wind blades less attractive to customers economically. The ability of energy conservation technologies, public initiatives and government incentives to reduce electricity consumption or support other forms of renewable energy could also lead to a reduction in the price of electricity, which would undermine the attractiveness of wind turbines, and, in turn, our wind blades. If prices for electricity generated by wind turbines are not competitive, our business, financial condition and results of operations may be materially harmed.

If any precision molding and assembly systems needed for our manufacturing process contains a defect or is not fabricated and delivered in a timely manner, our ongoing manufacturing operations, business, financial condition and results of operation may be materially harmed.

We custom fabricate many of the precision molding and assembly systems used in our facilities. Our customers also have the option of using third-party manufacturers to produce their custom tooling. If any piece of equipment fails, is determined to produce nonconforming or defective products or is not fabricated and delivered in a timely manner, whether produced by us or a third party, our wind blade production could be interrupted and we could be subject to contractual penalties, warranty claims, loss of revenues and damage to our customer relationships, among other consequences.

 

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Our long-term supply agreements and our backlog are subject to reduction within contractual parameters and we may not realize all of the expected revenue.

Our current long-term wind blade supply agreements generally establish annual purchase requirements on which we rely for our future production and financial forecasts. However, the timing and volume of purchases, within certain parameters, may be subject to change by our customers. In some instances, our customers have the contractual right to require us to reduce the number of manufacturing lines committed to them and correspondingly reduce their minimum annual purchase requirements. Additionally, our minimum annual purchase commitments could potentially understate the actual net sales that we are likely to generate in a given period or periods if all of our long-term supply agreements remain in place and pricing remains materially unchanged. Such minimum annual purchase requirements could also potentially overstate the actual net sales that we are likely to generate in a given period or periods if one or more of our long-term supply agreements were to be terminated by our customers for any reason. As a result, we may not realize the revenue we expect under our long-term supply agreements or pursuant to our backlog, which we define as the value of purchase orders received less the revenue recognized to date on those purchase orders. In addition, fulfillment of our backlog may not result in profits.

The long sales cycle involved in attracting new customers may make the timing of our revenue difficult to predict and may cause our operating results to fluctuate.

The complexity, expense and long-term nature of our supply agreements generally require a lengthy customer education, evaluation and approval process. It can take us from several months to years to identify and attract new customers, if we are successful at all. This long sales cycle for attracting and retaining new customers subjects us to a number of significant risks that may materially harm our business, results of operation and financial condition over which we have limited control, including fluctuations in our quarterly operating results. In addition, we may incur substantial expenses and devote significant management effort to develop potential relationships that do not result in agreements or revenue and may prevent us from pursuing other opportunities.

We encounter intense competition for limited customers from other wind blade manufacturers, as well as in-house production by wind turbine OEMs, which may make it difficult to enter into long-term supply agreements, keep existing customers and potentially get new customers.

We face significant competition from other wind blade manufacturers, and this competition may intensify in the future. The wind turbine market is characterized by a relatively small number of large OEMs. In addition, a significant percentage of wind turbine OEMs, including four of our current customers, produce their own wind blades in-house. As a result, we compete for business from a limited number of customers that outsource the production of wind blades. We also compete with a number of wind blade manufacturers in China, who are growing in terms of their technical capability and aspire to expand outside of China. Many of our competitors have more experience in the wind energy industry, as well as much greater financial, technical or human resources than we do, which may limit our ability to compete effectively with them and maintain or improve our market share. Additionally, our long-term supply agreements dedicate capacity at our facilities to our customers, which may also limit our ability to compete if our facilities cannot accommodate additional capacity. If we are unable to compete effectively for the limited number of customers that outsource production of wind blades, our ability to enter into long-term supply agreements with potential new and existing customers may be materially harmed.

We could be affected by increasing competition from new and existing industry participants and industry consolidation.

The markets in which we operate are increasingly competitive and any failure on our part to compete effectively on an ongoing basis could materially harm our business, results of operations or financial condition. The key factors affecting competition in the wind energy industry are the capacity and quality of products, technology, price, the ability to fulfill local market requirements and the scope, cost and quality of maintenance services, training and support.

 

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Competition in the wind energy industry has intensified in recent years as a result of a number of factors, including international expansion by existing industry participants exploiting new markets, particularly as political will around the issues of global warming and the environment become more prominent to the political agenda in those new markets. There has also been increasing pressure from Asian manufacturers rapidly improving the quality and reliability of their technologies, and considering moving out of their local markets and into international cross border transactions. Market entry by certain large industrial groups, including those previously unconnected to the wind energy market, through acquisitions and license agreements and numerous greenfield establishments in certain markets, also poses a competition risk.

The competitive environment in the wind energy industry may become more challenging in the years ahead, particularly in the event of greater consolidation in the industry, leading to greater market power and “economies of scale” by such market players which translate into being able to offer greater “cost of energy” savings to wind power plant customers. For example, GE Wind acquired Alstom S.A.’s power business in 2015 and Nordex recently completed its acquisition of Acciona. These transactions or further consolidation in the wind energy industry may have an adverse impact on our business in the future, including, without limitation, reduced demand for our products and services, product innovation, changes in pricing and similar factors, including any competitor’s attempt to duplicate our collaborative dedicated supplier model. Such events could materially harm our business, results of operations, financial condition or prospects.

Significant increases in the prices of raw materials or components that cannot be reflected in the price of our products could negatively affect our operating margins.

The prices of our raw materials and components are subject to price fluctuations resulting from volatility of supply and demand in world markets. Under our long-term supply agreements, our customers generally commit to purchase minimum annual volumes and prices for wind blades are generally set as of the date of our supply agreements and adjusted annually, or in some cases more frequently, for the cost of raw material and our operating expenses in certain cases. As a result, the competitive nature of the wind blade market and our long-term supply agreements with our customers may delay or prevent us from passing cost increases in raw materials and components on to our customers. Significant increases in the price of raw materials or components used in our manufactured wind blades that cannot be reflected in the price of our products, could negatively affect our operating margins and materially harm our business, operating results or financial condition.

We could experience shortages of raw materials or components critical to our manufacturing needs, which may hinder our ability to perform under our supply agreements.

We rely upon third parties for raw materials, such as fiberglass, carbon, resins, foam core and balsa wood, and various components for the manufacture of our wind blades. Some of these raw materials and components may only be purchased from a limited number of suppliers. For example, balsa wood is only grown and produced in a limited number of geographies and is only available from a limited number of suppliers. Additionally, our ability to purchase the appropriate quantities of raw materials is constrained by our customers’ transitioning wind blade designs and specifications. As a result, we maintain relatively low inventory and acquire raw materials and components as needed. Due to significant international demand for these raw materials from many industries, we may be unable to acquire sufficient quantities or secure a stable supply for our manufacturing needs. If shortages or delays occur, we may be unable to provide our products to our customers on time, or at all. In addition, a disruption in any aspect of our global supply chain caused by transportation delays, customs delays, cost issues or other factors could result in a shortage of raw materials or components critical to our manufacturing needs. Any supply shortages, delays in the shipment of materials or components from third party suppliers, or changes in the terms on which they are available could disrupt or materially harm our business, operating results and financial condition.

 

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Certain of our long-term supply agreements are highly dependent upon a limited number of suppliers of raw materials.

Our ability to perform under certain of our long-term supply agreements is currently, and may continue to be in the future, highly dependent on a limited number of suppliers of raw materials. For instance, our agreements with certain customers require us or our customers to purchase raw materials from a single supplier unless additional suppliers are evaluated and found to satisfy the requirements set out in those agreements. In 2015, for example, our ability to supply wind blades to one of our customers was constrained because our customer, who under our agreement was required to procure a sufficient supply of a specific type of material, was unable to procure the material from a single source supplier. Should any of these suppliers of raw materials experience production delays or shortages, have their operations interrupted or otherwise cease or curtail their operations, this may disrupt or materially harm our business, operating results and financial condition.

Significant increases in the cost of transporting our wind blades could negatively affect the demand for our products.

A significant portion of our customers’ costs are transportation costs related to the transport of our manufactured wind blades to their customers’ wind farms. Demand for our products could be negatively affected if the costs our customers bear to transport our wind blades increase.

The nature of our manufacturing processes and unanticipated changes to those processes could significantly reduce our manufacturing yields and product reliability, which could materially harm our business, operating results and financial condition.

The manufacture of our wind blades involves highly complex and precise processes which may be dictated by our customers’ requests requiring production in highly controlled environments. Changes in our manufacturing processes or that are required by our customers could affect product reliability. Furthermore, many of our processes are manual to facilitate production flexibility and compliance with customer requirements. A manually dependent manufacturing process can limit capacity and increase production costs. In some cases, existing manufacturing techniques may be insufficient to achieve the volume or cost targets of our customers. For example, our manufacturing processes may at times require a quantity of raw materials greater than the quantity for which we have contracted, making it difficult for us to achieve the targeted cost levels negotiated with our customers. In order to achieve targeted volume and cost levels, we may need to increase the quantity of raw materials for which we contract or develop new manufacturing processes and techniques. While we continue to devote substantial efforts to the improvement of our manufacturing techniques and processes, we may not achieve manufacturing volumes and cost levels in our manufacturing activities that will fully satisfy customer demands, which could materially harm our business, operating results and financial condition.

Our reserves for warranty expenses might not be sufficient to cover all future costs.

We provide warranties for all of our products, including parts and labor, for periods that range from two to five years depending on the product sold. If a wind blade is found to be defective during the warranty period as a result of a defect in workmanship or materials, or if we are required to cover remediation expenses or other potential remedies, in addition to our regular warranty coverage we may need to repair or replace the wind blade (which could include significant transportation, installation and erection costs) at our sole expense. Our estimate of warranty expense requires us to make assumptions about matters that are highly uncertain, including future rates of product failure, repair costs, shipping and handling and de-installation and re-installation costs at customers’ sites. Our assumptions could be materially different from the actual performance of our products and these remediation expenses in the future. The expenses associated with wind blade repair and remediation activities can be substantial and may include changes to our manufacturing processes. If our estimates prove materially incorrect, we could incur warranty expenses that exceed our reserves and be required to make material unplanned cash expenditures, which could materially harm our business, operating results and financial condition.

 

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We may not be able to meet our customers’ future wind blade supply demands, which may hinder our customer relationships and reputation.

Historically, our existing customers’ demand and MW capacity goals have mirrored the anticipated growth of the wind energy industry. Given the importance of wind energy capture, turbine reliability and cost to power producers, the size, quality and performance of wind blades have become highly strategic to our OEM customers. If we are unable to maintain future manufacturing capacity at levels that meet our customers’ increasing demands, including with respect to volume, technical specifications, or commercial terms, our existing customers may seek relationships with, or give priority to, other wind blade manufacturers or may use or develop their own internal manufacturing capabilities to meet their increased demand, which could materially harm our business, operating results and financial condition. In addition, our reputation could be materially harmed if we are unable to satisfy the requirements of our customers.

We rely on our research and development efforts to remain competitive, and we may fail to develop on a timely basis new wind blade manufacturing technologies that are commercially attractive or permit us to keep up with customer demands.

The market for wind blades is subject to evolving customer needs and expectations. Our research and development is invested in developing faster and more efficient manufacturing processes in order to build the new wind blades designed by our customers that more effectively capture wind energy and are adaptable to new growth segments of the wind energy market. Research and development activities are inherently uncertain and the results of our in-house research and development may not be successful. In addition, our competition may adopt more advanced technologies or develop wind blades that are more effective or commercially attractive. We believe that our future success will depend in large part upon our ability to be at the forefront of technological innovation in the wind energy industry and to rapidly and cost-effectively adapt our wind blade manufacturing processes to keep pace with changing technologies, new wind blade design and changing customer needs. If we are unable to do so, our business, operating results, financial condition and reputation could be materially harmed.

Many of our long-term supply agreements contain liquidated damages provisions, which may require us to make unanticipated payments to our customers.

Many of our long-term supply agreements contain liquidated damages provisions in the event that we fail to perform our obligations thereunder in a timely manner or in accordance with the agreed terms, conditions and standards. Our liquidated damages provisions generally require us to make a payment to the customer if we fail to deliver a product or service on time. We generally try to limit our exposure under any individual long-term supply agreement to a maximum penalty. Nevertheless, if we incur liquidated damages, they may materially harm our business, operating results and financial condition. For example, the supply agreements with respect to our China, Mexico and Iowa facilities provide that each party will bear its own costs except that the prevailing party in a legal action arising thereunder is entitled to its reasonable costs and expenses, including reasonable attorneys’ fees.

We depend on third parties for certain construction, maintenance, engineering, transportation, warehousing and logistics services, and failures of those third parties to perform their obligations may in turn impede our ability to perform our obligations.

We contract with third parties for certain services relating to the design, construction and maintenance of various components of our production facilities and other systems. If these third parties fail to comply with their obligations:

 

    we may experience delays in the completion of new facilities or expansion of existing facilities;

 

    the facilities may not operate as intended;

 

    we may be required to recognize impairment charges; or

 

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    we could experience production delays, which could cause us to miss our production capacity targets and breach our long-term supply agreements, which could damage our relationships with our customers and subject us to contractual penalties and contract termination.

Any of these events could have a material adverse effect on our business, operating results or financial condition. Our customers also contract with third parties for the transportation of the products we manufacture. In particular, a significant portion of the goods we manufacture are transported to different countries, which requires sophisticated warehousing, logistics and other resources. If our customers fail to contract with third parties for certain construction, maintenance, engineering, transportation, warehousing and logistics services, or there are any disruptions, delays or failures in these services, this could have a material adverse effect on our business, operating results or financial condition.

Various legislation, regulations and incentives that are expected to support the growth of wind energy in the United States and around the world may not be extended or may be discontinued, phased out or changed, or may not be successfully implemented, which could materially harm wind energy programs and materially decrease demand for our wind blades.

The U.S. wind energy industry is dependent in part upon governmental support through certain incentives including federal tax incentives and renewable portfolio standard, or RPS, programs and may not be economically viable absent such incentives. Government-sponsored tax incentive programs including the Production Tax Credit for Renewable Energy, or PTC, and to a lesser extent, the Investment Tax Credit, or ITC, are expected to support the U.S. growth of wind energy. The PTC provided the owner of a wind turbine placed in operation before January 1, 2015 with a ten year credit against its U.S. federal income tax obligations based on the amount of electricity generated by the wind turbine.

Although the PTC was extended in December 2015 for wind power projects through December 31, 2019, as currently contemplated, the PTC rate is being phased out over the term of the PTC extension. Specifically, as currently contemplated, the PTC will remain at the same rate in effect at the end of 2014 for wind power projects that commence construction by the end of 2016, and thereafter will be reduced by 20% per year in 2017, 2018 and 2019, respectively.

The EPA recently enacted the Clean Power Plan, which is also intended to promote the growth of renewable energy. However, in February 2016, the United States Supreme Court issued a stay of the EPA’s implementation of the Clean Power Plan until the D.C. Circuit of the United States Court of Appeals reviews the merits of multiple lawsuits challenging the legality of the Clean Power Plan. If the Clean Power Plan is not successfully implemented, demand for our wind blades may be materially decreased.

In addition, many state governments have adopted measures designed to promote wind energy. For example, according to AWEA, 29 states, as well as the District of Columbia, have implemented RPS programs that mandate that a specific percentage of electricity sales in a state come from renewable energy within a specified period. However, RPS programs have been challenged lately and they may not continue going forward. These programs have spurred significant growth in the wind energy industry in the United States and a corresponding increase in the demand for our manufactured wind blades. However, although the U.S. government and several state governments have adopted these various programs that are expected to drive the growth of wind energy, they may approve new or additional programs that might hinder the wind energy industry and therefore negatively impact our business, operating results or financial condition.

China is currently implementing a five-year plan with a goal of 15% energy from non-fossil fuel sources and targeting 250 GWs of grid-connected wind capacity by 2020, according to its National Development and Reform Commission, and employs preferential feed-in tariff schemes, in addition to local tax-based incentives. Mexico has established strict targets, aiming for 35% renewable energy by 2024 and 50% by 2050, according to MAKE, which it is facilitating through tax incentives. Large European Union members have renewable energy targets for 2020 of between 13% and 49% of all energy use derived from renewable energy sources, according to MAKE. Turkey enacted Law No. 5346 in 2005 to promote renewable-based electricity generation within its

 

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domestic electricity market by introducing tariffs and purchase obligations for distribution companies requiring purchases from certified renewable energy producers. The World Bank also provided to Turkey an aggregate of $600 million of loan proceeds to encourage investors to construct generation plants with renewable energy resources. These programs have spurred significant growth in the wind energy industry internationally and a corresponding increase in the demand for our manufactured wind blades. However, although foreign governments have adopted various programs that are expected to drive the growth of wind energy, they may approve new or additional programs going forward that might hinder the wind energy industry and therefore negatively impact our business as a result. For example, foreign governments may decide to reduce or eliminate these economic incentives for political, financial or other reasons. They may also favor other forms of energy, including current and new sources of energy such as solar, nuclear and hydropower.

Because of the long lead times necessary to develop wind energy projects, any uncertainty or delay in adopting, extending or renewing these incentives beyond their current or future expiration dates could negatively impact potential wind energy installations and result in industry volatility. There can be no assurance that the PTC, the Clean Power Plan or other governmental programs or subsidies for renewable energy will remain in effect in their present form or at all, and the elimination, reduction, or modification of these programs or subsidies could materially harm wind energy programs in the United States and international markets and materially decrease demand for our wind blades and, in turn, materially harm our business, operating results and financial condition.

We may not be able to obtain, or agree on acceptable terms and conditions for, government tax credits, grants, loans and other incentives for which we have in the past applied or may in the future apply, which may materially harm our business, operating results and financial condition.

We have in the past and may in the future rely, in part, on tax credits, grants, loans and other incentives under U.S. and foreign governmental programs to support the construction of new plants and expansion of existing manufacturing facilities. We may not be successful in obtaining these tax credits, grants, loans and other incentives, and the tax and other incentives that have already been approved may not be continued in the future. Our ability to obtain funds or incentives from government sources is subject to the availability of funds under applicable governmental programs and approval of our applications to participate in these programs. The application process for these funds and other incentives is and will be highly competitive. We may not be able to satisfy the requirements and milestones imposed by the granting authority as conditions to receipt of the funds or other incentives, the timing of the receipt of the funds may not meet our needs, and, even if obtained, we may be unable to successfully execute on our business plan. Moreover, not all of the terms and conditions associated with these incentive funds have been disclosed to us, and once disclosed, there may be terms and conditions with which we are unable to comply or that are commercially unacceptable to us. Further, participation in certain programs may require us to notify the federal government of certain intellectual property we develop and comply with applicable regulations in order to protect our interests in that intellectual property. In addition, these federal governmental programs may require us to spend a portion of our own funds for every incentive dollar we receive or are permitted to borrow from the government and may impose time limits during which we must use the funds awarded to us that we may be unable to achieve. If we are unable to obtain or comply with the terms of these tax credits, grants, loans or other incentives, our business, operating results and financial condition may be harmed.

Adverse weather conditions could impact the wind energy industry in some regions and could materially harm our business, operating results and financial condition.

Our business may be subject to fluctuations in sales volumes due to adverse weather conditions that could delay the erection of wind turbines, the installation of wind blades and the ability of wind turbines to generate electricity efficiently. Moreover, any remediation efforts we could be required to undertake pursuant to wind blade warranties could be delayed or otherwise adversely impacted by poor weather. Although our customer base and geographical footprint is geographically diversified, enduring weather patterns or seasonal variations may impact the expansion of the wind energy industry in certain regions. A resulting reduction or delay in demand for the wind blades we manufacture for our customers could materially harm our business, operating results and financial condition.

 

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In mid-2015, our Audit Committee conducted an internal investigation into allegations of improper business dealings in China. While the investigation did not substantiate the allegations, we ultimately terminated our former Senior Vice President—Asia, then serving as a consultant to the Company, in January 2016 for material violations of his agreements with us and of Company policies, which came to light subsequent to the completion of the internal investigation. Any misconduct that the initial investigation or our subsequent review of the activities of our former Senior Vice President—Asia failed to uncover could have a material adverse effect on our operations generally.

In June 2015, our Audit Committee was notified of allegations that, among other things, our former Senior Vice President—Asia requested personal compensation from suppliers in return for doing business with the Company in China and made excessive payments for capital expenditures. The Audit Committee directed a U.S.-based law firm, assisted by a forensic accounting firm and a law firm with local resources in China, to initiate an investigation into the conduct of the former Senior Vice President—Asia. Although the investigation did not uncover any illegal conduct, the investigation did not disprove the allegations. We subsequently accelerated the implementation of enhanced operational procedures, processes and controls relating to our China operations pursuant to recommendations arising out of the internal investigation and our review of our China operations. This process is currently ongoing.

Although the results of the internal investigation were inconclusive regarding the allegations relating to our former Senior Vice President—Asia, in early August 2015, we entered into a transition agreement with our former Senior Vice President—Asia pursuant to which he transitioned out of his role as Senior Vice President—Asia at the end of 2015. Pursuant to the transition agreement, he was to serve in a consulting capacity to facilitate an orderly transition of operations in China through 2016 and 2017. In January 2016, we subsequently determined that our former Senior Vice President—Asia, then serving as a consultant to the Company, had materially violated the terms of the transition agreement, including the non-compete provisions, and had materially violated Company policies. Following our discovery of these violations, we terminated his consultancy for cause in January 2016 pursuant to the terms of the transition agreement and he is no longer associated with the Company. Subsequent to his termination, we found further evidence that our former Senior Vice President—Asia and three of his subordinates in China, who we also terminated in January 2016, likely engaged in improper conduct involving the misuse of funds in violation of Company policies.

Additional facts or allegations may exist that the internal investigation or our subsequent review did not uncover. The persons that our investigative teams interviewed may have omitted facts or may have been untruthful, and the investigative teams may not have had access to all relevant documents or persons relating to the subject of the investigation. If new evidence concerning the allegations is found in the future, or if new allegations are made or other similar issues arise or are uncovered, our Chinese operations could be materially disrupted, our suppliers and customers may cease to do business with us, our reputation in the marketplace may be materially harmed, we may be required to terminate additional key employees, and we may need to incur substantial legal and accounting costs in investigating and resolving these matters. If any of these risks materialize, we could be subject to fines, penalties, prosecution or other impacts, which could result in a decline in our stock price or materially and adversely affect our business, operating results, liquidity and financial condition.

Our long-term growth and success is dependent upon retaining our senior management and attracting and retaining qualified personnel, and we may be negatively impacted by the transition and subsequent termination of our former Senior Vice President—Asia.

Our growth and success depends to a significant extent on our ability to attract and retain highly qualified research and development, management, manufacturing, marketing and other key personnel including engineers in our various locations. In addition, we rely heavily on our management team, including Steven C. Lockard, our Chief Executive Officer, Mark R. McFeely, our Chief Operating Officer, Wayne G. Monie, our Chief Manufacturing Technology Officer, William E. Siwek, our Chief Financial Officer, and other senior management. The inability to

 

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recruit and retain key personnel or the unexpected loss of key personnel may materially harm our business, operating results and financial condition. Hiring those persons may be especially difficult because of the specialized nature of our business and our international operations. If we cannot attract and retain qualified personnel, or if we lose the services of Messrs. Lockard, McFeely, Monie or Siwek, other key members of senior management or other key personnel, our ability to successfully execute our business plan, market and develop our products and serve our customers could be materially and adversely affected. In addition, because of our reliance on our management team, our future success depends, in part, on its ability to identify and develop talent to succeed its senior management. The retention of key personnel and appropriate senior management succession planning will continue to be critical to the successful implementation of our future strategies.

In addition, in August 2015, we entered into a transition agreement with our former Senior Vice President—Asia pursuant to which he transitioned out of this role at the end of 2015. Although our former Senior Vice President—Asia was to serve in a consulting capacity with the Company in 2016 and 2017, following our discovery that he had materially violated the terms of the transition agreement, including the non-compete provisions, and materially violated Company policies, we terminated his consultancy for cause in January 2016 pursuant to the terms of the transition agreement and he is no longer associated with the Company. We have also terminated three other senior managers in China, who were his subordinates, for related offenses. Some of our key management, technical and engineering personnel in China may decide to leave the Company following our recent management transition in China, and the transition may be disruptive to our China operations generally. Our former Senior Vice President – Asia has filed an arbitration claim challenging our termination of the transition agreement for cause and the three subordinates may also challenge our termination of their employment. See “Business—Legal Proceedings” for more information. We may need to incur material legal and other costs in resolving these matters under Chinese labor and employment laws and regulations, which are complex, and the ultimate outcome is difficult to predict in China. We have incurred and may incur substantial additional costs in managing our Chinese business in the future, and our U.S.-based management team may continue to be required to dedicate a significant amount of time and attention to managing the Chinese operations until China-based management can operate independently. For example, Mr. Monie functioned as our Asia CEO from August 2015 through March 2016. If any of these risks materialize, it could have a material adverse effect on our business, operating results or financial condition.

Risks Related to Our Business as a Whole

We may not be able to manage our future growth effectively, which may materially harm our business, operating results and financial condition.

We expect to continue to expand our business significantly to meet our current and expected future contractual obligations and to satisfy anticipated increased demand for our products. To manage our anticipated expansion, we believe we must scale our internal infrastructure, including establishing additional facilities, improve our operational systems and procedures and manufacturing capabilities, continue to enhance our compliance and quality assurance systems, train and manage our growing employee base, and retain and add to our current executives and management personnel. Rapid expansion of our operations could place a significant strain on our senior management team, support teams, manufacturing lines, information technology platforms and other resources. Difficulties in effectively managing the budgeting, forecasting and other process control issues presented by any rapid expansion could materially harm our business, prospects, results of operations or financial condition. Our inability to implement operational improvements, generate and sustain increased revenue and manage and control our cost of goods sold and operating expenses could impede our future growth and materially harm our business, operating results and financial condition.

We have a history of net losses and may not achieve or maintain profitability in the future.

We have a history of significant net operating losses, including a net loss of $6.6 million for the year ended December 31, 2014. In the three months ended March 31, 2016 and in the years ended December 31, 2015

 

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and 2013, we had net income of $1.7 million, $7.7 million and $1.3 million, respectively. As a result of these operating losses and the effect of redeemable preferred share cumulative dividends earned and the accretion to redemption amounts, we had an accumulated deficit of $191.9 million as of March 31, 2016. Although we were profitable for the three months ended March 31, 2016, we may not be able to achieve profitability for the current or any future fiscal year. In addition, we expect our operating expenses to increase as we continue to seek new customer relationships and expand our operations. Our ability to achieve and maintain profitability depends on a number of factors, including the growth rate of the wind energy industry, the competitiveness of our wind blades and our ability to successfully build new and expand existing manufacturing facilities and increase production capacity at existing plants. We may incur significant losses in the future for a number of reasons, including due to the other risks described in this prospectus, and we may encounter unforeseen expenses, difficulties, complications and delays and other unknown events. In addition, as a public company, we will incur additional significant legal, accounting and other expenses that we did not incur as a private company. As a result, our operations may not achieve profitability in the future and, even if we do achieve profitability, we may not be able to maintain or increase it.

Our financial position, revenue, operating results and profitability are difficult to predict and may vary from quarter to quarter, which could cause our share price to decline significantly.

Our quarterly revenue, operating results and profitability have varied in the past and are likely to vary significantly from quarter to quarter in the future. For example, our quarterly results have ranged from an operating profit of $16.6 million for the three months ended December 31, 2015 to an operating loss of $2.7 million for the three months ended March 31, 2015. The factors that are likely to cause these variations include:

 

    operating and startup costs of new manufacturing facilities;

 

    wind blade model transitions;

 

    differing quantities of wind blade production, including the amount subject to storage arrangements;

 

    unanticipated contract or project delays or terminations;

 

    changes in the costs of raw materials or disruptions in raw material supply;

 

    scrap of defective products;

 

    warranty expense;

 

    availability of qualified personnel;

 

    employee wage levels;

 

    costs incurred in the expansion of our existing manufacturing capacity;

 

    volume reduction requests from our customers pursuant to our customer agreements; and

 

    general economic conditions.

As a result, our revenue, operating results and profitability for a particular period are difficult to predict and may decline in comparison to corresponding prior periods regardless of the strength of our business. It is also possible that in some future periods our revenue, operating results and profitability may not meet the expectations of securities analysts or investors. If this occurs, the trading price of our common stock could fall substantially, either suddenly or over time, and our business, operating results and financial condition would be materially harmed.

 

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The fluctuation of foreign currency exchange rates could materially harm our financial results.

Since we conduct a significant portion of our operations internationally, our business is subject to foreign currency risks, including currency exchange rate fluctuations. The exchange rates are affected by, among other things, changes in political and economic conditions. For example, an increase in our Turkey sales and operations will result in a larger portion of our net sales and expenditures being denominated in the Euro and Turkish Lira, or TRY. Significant fluctuations in the exchange rate between TRY and the U.S. dollar, TRY and the Euro or the Euro and the U.S. dollar may adversely affect our revenue, expenses, as well as the value of our assets and liabilities. Similarly, an increase in our China sales and operations will result in a larger portion of our net sales and expenditures being denominated in Chinese Renminbi, or RMB. The Chinese government controls the procedures by which RMB is converted into other currencies, and conversion of RMB generally requires government consent. As a result, RMB may not be freely convertible into other currencies at all times. If the Chinese government institutes changes in currency conversion procedures, or imposes restrictions on currency conversion, those actions may materially harm our business, liquidity, financial condition and operating results. In addition, significant fluctuations in the exchange rate between RMB and U.S. dollars may adversely affect our expenses as well as the value of our assets and liabilities. To the extent our future revenues are generated outside of the United States in currencies other than the U.S. dollar, including the Euro, TRY, RMB or Mexican Peso, among others, we will be subject to increased risks relating to foreign currency exchange rate fluctuations which could materially harm our business, financial condition and operating results.

Our manufacturing operations and future growth are dependent upon the availability of capital, which may be insufficient to support our capital expenditures.

Our current wind blade manufacturing activities and future growth will require substantial capital investment. For the years ended December 31, 2015 and 2014, our capital expenditures were $31.4 million and $26.3 million, respectively, including assets acquired under capital lease in 2015 and 2014 of $5.0 million and $7.4 million, respectively. We have entered into lease agreements with third parties to lease new manufacturing facilities in China, Mexico and Turkey, and we expect to commence operations at these new facilities in the second half of 2016. Major projects expected to be undertaken include purchasing equipment for and the expansion of our Dafeng, China; Mexico and Turkey facilities and new facilities in Mexico and Turkey. Our ability to grow our business is predicated upon us making significant additional capital investments to expand our existing manufacturing facilities and build and operate new manufacturing facilities in existing and new markets. We generally estimate that the startup of a new six line manufacturing facility requires cash for net operating expenses and working capital of between $15 million to $25 million and additional capital expenditures for machinery and equipment of between $15 million to $25 million. In addition, we estimate our annual maintenance capital expenditures to be $500,000 to $1 million per facility. We may not have the capital to undertake these capital investments. In addition, our capital expenditures may be significantly higher if our estimates of future capital investments are incorrect and may increase substantially if we are required to undertake actions to comply with new regulatory requirements or compete with new technologies. The cost of some projects may also be affected by foreign exchange rates if any raw materials or other goods must be paid for in foreign currency. We cannot assure you that we will be able to raise funds on favorable terms, if at all, or that future financings would not be dilutive to holders of our capital stock. We also cannot assure you that completed capital expenditures will yield the anticipated results. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants, or other restrictions on our business that could impair our operational flexibility, and would require us to fund additional interest expense. If we are unable to obtain sufficient capital at a reasonable cost or at all, we may not be able to expand production sufficiently to take advantage of changes in the marketplace or may be required to delay, reduce or eliminate some or all of our current operations, which could materially harm our business, operating results and financial condition.

 

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As a U.S. corporation with international operations, we are subject to the U.S. Foreign Corrupt Practices Act, which could impact our ability to compete in certain jurisdictions.

As a U.S. corporation, we and our subsidiaries are subject to the U.S. Foreign Corrupt Practices Act, or FCPA, which generally prohibits U.S. companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business. We have manufacturing facilities in China, Mexico and Turkey, countries with a fairly high risk of corruption. Those facilities are subject to routine government oversight. In addition, a small number of our raw materials and components suppliers are state-owned in China. Moreover, due to our need to import raw materials across international borders, we also routinely have interactions, directly or indirectly, with customs officials. In many foreign countries, under local custom, businesses engage in practices that may be prohibited by the FCPA or other similar laws and regulations. Additionally, we continue to hire employees around the world as we continue to expand. Although we have recently implemented certain procedures designed to ensure compliance with the FCPA and similar laws, there can be no guarantee that all of our employees and agents, as well as those companies to which we outsource certain of our business operations, have not taken and will not take actions that violate our policies and the FCPA, which could subject us to fines, penalties, disgorgement, and loss of business, harm our reputation and impact our ability to compete in certain jurisdictions. In addition, these laws are complex and far-reaching in nature, and, as a result, we may be required in the future to alter one or more of our practices to be in compliance with these laws or any changes in these laws or the interpretation thereof. Moreover, our competitors may not be subject to the FCPA or comparable legislation, which could provide them with a competitive advantage in some jurisdictions.

We may have difficulty making distributions and repatriating earnings from our Chinese manufacturing operations, which may also occur in some of our other locations.

A material portion of our business is conducted in China. As of March 31, 2016, our China operations had unrestricted cash of $7.9 million, most of which is used to fund our operations in China. Our ability to repatriate funds from China to the United States is subject to a number of restrictions imposed by the Chinese government. We repatriate funds through a Technology License Contract, a Services Agreement and dividends. Under the Technology License Contract, TPI Composites (Taicang) Co, Ltd., or TPI Taicang, is required to pay TPI Technology, Inc., our wholly-owned subsidiary, 4.9% of its net sales for the use of an exclusive and non-transferable license to use Technical Information, as defined in the Technology License Contract, to produce products at its facilities. Under the Services Agreement, we provide (i) accounting and financial advisory services, (ii) environmental and EHS programs, (iii) information technology and data services, (iv) global sourcing and procurement services and (v) engineering and development services to TPI Taicang. We are compensated quarterly based on agreed upon hourly rates for those services. Certain of our subsidiaries are limited in their ability to declare dividends without first meeting statutory restrictions of the People’s Republic of China, including retained earnings as determined under Chinese-statutory accounting requirements. Additionally, under the terms of our credit agreement with one of our Chinese lenders, we are required to obtain its approval to pay dividends and have a current ratio of not less than one. Until 50% ($5.2 million) of registered capital is contributed to a surplus reserve, our Chinese operations can only pay dividends equal to 90% of after-tax profits (10% must be contributed to the surplus reserve). Once the surplus reserve fund requirement is met, we can pay dividends equal to 100% of after-tax profit assuming other conditions are met. At December 31, 2015, the amount of the surplus reserve fund was $2.9 million. Any inability to make distributions, repatriate earnings or otherwise access funds from our manufacturing operations in China, if and when needed for use outside of China, could materially harm our liquidity and our business.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud.

We maintain a system of internal controls to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The process of designing and implementing effective internal controls is a continuous effort that requires us to

 

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anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to establish and maintain a system of internal controls that will be adequate to satisfy the reporting obligations of a public company. The effectiveness of our internal controls depends in part on the cooperation of senior managers worldwide. See “Risks Related to Our Wind Blade Business—In mid-2015, our Audit Committee conducted an internal investigation into allegations of improper business dealings in China. While the investigation did not substantiate the allegations, we ultimately terminated our former Senior Vice President—Asia, then serving as a consultant to the Company, in January 2016 for material violations of his agreements with us and with Company policies that came to light subsequent to the completion of the internal investigation. Any misconduct that the investigation or our subsequent review of the activities of our former Senior Vice President—Asia failed to uncover could have a material adverse effect on our operations generally.”

Any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. Any failure to maintain that system, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and harm our business, and lead to our becoming subject to litigation, sanctions or investigations by The NASDAQ Global Market, the SEC or other regulatory governmental agencies and bodies. Furthermore, investors’ perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements on a timely basis may harm our stock price.

We have in the past experienced material weaknesses. While we have successfully remediated those material weaknesses, we could experience control deficiencies in the future or identify areas requiring improvement in our internal control over financial reporting.

The state of financial markets and the economy may materially harm our sources of liquidity and capital.

There has been significant recent turmoil and volatility in worldwide financial markets. These conditions have resulted in a disruption in the liquidity of financial markets, and could directly impact us to the extent we need to access capital markets to raise funds to support our business and overall liquidity position. This situation could affect the cost of such funds or our ability to raise such funds. If we were unable to access any of these funding sources when needed, it could materially harm our business, operating results and financial condition.

Our ability to use our net operating loss carry forwards may be subject to limitation and may result in increased future tax liability.

Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, contain rules that limit the ability of a company that undergoes an “ownership change” to utilize its net operating loss and tax credit carry forwards and certain built-in losses recognized in years after the ownership change. An “ownership change” is generally defined as any change in ownership of more than 50% of a corporation’s stock over a rolling three-year period by stockholders that own (directly or indirectly) 5% or more of the stock of a corporation, or arising from a new issuance of stock by a corporation. If an ownership change occurs, Section 382 generally imposes an annual limitation on the use of pre-ownership change net operating losses, or NOLs, credits and certain other tax attributes to offset taxable income earned after the ownership change. The annual limitation is equal to the product of the applicable long-term tax exempt rate and the value of the company’s stock immediately before the ownership change. This annual limitation may be adjusted to reflect any unused annual limitation for prior years and certain recognized built-in gains and losses for the year. In addition, Section 383 generally limits the amount of tax liability in any post-ownership change year that can be reduced by pre-ownership change tax credit carryforwards. This could result in increased U.S. federal income tax liability for us if we generate taxable income in a future period. Limitations on the use of NOLs and other tax attributes could also increase our state tax liability. The use of our tax attributes will also be limited to the extent that we do not generate positive taxable income in future tax periods. As a result of these limitations, we may be unable to offset future taxable income (if any) with losses, or our tax liability with credits, before such losses and credits expire. Accordingly, these limitations may increase our federal income tax liability.

 

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Although we do not expect to incur an ownership change as a result of the transactions described in this offering, it is possible that the transactions described in this offering, when combined with past and future transactions, will cause us to undergo one or more ownership changes. As of December 31, 2015, we have U.S. federal NOLs of approximately $78.1 million, state NOLs of approximately $61.1 million, foreign NOLs of approximately $3.2 million and foreign tax credits of approximately $0.3 million available to offset future taxable income. At the end of 2008, we had an “ownership change” and the pre-ownership change NOLs existing at the date of change of $25.6 million are subject to an annual limitation of $4.3 million. As of December 31, 2015, the remaining pre-ownership change net operating losses of approximately $20.5 million are no longer limited. Certain of these NOLs may be at risk of limitation in the event of a future ownership change.

We have U.S. federal, U.S. state, and foreign NOLs. In general, NOLs in one country cannot be used to offset income in any other country and NOLs in one state cannot be used to offset income in any other state. Accordingly, we may be subject to tax in certain jurisdictions even if we have unused NOLs in other jurisdictions. Also, each jurisdiction in which we operate may have its own limitations on our ability to utilize NOLs or tax credit carryovers generated in that jurisdiction. These limitations may increase our federal, state, and/or foreign income tax liability.

Our current credit facility with Highbridge Principal Strategies contains, and any future loan agreements we may enter into may contain, operating and financial covenants that may restrict our business and financing activities.

We have a $100.0 million credit facility, or the Credit Facility, with Highbridge Principal Strategies, LLC, or Highbridge, $74.4 million of which was outstanding as of March 31, 2016. The Credit Facility is secured by substantially all of our assets. In addition, from time to time, we enter into various loan, working capital and accounts receivable financing facilities to finance the construction and ongoing operations of our advanced manufacturing facilities and other capital expenditures. The Credit Facility contains various financial covenants and restrictions on our and our operating subsidiaries’ excess cash flows and ability to make capital expenditures, incur additional indebtedness and pay dividends or make distributions on, or repurchase, our stock. The operating and financial restrictions and covenants of the Credit Facility, as well as our other existing and any future financing agreements that we may enter into, may restrict our ability to finance our operations, engage in business activities or expand or fully pursue our business strategies. Our ability to comply with these covenants may be affected by events beyond our control, and we may not be able to maintain appropriate minimum EBITDA (as defined in the Credit Facility), leverage ratio and fixed charge coverage ratio requirements in the future. A breach of any of these covenants could result in a default under the applicable loan facility, which could cause all of the outstanding indebtedness under such facility to become immediately due and payable by us and/or enable the lender to terminate all commitments to extend further credit. In addition, if we were unable to repay the outstanding indebtedness upon a default, the lender could proceed against the assets pledged as collateral to secure that indebtedness.

Our indebtedness may adversely affect our business, results of operations and financial condition.

Our substantial indebtedness could adversely affect our business, results of operations and financial condition by, among other things:

 

    requiring us to dedicate a substantial portion of our cash flow from operations to pay principal and interest on our debt, which would reduce the availability of our cash flow to fund working capital, capital expenditures, acquisitions, execution of our growth strategy and other general corporate purposes;

 

    limiting our ability to borrow additional amounts to fund debt service requirements, working capital, capital expenditures, acquisitions, execution of our growth strategy and other general corporate purposes;

 

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    making us more vulnerable to adverse changes in general economic, industry and regulatory conditions and in our business by limiting our flexibility in planning for, and making it more difficult to react quickly to, changing conditions;

 

    placing us at a competitive disadvantage compared with those of our competitors that have less debt and lower debt service requirements;

 

    making us more vulnerable to increases in interest rates since some of our indebtedness is subject to variable rates of interest; and

 

    making it more difficult for us to satisfy our financial obligations.

In addition, we may not be able to generate sufficient cash flow from our operations to repay our outstanding indebtedness when it becomes due and to meet our other cash needs or to comply with the financial covenants set forth therein. If we are not able to pay our debts as they become due, we could be in default under our loan agreement with Highbridge or other indebtedness. We might also be required to pursue one or more alternative strategies to repay indebtedness, such as selling assets, refinancing or restructuring our indebtedness or selling additional debt or equity securities. We may not be able to refinance our debt or sell additional debt or equity securities or our assets on favorable terms, if at all, and if we must sell assets, it may negatively affect our ability to generate revenues.

Much of our intellectual property consists of trade secrets and know-how that is very difficult to protect. If we experience loss of protection for our trade secrets or know-how, our business would be substantially harmed.

We have a variety of intellectual property rights, including patents, trademarks and copyrights, but much of our most important intellectual property rights consists of trade secrets and know-how and effective intellectual property protection may be unavailable, limited or outside the scope of the intellectual property rights we pursue in the United States and in foreign countries such as China where we operate. Although we strive to protect our intellectual property rights, there is always a risk that our trade secrets or know-how will be compromised or that a competitor could lawfully reverse-engineer our technology or independently develop similar or more efficient technology. We have confidentiality agreements with each of our customers, suppliers, key employees and independent contractors in place to protect our intellectual property rights, but it is possible that a customer, supplier, employee or contractor might breach the agreement, intentionally or unintentionally. For example, we believe a key former employee may have shared some of our intellectual property with a competitor in China and this former employee or the competitor may use this intellectual property to compete with us in the future. It is also possible that our confidentiality agreements with customers, suppliers, employees and contractors will not be effective in preserving the confidential nature of our intellectual property rights. The patents we own could be challenged, invalidated, narrowed or circumvented by others and may not be of sufficient scope or strength to provide us with any meaningful protection or commercial advantage. Once our patents expire, or if they are invalidated, narrowed or circumvented, our competitors may be able to utilize the inventions protected by our patents. Additionally, the existence of our intellectual property rights does not guarantee that we will be successful in any attempt to enforce these rights against third parties in the event of infringement, misappropriation or other misuse, which may materially and adversely affect our business. Because our ability to effectively compete in our industry depends upon our ability to protect our proprietary technology, we might lose business to competitors and our business, revenue, operating results and prospects could be materially harmed if we suffer loss of trade secret and know-how protection or breach of our confidentiality agreements.

If the transfer pricing arrangements we have among our subsidiaries are determined to be inappropriate in one or more jurisdictions, our tax liability may increase.

In many countries, including the United States, we are subject to transfer pricing and other tax regulations designed to ensure that appropriate levels of income are reported as earned in each jurisdiction in

 

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which we operate. These regulations require that any international transaction involving associated enterprises be on substantially the same basis as a transaction between unrelated companies dealing at arms’ length and that contemporaneous documentation be maintained to support the transfer prices. We have transfer pricing arrangements among our subsidiaries in relation to various aspects of our business. We consider the transactions among our subsidiaries to be substantially on arm’s-length terms. If, however, a tax authority in any jurisdiction reviews any of our tax returns and determines that the transfer prices and terms we have applied are not appropriate, or that other income of our affiliates should be taxed in that jurisdiction, we may incur increased tax liability, including accrued interest and penalties, which would cause our tax provision to increase, possibly materially. In addition, if the country from which the income is reallocated does not agree with the reallocation, both countries could tax the same income, resulting in double taxation. If tax authorities were to allocate income to a higher tax jurisdiction, subject our income to double taxation, or assess interest and penalties, it would increase our consolidated tax liability, which could materially harm our business, operating results and financial condition.

Our insurance coverage may not cover all risks we face and insurance premiums may increase, which may hinder our ability to maintain sufficient coverage to cover losses we may incur.

We are exposed to risks inherent in the manufacturing of wind blades and other composite structures as well as the construction of our facilities, such as natural disasters, breakdowns and manufacturing defects that could harm persons and damage property. We maintain insurance coverage with licensed insurance carriers that limits our aggregate exposure to certain types of catastrophic losses. In addition, we self-insure for a portion of our claims exposure resulting from workers’ compensation and certain events of general liability. We accrue currently for estimated incurred losses and expenses, and periodically evaluate and adjust our claims accrued liability amount to reflect our experience. However, our insurance coverage may not be sufficient to cover the full amount of potential losses. In addition, there are some types of losses such as from warranty, hurricanes, terrorism, wars, or earthquakes where insurance is limited and/or not economically justifiable. If we were to sustain a serious uninsured loss or a loss exceeding the limits of our insurance policies, the resulting costs could have a material adverse effect on our business prospects, results of operations and financial condition. Further, our insurance policies provide for our premiums to be adjusted annually. If the premiums we pay for our policies increase significantly, we may be unable to maintain the same level of coverage we currently carry, or we will incur significantly greater costs to maintain the same level of coverage, including through higher deductibles.

We may be subject to significant liabilities and costs relating to environmental and health and safety requirements.

We are subject to various environmental, health and safety laws, regulations and permit requirements in the jurisdictions in which we operate governing, among other things, health, safety, pollution and protection of the environment and natural resources, the handling and use of hazardous substances, the generation, storage, treatment and disposal of wastes, and the cleanup of any contaminated sites. We have incurred, and expect to continue to incur, capital and operating expenditures to comply with such laws, regulations and permit requirements. While we believe that we currently are in material compliance with all such laws, regulations and permit requirements, any noncompliance may subject us to a range of enforcement measures, including the imposition of monetary fines and penalties, other civil or criminal sanctions, remedial obligations, and the issuance of compliance requirements restricting our operations. In addition, the future adoption of more stringent laws, regulations and permit requirements may require us to make additional capital and operating expenditures. Under certain environmental laws and regulations, liabilities also can be imposed for cleanup of currently and formerly owned, leased or operated properties, or properties to which we sent hazardous substances or wastes, regardless of whether we directly caused the contamination or violated any law. For example, we could have future liability relating to any contamination that remains from historic industrial operations by others at our properties. Additionally, some of our facilities have a long history of industrial operations and, in the past, contaminants have been detected and remediated at our Turkey facility.

 

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There can be no assurance that we will not in the future become subject to compliance requirements, obligations to undertake cleanup or related activities, or claims or proceedings relating to environmental, health or safety matters, hazardous substances or wastes, contaminated sites, or other environmental or natural resource damages, that could impose significant liabilities and costs on us and materially harm our business, operating results or financial condition.

Claims that we infringe, misappropriate or otherwise misuse the intellectual property rights of others could subject us to significant liability and disrupt our business.

Our competitors and third party suppliers of components and raw materials used in our products protect their intellectual property rights by means such as trade secrets and patents. In the future we may be sued for violations of other parties’ intellectual property rights, and the risk of this type of lawsuit will likely increase as our size, geographic presence and market share expand and as the number of competitors in our market increases. Any such claims or litigation, whether meritorious or not, could:

 

    be time-consuming and expensive to defend;

 

    divert the attention of our technical and managerial resources;

 

    adversely affect our relationships with current or future customers;

 

    require us to enter into royalty or licensing agreements with third parties, which may not be available on terms that we deem acceptable;

 

    prevent us from operating all or a portion of our business or force us to redesign our manufacturing processes or products, which could be difficult, time-consuming and expensive;

 

    limit the supply or increase the cost of key raw materials and components used in our products;

 

    subject us to significant liability for damages or result in significant settlement payments; and

 

    require us to indemnify our customers or suppliers.

Any of the foregoing could disrupt our business and materially harm our operating results and financial condition. In addition, intellectual property disputes have in the past arisen between our customers which negatively affected such customers’ demand for wind blades manufactured by us. If such intellectual property disputes involving, or between, one or more of our customers should arise in the future, our business could be materially harmed.

We may form joint ventures, or acquire businesses or assets, in the future, and we may not realize the benefits of those transactions.

We have in the past entered into joint ventures with third parties for the manufacture of wind blades. For example, we entered into joint ventures with third parties in both our Mexico and Turkey locations. We may create new or additional joint ventures with third parties, or acquire businesses or assets, in the future that we believe will complement or augment our existing business. We cannot assure you that, following any such joint venture or acquisition, we will achieve the expected synergies to justify the transaction. We may encounter numerous difficulties in manufacturing any new products resulting from a joint venture or acquisition that delay or prevent us from realizing their expected benefits or enhancing our business. If we enter into joint ventures or acquire businesses or assets with respect to promising markets, we may not be able to realize the benefit of those joint ventures or acquired businesses assets if we are unable to successfully integrate them with our existing operations and company culture.

 

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Work disruptions resulting from our collective bargaining agreements could result in increased operating costs and materially harm our business, operating results and financial condition.

Our employees in Turkey, which represented approximately 23% of our workforce as of May 31, 2016, are covered by collective bargaining arrangements, which expired on December 31, 2015. In May 2016, we entered into a new three-year collective bargaining agreement with our Turkish employees. We expect that the new agreement will result in an average increase in pay of approximately 20% for employees covered by the agreement. Additionally, our other employees working at other manufacturing facilities may vote to be represented by a labor union in the future. For example, our employees in Iowa attempted unsuccessfully to unionize in December 2013. There can be no assurance that we will not experience labor disruptions such as work stoppages or other slowdowns by workers at any of our facilities. Should significant industrial action, threats of strikes or related disturbances occur, we could experience a disruption of operations and increased labor costs in Turkey or other locations, which could materially harm our business, operating results or financial condition. Any such work stoppage or slow-down at any of our facilities could also result in additional expenses and possible loss of revenue for us.

Our information technology infrastructure could experience serious failures or disruptions, the failure of which could materially harm our business, operating results and financial condition.

Information technology is part of our business strategy and operations. It enables us to streamline operation processes, facilitating the collection and reporting of business data, in addition to internal and external communications. There are risks that information technology system failures, network disruptions and breaches of data security could disrupt our operations. Any significant disruption or breach may materially harm our business, operating results or financial condition.

We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to compliance initiatives.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and The NASDAQ Global Market, impose various requirements on public companies, including requiring establishment and maintenance of effective disclosure controls and internal control over financial reporting and changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance. We estimate that we will incur approximately $2.5 million to $3.0 million in expenses annually in response to these requirements.

Section 404(a) of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting, starting with the second annual report that we file with the SEC. However, as long as we remain an “emerging growth company,” as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. We will take advantage of these reporting exemptions until we are no longer an “emerging growth company,” and will incur additional expense and time related to these efforts at that time. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.0 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under SEC rules.

 

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Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives, diverting their attention away from the day-to-day management of our business, and we may not successfully or efficiently manage our transition into a public company. We will also need to upgrade our systems, implement additional financial and management controls, reporting systems and procedures, hire an internal audit group and additional accounting, auditing and financial staff with appropriate public company experience and technical accounting knowledge. We have significant operations in China, Mexico and Turkey and may have difficulty hiring and retaining employees in these countries who have the experience necessary to implement the kind of management and financial controls that are expected of a U.S. public company. In this regard, for example, China has only recently begun to adopt management and financial reporting concepts and practices like those in the United States. If we are not able to comply with these requirements in a timely manner or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline, and we could be subject to sanctions or investigations by The NASDAQ Global Market, the SEC or other regulatory authorities, which would require additional financial and management resources.

We are faced with increasingly complex tax issues in many jurisdictions, and we could be obligated to pay additional taxes in various jurisdictions.

We may be subject to taxation in many jurisdictions in the United States and around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax laws, including increased tax rates or revised interpretations of existing tax laws and precedents, which could harm our liquidity and operating results. In addition, the taxing authorities in these jurisdictions could review our tax returns, or authorities in jurisdictions in which we do not file tax returns could assert that we are subject to tax in those jurisdictions, and in either case could impose additional tax, interest and penalties. Further, the authorities could claim that various withholding requirements apply to us or our subsidiaries or assert that benefits of tax treaties are not available to us or our subsidiaries, any of which could have a material adverse impact on us and the results of our operations.

The current U.S. presidential administration has made public statements indicating that it has made international tax reform a priority, and key members of the U.S. Congress have conducted hearings and proposed a wide variety of potential changes. Certain changes to U.S. tax laws, including limitations on the ability to defer U.S. taxation on earnings outside of the United States until those earnings are repatriated to the United States, could affect the tax treatment of our foreign earnings, as well as cash and cash equivalent balances we currently maintain outside of the United States.

Risks Related to this Offering and Ownership of Our Common Stock

There has been no public market for our common stock, and an active, liquid trading market may not develop.

Before this offering, there was no public market for shares of our common stock. An active and liquid trading market may not develop following this offering or, if developed, may not be sustained. The lack of an active and liquid market may impair your ability to sell your shares of common stock at the time you wish to sell them or at a price that you consider reasonable. The lack of an active and liquid market may also reduce the market value and increase the volatility of your shares of common stock. In addition, an inactive and illiquid market may impair our ability to raise capital by selling shares of common stock and may impair our ability to acquire other business or assets by using shares of our common stock as consideration.

The price of our common stock may fluctuate substantially and your investment may decline in value.

The initial public offering price for the shares of our common stock to be sold in this offering was determined by negotiation between the representatives of the underwriters and us based upon a number of

 

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factors, including the history of, and the prospects for, our company and our industry, and may not be indicative of prices that will prevail following this offering. In addition, the market price of our common stock is likely to be highly volatile and may fluctuate substantially due to many factors, including:

 

    actual or anticipated fluctuations in our results of operations;

 

    our ability to provide products due to shipments subject to delayed delivery and deferred revenue arrangements;

 

    loss of or changes in our relationship with one or more of our customers;

 

    failure to meet our earnings estimates;

 

    conditions and trends in the energy and manufacturing markets in which we operate and changes in estimates of the size and growth rate of these markets;

 

    announcements by us or our competitors of significant contracts, developments, acquisitions, strategic partnerships or divestitures;

 

    availability of equipment, labor and other items required for the manufacture of wind blades;

 

    changes in governmental policies;

 

    additions or departures of members of our senior management or other key personnel;

 

    changes in market valuation or earnings of our competitors;

 

    sales of our common stock, including sales of our common stock by our directors and officers or by our other principal stockholders;

 

    the trading volume of our common stock; and

 

    general market and economic conditions.

In addition, the stock market in general, and The NASDAQ Global Market, as well as the market for broader energy and renewable energy companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of particular companies affected. These broad market and industry factors may materially harm the market price of our common stock, regardless of our operating performance. In the past, securities class-action litigation has often been instituted against a company following periods of volatility in the market price of that company’s securities. Securities class-action litigation, if instituted against us, could result in substantial costs or damages and a diversion of management’s attention and resources, which could materially harm our business and operating results.

A significant portion of our total outstanding shares may be sold into the public market in future sales, which could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time after the expiration of the lock-up agreements described in the section entitled “Underwriting.” These sales, or the market perception that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After the close of this offering, we will have                  shares of common stock outstanding. This includes the                  shares that we are selling in this offering, which may be resold in the public market immediately. The remaining                  shares will be able to be sold, subject to any applicable volume limitations under federal securities laws, upon expiration of the lock-up agreements with the underwriters of this offering.

 

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In addition, as of March 31, 2016, there are 1,055 shares subject to outstanding warrants, or     % of our outstanding shares after this offering, 9,302 shares subject to outstanding options, or     % of our outstanding shares after this offering, 1,817 restricted stock units, or     % of our outstanding shares after this offering and                  shares, or     % of our outstanding shares after this offering, reserved for future issuance under our stock option plans that will become eligible for sale in the public market to the extent permitted by any applicable vesting requirements, the lock-up agreements and Rules 144 and 701 under the Securities Act. Moreover, after this offering, holders of an aggregate of approximately                  shares of our common stock, will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register all shares of common stock that we may issue under our employee equity incentive plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements and the restrictions imposed on our affiliates under Rule 144.

In the future, we may also issue our securities in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to you and may cause the market price of our common stock to drop significantly.

The exercise of options and warrants and other issuances of shares of common stock or securities convertible into common stock under our equity compensation plans will dilute your interest.

Under our existing equity compensation plans, as of March 31, 2016, we have outstanding options to purchase 9,302 shares of our common stock and 1,817 restricted stock units to our employees and non-employee directors. From time to time, we expect to grant additional options and other stock awards in accordance with the 2015 Plan. The exercise of options and warrants at prices below the market price of our common stock could adversely affect the price of shares of our common stock. Additionally, any issuance of our common stock that is not made solely to then-existing stockholders proportionate to their interests, such as in the case of a stock dividend or stock split, will result in dilution to each stockholder by reducing their percentage ownership of the total outstanding shares. If we issue options or warrants to purchase our common stock in the future and those options or warrants are exercised or we issue stock, stockholders may experience further dilution.

Our executive officers, directors and their affiliated entities will continue to have substantial control over us and could limit the ability of other stockholders to influence the outcome of key transactions, including changes of control.

Our executive officers, directors and their affiliated entities will, in the aggregate, beneficially own     % of the outstanding common stock after this offering, based on                 shares of common stock outstanding after this offering. Our executive officers, directors and their affiliated entities, if acting together, will be able to control or significantly influence all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other significant corporate transactions. In addition, certain of our stockholders are affiliated with certain of our customers. These stockholders might have interests that differ from yours, and they might vote in a way with which you disagree and that could be adverse to your interests. The concentration of common stock ownership could have the effect of delaying, preventing, or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company, and could negatively affect the market price of the common stock.

As a new investor, you will experience immediate and substantial dilution in net tangible book value of your shares of common stock.

If you purchase common stock in this offering, you will pay more for your shares than the amounts paid by existing stockholders for their shares. As a result, you will experience immediate and substantial dilution of

 

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approximately $         per share, representing the difference between the initial public offering price for our shares in this offering and our pro forma net tangible book value per share after giving effect to this offering at an assumed public offering price of $        , the mid-point of the range on the cover page of this prospectus. If the holders of outstanding options to purchase our common stock exercise these options in the future pursuant to our current or future stock option plans, you will incur further dilution. If we raise additional equity by issuing equity securities or convertible debt, or if we acquire other companies or technologies by issuing equity, the newly issued shares will further dilute your percentage ownership and may reduce the value of your investment.

If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.

The trading market for our common stock will rely in part on the research and reports that equity research analysts publish about us and our business. We do not control the work performed by these analysts. If no securities or industry analysts commence coverage of our company, the trading price of our common stock would suffer. In the event we obtain securities or industry analyst coverage, demand for our common stock could decline if one or more equity analysts downgrade our stock or if those analysts issue unfavorable or inaccurate commentary. If such analysts cease publishing reports about us or our business, we could lose visibility in the market, which in turn could cause our share price and trading volume to decline.

We do not currently intend to pay dividends on the common stock, which may hinder your ability to achieve a return on your investment.

We have never declared or paid any cash dividends on our common stock. The continued operation and expansion of our business will require substantial funding and thus we currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Accordingly, you are not likely to receive any dividends on common stock in the foreseeable future, and your ability to achieve a return on your investment will therefore depend on appreciation in the price of the common stock.

Our management will have broad discretion over the use of the proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.

Currently, we anticipate using the net proceeds to us from this offering for general corporate purposes, including funding the costs of our corporate, operating and expansion activities. Accordingly, our management will have broad discretion over the use of our net proceeds of this offering. You will be relying on their judgment regarding the application of those net proceeds. While our management intends to use our net proceeds in a manner that is in the best interests of our company and our stockholders, they might not apply the net proceeds in ways that increase the value of your investment. The market price of the common stock could fall if the market does not view our use of our net proceeds favorably.

Provisions of Delaware law or our charter documents could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders, and could make it more difficult for you to change management.

Provisions of Delaware law and our amended and restated certificate of incorporation and amended and restated by-laws, which will be effective upon the completion of this offering, may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions may also prevent or delay attempts by stockholders to replace or remove our current management or members of our board of directors. These provisions include:

 

    a classified board of directors;

 

    limitations on the removal of directors;

 

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    advance notice requirements for stockholder proposals and nominations;

 

    the inability of stockholders to act by written consent or to call special meetings;

 

    the ability of our board of directors to make, alter or repeal our amended and restated by-laws; and

 

    the authority of our board of directors to issue preferred stock with such terms as our board of directors may determine.

The affirmative vote of the holders of at least 75% of our shares of capital stock entitled to vote, and not less than 75% of the outstanding shares of each class entitled to vote thereon as a class, is necessary to amend or repeal the above provisions that are contained in our amended and restated certificate of incorporation. In addition, absent approval of our board of directors, our amended and restated by-laws may only be amended or repealed by the affirmative vote of the holders of at least 75% of our shares of capital stock entitled to vote.

In addition, upon the closing of this offering, we will be subject to the provisions of Section 203 of the Delaware General Corporation Law, which limits business combination transactions with stockholders of 15% or more of our outstanding voting stock that our board of directors has not approved. These provisions and other similar provisions make it more difficult for stockholders or potential acquirers to acquire us without negotiation. These provisions may apply even if some stockholders may consider the transaction beneficial to them.

As a result, these provisions could limit the price that investors are willing to pay in the future for shares of our common stock. These provisions might also discourage a potential acquisition proposal or tender offer, even if the acquisition proposal or tender offer is at a premium over the then current market price for our common stock.

We are an “emerging growth company” and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict whether investors will find our common stock less attractive because we may rely on these exemptions. If they do, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.0 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. All statements other than statements of historical facts contained in this prospectus, 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 prospectus include, but are not limited to, statements about:

 

    growth of the wind energy market and our addressable market;

 

    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;

 

    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;

 

    competition from other wind blade manufacturers;

 

    the discovery of defects in our products;

 

    our ability to successfully expand in our existing markets and into new international markets;

 

    worldwide economic conditions and their impact on customer demand;

 

    our ability to effectively manage our growth strategy and future expenses;

 

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

 

    our ability to comply with existing, modified or new laws and regulations applying to our business; and

 

    the attraction and retention of qualified employees and key personnel.

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 and elsewhere in this prospectus 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 prospectus represent our views as of the date of this prospectus. 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 prospectus. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

 

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USE OF PROCEEDS

We estimate that the net proceeds from our sale of             shares of common stock in this offering will be $         million, assuming an initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ option to purchase additional shares from us is exercised in full, we estimate that our net proceeds would be approximately $         million, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

A $1.00 increase or decrease in the assumed initial public offering price would increase or decrease the net proceeds to us from this offering by approximately $         million, assuming the number of shares offered, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of one million in the number of shares of common stock offered by us would increase or decrease the net proceeds that we receive from this offering by approximately $         million, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use the net proceeds to us from this offering for working capital and other general corporate purposes, including approximately $         million to finance our existing manufacturing operations, approximately $         million to finance our expansion in existing and new geographies and approximately $         million to finance the repayment of certain indebtedness. However, these potential alternatives for the use of proceeds could change significantly depending upon the amount of cash generated by our operations, competitive and industry developments, market opportunities, the rate of growth, if any, of our business, and a variety of other factors. Although we currently have no agreements or commitments for any specific acquisitions, we may also use a portion of the net proceeds to us to expand our current business through strategic alliances or acquisitions of other businesses, products or technologies.

We intend to use the net proceeds from this offering to pay off approximately $         million of indebtedness issued pursuant to our outstanding Subordinated Convertible Promissory Notes. The Subordinated Convertible Promissory Notes bear interest at a rate of 12% per annum and will automatically mature and be due and payable on the earlier of the completion of any change of control or qualified initial public offering, or at the election of the holders of the notes at any time after the occurrence of an event of default. We have previously used the proceeds from this indebtedness for working capital purposes. We also intend to use the net proceeds from this offering to repay a $2.0 million advance from GE Wind. See “Certain Relationships and Related Party Transactions—GE Wind Customer Advance” for additional information. In addition, we have agreed to repay all but $2.1 million of the outstanding indebtedness incurred in connection with our working capital financing agreements with our lenders in China by June 30, 2016 and any remaining amount by September 30, 2016, or sooner if we are not in compliance with the financial covenants of the Credit Facility. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Description of Our Indebtedness” for additional information.

Although we currently anticipate that we will use the net proceeds from this offering as described above, there may be circumstances where a reallocation of funds is necessary. The amounts and timing of our actual expenditures will depend upon numerous factors, including our sales and marketing efforts, demand for our products, our operating costs and the other factors described under “Risk Factors” in this prospectus. Accordingly, our management will have flexibility in applying the net proceeds from this offering. An investor will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use the proceeds. Pending the application of our net proceeds, we intend to invest our net proceeds in U.S. government securities and other short-term, investment-grade, interest-bearing instruments.

 

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DIVIDEND POLICY

We have never declared or paid any cash dividends on shares of our capital stock. We currently intend to retain earnings, if any, to finance the development and growth of our business and do not anticipate paying cash dividends on the common stock in the future. Any payment of any future dividends will be at the discretion of the board of directors, subject to compliance with certain covenants in our loan agreements, after taking into account various factors, including our financial condition, operating results, capital requirements, restrictions contained in any future financing instruments, growth plans and other factors the board deems relevant.

 

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CAPITALIZATION

The following table describes our cash and cash equivalents, as well as our capitalization, as of March 31, 2016 on:

 

    an actual basis;

 

    a pro forma basis to reflect the automatic conversion or redemption of all outstanding shares of our convertible and redeemable preferred stock (which will be triggered by this offering as provided in our certificate of incorporation) into an aggregate of 58,639 shares of common stock upon the closing of this offering, as if such conversion or redemption had occurred on March 31, 2016; and

 

    a pro forma basis as adjusted further to reflect (1) a     -for-     stock split of              shares of common stock upon completion of this offering and (2) the sale and issuance by us of shares of common stock in this offering, based on an assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The pro forma as adjusted information set forth in the table below is illustrative only and will be adjusted based on the actual initial public offering price and other final terms of this offering. You should read this table together with the consolidated financial statements and related notes included elsewhere in this prospectus, as well as the sections titled “Selected Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are included elsewhere in this prospectus.

 

   

As of March 31, 2016

 
   

Actual

   

Pro Forma

   

Pro Forma As
Adjusted

 
   

(In thousands, except share and per share data)

(Unaudited)

 

Cash and cash equivalents

  $ 35,842      $                   $                
 

 

 

   

 

 

   

 

 

 

Debt:

     

Current maturities of long-term debt

  $ 53,637      $        $     

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

    77,526       
 

 

 

     

Total debt

    131,163       
 

 

 

     

Convertible and Senior Redeemable Preferred Shares and Warrants:

     

Series A convertible preferred shares, $0.01 par value; liquidation preference equal to $51,342; 3,551 shares authorized; 3,551 shares issued and outstanding

    51,342       

Series B convertible preferred shares, $0.01 par value; liquidation preference equal to $41,600; 2,813 shares authorized; 2,287 shares issued and outstanding

    41,600       

Series B-1 convertible preferred shares, $0.01 par value; liquidation preference equal to $53,030; 2,972 shares authorized; 2,972 shares issued and outstanding

    53,030       

Series C convertible preferred shares, $0.01 par value; liquidation preference equal to $17,670; 2,944 shares authorized; 2,944 shares issued and outstanding

    17,670       

Senior redeemable preferred shares, $0.01 par value; liquidation preference equal to $65,415; 740 shares authorized; 740 shares issued and outstanding

    28,278       

Super senior redeemable preferred shares, $0.01 par value; liquidation preference equal to $22,345; 1,024 shares authorized; 280 shares issued and outstanding

    8,278       

Redeemable preferred share warrants, 248 warrants issued and outstanding

    1,084       
 

 

 

     

Total convertible and senior redeemable preferred shares and warrants:

    201,282       
 

 

 

     

Shareholders’ Deficit:

     

Common shares, $0.01 par value, 86,400 shares authorized and 11,774 shares issued and outstanding, actual;              shares authorized and              shares issued and outstanding, pro forma;              shares authorized and              shares issued and outstanding, pro forma as adjusted

    —         

Paid-in capital

    —         

Accumulated other comprehensive income

    403       

Accumulated deficit

    (191,863    
 

 

 

     

Total shareholders’ deficit

    (191,460    
 

 

 

   

 

 

   

 

 

 

Total capitalization

  $ 140,985      $        $                
 

 

 

   

 

 

   

 

 

 

 

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(1) A $1.00 increase (decrease) in the assumed initial public offering price of $         per share, the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase (decrease) cash and cash equivalents, paid-in capital, total shareholders’ equity (deficit) and total capitalization by $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase of 1.0 million shares in the number of shares offered by us, assuming that the assumed initial public offering price remains the same, would increase cash and cash equivalents, paid-in capital, total shareholders’ equity (deficit) and total capitalization by $         million. Similarly, each decrease of 1.0 million shares in the number of shares offered by us, assuming that the assumed initial public offering price remains the same, would decrease cash and cash equivalents, paid-in-capital, total shareholders’ equity (deficit) and total capitalization by $         million.

If the underwriters’ option to purchase additional shares from us were exercised in full, pro forma as adjusted cash and cash equivalents, paid-in capital, total shareholders’ equity (deficit) and shares issued and outstanding as of March 31, 2016 would be $         million, $         million, $         million and              shares, respectively.

The pro forma and pro forma as adjusted columns in the table above exclude the following:

 

                 shares of common stock issuable upon exercise of outstanding options as of March 31, 2016 at a weighted-average exercise price of $         per share;

 

                 shares of common stock issuable upon the vesting of restricted stock units outstanding as of March 31, 2016;

 

                 shares of our common stock reserved for issuance in connection with the exercise of our Common Warrants;

 

    884 shares of common stock issuable upon the exercise of outstanding warrants, other than our Common Warrants, to purchase common stock; and

 

                 shares of our common stock reserved for future issuance under our 2015 Plan, and which contains provisions that automatically increase its share reserve each year.

 

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DILUTION

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma as adjusted net tangible book value per share of common stock immediately after completion of this offering.

Net tangible book value per share is determined by dividing our total tangible assets less our total liabilities by the number of shares of common stock outstanding. Our historical net tangible book value as of March 31, 2016 was $6.6 million, or $563 per share. Our pro forma net tangible book value as of March 31, 2016 was $         million, or $         per share, based on the total number of shares of our common stock outstanding as of March 31, 2016, after giving effect to the automatic conversion of all outstanding shares of our convertible preferred stock as of March 31, 2016 into an aggregate of 58,639 shares of common stock, which conversion will occur immediately prior to the completion of this offering.

After giving effect to the sale by us of              shares of common stock in this offering at the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2016 would have been $         million, or $         per share. This represents an immediate increase in pro forma net tangible book value of $         per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of $         per share to investors purchasing shares of common stock in this offering at the assumed initial public offering price. The following table illustrates this dilution:

 

Assumed initial public offering price per share

      $                

Pro forma net tangible book value per share as of March 31, 2016

   $                   

Increase in pro forma net tangible book value per share attributable to new investors in this offering

     
  

 

 

    

Pro forma as adjusted net tangible book value per share immediately after this offering

     
     

 

 

 

Dilution in pro forma net tangible book value per share to new investors in this offering

      $                
     

 

 

 

Each $1.00 increase or decrease in the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share to new investors by $        , and would increase or decrease, as applicable, dilution per share to new investors in this offering by $        , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase or decrease of 1.0 million shares in the number of shares offered by us would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share to new investors by $        , and would increase or decrease, as applicable, dilution per share to new investors in this offering by $        , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. In addition, to the extent any outstanding options to purchase common stock are exercised, new investors would experience further dilution. If the underwriters exercise their option to purchase additional shares from us in full, the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering would be $         per share, and the dilution in pro forma net tangible book value per share to new investors in this offering would be $         per share.

 

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The following table presents, on a pro forma as adjusted basis as of March 31, 2016, after giving effect to the conversion of all outstanding shares of convertible preferred stock into common stock immediately prior to the completion of this offering, the differences between the existing stockholders and the new investors purchasing shares of our common stock in this offering with respect to the number of shares purchased from us, the total consideration paid or to be paid to us, which includes net proceeds received from the issuance of common stock and convertible preferred stock, cash received from the exercise of stock options, and the average price per share paid or to be paid to us at an assumed offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

 

    

Shares Purchased

   

Total Consideration

   

Average Price

per Share

 
    

Number

  

Percent

   

Amount

    

Percent

   

Existing stockholders

               $                             $                

New investors

            
  

 

  

 

 

   

 

 

    

 

 

   

 

 

 

Totals

        100   $                      100   $                
  

 

  

 

 

   

 

 

    

 

 

   

 

 

 

Each $1.00 increase or decrease in the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the total consideration paid by new investors and total consideration paid by all stockholders by approximately $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. An increase or decrease of 1.0 million shares in the number of shares offered by us would increase or decrease, as applicable, the total consideration paid by new investors and total consideration paid by all stockholders by approximately $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. In addition, to the extent any outstanding options to purchase common stock are exercised, new investors will experience further dilution.

Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters’ option to purchase additional shares. If the underwriters exercise their option to purchase additional shares from us in full, the total consideration paid by new investors and total consideration paid by all stockholders would increase or decrease, as applicable, by approximately $         million, and our existing stockholders would own     % and our new investors would own     % of the total number of shares of our common stock outstanding upon the completion of this offering.

The number of shares of our common stock to be outstanding after this offering is based on the number of shares of our common stock outstanding as of March 31, 2016 and excludes:

 

                 shares of common stock issuable upon exercise of outstanding options as of March 31, 2016 at a weighted-average exercise price of $         per share;

 

                 shares of common stock issuable upon the vesting of restricted stock units outstanding as of March 31, 2016;

 

                 shares of our common stock reserved for issuance in connection with the exercise of our Common Warrants;

 

    884 shares of our common stock issuable upon the exercise of outstanding warrants, other than our Common Warrants, to purchase common stock; and

 

                 shares of our common stock reserved for future issuance under our 2015 Plan, and which contains provisions that automatically increase its share reserve each year.

 

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following selected consolidated statements of operations data for the three months ended March 31, 2016 and 2015 and the consolidated balance sheet data as of March 31, 2016 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. In our opinion, these unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with our audited financial statements and contain all adjustments, consisting only of a normal recurring nature, that are necessary for a fair presentation of such consolidated financial data. The consolidated statements of operations data for the years ended December 31, 2015, 2014 and 2013 and the consolidated balance sheet data as of December 31, 2015 and 2014 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future and the results in the three months ended March 31, 2016 are not necessarily indicative of results to be expected for the full year or any other period. The selected consolidated financial and other data in this section are not intended to replace the consolidated financial statements are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this prospectus and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements, related notes and other financial information included elsewhere in this prospectus.

 

    

Three Months Ended
March 31,

   

Year Ended December 31,

 
    

2016

   

2015

   

2015

   

2014

   

2013

 
    

(in thousands, except share and per share data)

 

Consolidated Statements of Operations Data:

          

Net sales

   $ 176,110      $ 95,589      $ 585,852      $ 320,747      $ 215,054   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of sales

     159,866        90,884        528,247        289,528        200,182   

Startup and transition costs

     3,306        4,154        15,860        16,567        6,607   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of goods sold

     163,172        95,038        544,107        306,095        206,789   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     12,938        551        41,745        14,652        8,265   

General and administrative expenses

     4,749        3,208        14,126        9,175        7,566   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     8,189        (2,657     27,619        5,477        699   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

          

Interest income

     21        59        161        186        155   

Interest expense

     (3,912     (3,551     (14,565     (7,236     (3,474

Loss on extinguishment of debt

     —          —          —          (2,946     —     

Realized gain (loss) on foreign currency remeasurement

     (439     163        (1,802     (1,743     (1,892

Miscellaneous income

     190        129        246        539        140   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

     (4,140     (3,200     (15,960     (11,200     (5,071
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     4,049        (5,857     11,659        (5,723     (4,372

Income tax benefit (provision)

     (2,303     120        (3,977     (925     3,346   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) before noncontrolling interest

     1,746        (5,737     7,682        (6,648     (1,026

Net loss attributable to noncontrolling interest (1)

     —          —          —          —          2,305   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     1,746        (5,737     7,682        (6,648     1,279   

Net income attributable to preferred shareholders (2)

     2,437        2,356        9,423        13,930        14,149   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common shareholders

   $ (691   $ (8,093   $ (1,741   $ (20,578   $ (12,870
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares outstanding, basic and diluted (3)

     11,774        11,774        11,774        11,774        11,774   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common share, basic and diluted (3)

   $ (59   $ (687   $ (148   $ (1,748   $ (1,093
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma weighted-average common shares outstanding, basic and diluted (unaudited)

          
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per common share, basic and diluted (unaudited)

          
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Three Months Ended
March 31,

   

Year Ended December 31,

 
    

2016

    

2015

   

2015

    

2014

    

2013

 
    

(in thousands, except other operating information)

 

Other Financial Information:

             

Total billings (4)

   $ 174,538       $ 117,090      $ 600,107       $ 362,749       $ 221,057   

EBITDA (4)

   $ 10,951       $ 36      $ 37,479       $ 8,768       $ 6,502   

Adjusted EBITDA (4)

   $ 11,390       $ (127   $ 39,281       $ 13,457       $ 8,430   

Capital expenditures

   $ 10,888       $ 10,605      $ 26,361       $ 18,924       $ 7,065   

Total debt, net of debt issuance costs and discount

   $ 131,163       $ 115,287      $ 129,346       $ 120,849       $ 36,562   

Net debt (4)

   $ 101,392       $ 98,070      $ 90,667       $ 87,547       $ 26,590   

Other Operating Information:

             

Sets (5)

     486         303        1,609         966         648   

Estimated megawatts (6)

     1,113         645        3,595         2,029         1,173   

Total manufacturing line capacity (7)

     32         30        32         30         16   

Dedicated manufacturing lines (8)

     38         29        34         29         16   

Manufacturing lines in startup (9)

     0         8        10         9         2   

Manufacturing lines in transition (10)

     3         4        11         8         2   

 

(1) We commenced operations in Turkey as a 75% owner in TPI Turkey in 2012 and in 2013, we became the sole owner of TPI Turkey with the acquisition of the remaining 25% interest.

 

(2) Represents the annual accrual of dividends on our convertible and senior redeemable preferred shares, the accretion to redemption amounts on our convertible preferred shares and warrant fair value adjustments.

 

(3) Since all the periods are net losses, the weighted-average common shares outstanding are the same under the basic and diluted per share calculations.

 

(4) See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics Used By Management to Measure Performance” for more information and the reconciliations of total billings, EBITDA, adjusted EBITDA and net debt to net sales, net income (loss), net income (loss) and total debt, net of debt issuance costs and discount, respectively, the most directly comparable financial measures calculated and presented in accordance with GAAP.

 

(5) Number of wind blade sets (which consist of three wind blades) invoiced worldwide. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics Used By Management to Measure Performance” for more information.

 

(6) Estimated megawatts of energy capacity to be generated by wind blade sets invoiced in the period. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics Used By Management to Measure Performance” for more information.

 

(7) Number of manufacturing lines our facilities can accommodate. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics Used By Management to Measure Performance” for more information.

 

(8) Number of manufacturing lines that are dedicated to our customers under long-term supply agreements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics Used By Management to Measure Performance” for more information. Dedicated manufacturing lines may be greater than total manufacturing line capacity in instances where we have signed new supply agreements for manufacturing facilities that are under construction or have not yet been built.

 

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(9) Number of manufacturing lines in a startup phase during the period. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics Used By Management to Measure Performance” for more information.

 

(10) Number of manufacturing lines that were being transitioned to a new wind blade model during the period. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics Used By Management to Measure Performance” for more information.

 

     March 31,
2016
     December 31,  
        2015     2014  
    

(in thousands)

 

Consolidated Balance Sheet Data:

       

Cash and cash equivalents

   $ 35,842       $ 45,917      $ 43,592   

Total assets

    
358,462
  
     329,920 (11)       277,960   

Total debt

     131,163         129,346 (11)       125,105   

Total liabilities

     348,640         322,287 (11)       275,704   

Total convertible and senior redeemable preferred shares and warrants

  

 

201,282

  

     198,830        189,349   

Total shareholders’ deficit

     (191,460      (191,197     (187,093

 

(11) Certain of the December 31, 2015 amounts have been reclassified to conform with the current year presentation. See Note 1 to our unaudited condensed consolidated financial statements.

 

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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 consolidated financial statements and the related notes and other financial information appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those described in or implied by these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly those under “Risk Factors.” Dollars in tabular format are presented in thousands, except as otherwise indicated.

OVERVIEW

Our Company

We are the largest U.S.-based independent manufacturer of composite wind blades. We enable many of the industry’s leading wind turbine OEMs, who have historically relied on in-house production, to outsource the manufacturing of some of their wind blades through our global footprint of advanced manufacturing facilities strategically located to serve large and growing wind markets in a cost-effective manner. Given the importance of wind energy capture, turbine reliability and cost to power producers, the size, quality and performance of wind blades have become highly strategic to our OEM customers. As a result, we have become a key supplier to our OEM customers in the manufacture of wind blades and related precision molding and assembly systems. We have entered into long-term supply agreements pursuant to which we dedicate capacity at our facilities to our customers in exchange for their commitment to purchase minimum annual volumes of wind blade sets, which consist of three wind blades. As of March 31, 2016, our long-term supply agreements provide for minimum aggregate volume commitments from our customers of $1.5 billion and encourage our customers to purchase additional volume up to, in the aggregate, a total contract value of over $3.0 billion through the end of 2021. This collaborative dedicated supplier model provides us with contracted volumes that generate significant revenue visibility, drive capital efficiency and allow us to produce wind blades at a lower total delivered cost, while ensuring critical dedicated capacity for our customers. Our wind blade and precision molding and assembly systems manufacturing businesses accounted for over 99%, over 99%, 99% and 97% of our total net sales in the three months ended March 31, 2016 and in the years ended December 31, 2015, 2014 and 2013, respectively. In recent years, we have experienced significant growth in our OEM customer base, as according to data from MAKE, our OEM customers collectively accounted for approximately 32% of the global onshore wind energy market and approximately 56% of that market excluding China over the three years ended December 31, 2015, based on MWs of energy capacity installed. Additionally, our customers represented 82% of the U.S. onshore wind turbine market over the three years ended December 31, 2015, based on MWs of energy capacity installed. We believe this figure demonstrates the leading position of our existing OEM customers, as well as our opportunity to develop relationships with new OEM customers as additional OEMs seek to capitalize on the benefits of outsourced wind blade manufacturing while maintaining high quality customization and dedicated capacity. We believe that these trends will help us to strengthen our current customer base, grow our business worldwide, increase our revenue and improve our business prospects.

We divide our business operations into four geographic operating segments—the United States, Asia, Mexico and Europe, the Middle East and Africa, or EMEA, as follows:

 

    Our U.S. segment includes (1) the manufacturing of wind blades at our Newton, Iowa plant, (2) the manufacturing of precision molding and assembly systems used for the manufacture of wind blades in our Warren, Rhode Island facility, (3) the manufacturing of composite solutions for the transportation industry, which we also conduct in our Rhode Island and Massachusetts facilities and (4) our corporate headquarters, the costs of which are included in general and administrative expenses.

 

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    Our Asia segment includes (1) the manufacturing of wind blades in facilities in Taicang Port, China and two in Dafeng, China (including one that commenced operations in February 2015), (2) the manufacturing of precision molding and assembly systems in our Taicang City, China facility, (3) the manufacture of components in our second Taicang Port, China facility and (4) wind blade inspection and repair services.

 

    Our Mexico segment manufactures wind blades from a facility in Juárez, Mexico that we opened in late 2013 and where we began production in January 2014. We have entered into a new lease agreement with a third party for a new manufacturing facility in Juárez, Mexico, and we expect to commence operations at this new facility in the second half of 2016.

 

    Our EMEA segment manufactures wind blades from a facility in Izmir, Turkey. We entered into a joint venture with ALKE Insaat Sanayive Ticaret A.S. (ALKE) in March 2012 to begin producing wind blades in Turkey and in December 2013, we became the sole owner of the Turkey operation by acquiring the remaining 25% interest previously owned by ALKE. We have entered into a new lease agreement with a third party for a new manufacturing facility in Izmir, Turkey, and we expect to commence operations at this new facility in the second half of 2016.

Key Trends Affecting our Business

We have identified the following material trends affecting our business:

 

    The wind power generation industry has grown rapidly and expanded worldwide over the last five years to meet high global demand for electricity and the expanded use of renewable energy. Our sales of wind blades to our wind turbine customers have grown rapidly over the last several years in response to these trends. In that time, we have entered into long-term supply agreements with customers in the United States, China, Mexico and Turkey with terms that range from three to five years. We expect these growth trends to continue for the foreseeable future.

 

    We believe that recent U.S. and global policy initiatives aimed at reducing fossil fuel consumption through the expansion of renewable energy, coupled with corporate commitments to cost-effective environmentally and socially responsible electricity consumption, will drive additional growth in the wind power generation industry. In 2015, U.S. corporate, non-profit and government entities procured an aggregate of 2.4 GWs of wind capacity via power purchase agreements, which represents an increase of 12 times since 2008, according to BNEF. The Paris Agreement, the EPA’s Clean Power Plan and the long-term extension of the PTC are all recent examples of policies that promote the growth of renewable energy.

 

    Wind turbine OEMs are increasingly outsourcing the production of wind blades and other key components to specialized manufacturers to meet this increasing global demand for wind energy in a cost-effective manner in new and growing markets. That shift, together with the overall expansion of the wind power generation industry, has increased our addressable market. As a result, we have hired more than 3,400 additional new employees since the beginning of 2014 and have expanded our customer base from one OEM customer to four OEM customers over the last two years in response to the growth and expansion of the wind energy generation industry generally as well as the specific trend of wind turbine OEMs increasing the outsourcing of the manufacturing of wind blades.

 

    We expect that a substantial portion of our future revenue growth will be derived from our international operations. We have expanded our manufacturing facilities internationally over the last several years, including opening facilities in China, Mexico and Turkey, to meet the needs of our customers. We have entered into lease agreements with third parties to lease new manufacturing facilities in Mexico and Turkey, and we expect to commence operations at these new facilities in the second half of 2016. The portion of our net sales that were derived from our international operations decreased to 71% for the three months ended March 31, 2016 from 74% for the year
  ended December 31, 2015, 55% for the year ended December 31, 2014 and 25% for the year ended December 31, 2013. We believe we will continue to derive a substantial and growing portion of our future revenue growth from our international operations.

 

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    Our long-term supply agreements with our customers generally encourage our customers to maximize the volume of wind blades they purchase from us, since purchasing less than a specified amount triggers higher pricing, as well as provide downside protection for us through minimum annual volume commitments. Some of our long-term supply agreements also provide for annual sales price reductions reflecting assumptions regarding increases in our manufacturing productivity. We work to continue to drive down the cost of materials and production through innovation and global sourcing, the benefit of which we share with our customers contractually, further strengthening our deep customer relationships. Wind blade pricing is based on annual commitments of volume as established in the customer’s contract, with orders less than committed volume resulting in additional costs per wind blade to customers. Orders in excess of annual commitments may but generally do not result in discounts to customers from the contracted price for the committed volume. Customers may utilize early payment discounts, which are reported as a reduction of revenue at the time the discount is taken.

 

    The long-term supply agreements we sign with our customers provide us with significant visibility of future production demands due in part to the annual minimum purchase commitments of our customers contained in those agreements. These annual minimum purchase commitments generally require our customers to purchase a negotiated percentage of the manufacturing capacity that we have agreed to dedicate to them. Generally, this percentage begins at 100% of the manufacturing capacity that we have dedicated to a particular customer for the first few years of the supply agreement, and the percentage declines over time in subsequent years according to the terms of the agreement, but generally remains above 50%. It is our experience that our customers will generally order wind blades from us in a volume that exceeds (sometimes substantially) the annual minimum purchase commitments contained in our supply agreements, particularly in the later years of a supply agreement when the annual minimum purchase commitment percentage declines. As of March 31, 2016, our long-term supply agreements provide for estimated minimum aggregate purchase commitments from our customers of $1.5 billion and encourage our customers to purchase additional volume up to, in the aggregate, an estimated total contract value of over $3.0 billion through the end of 2021. As noted elsewhere in this prospectus, some of our long-term supply agreements, including some of those with our majority customer, are subject to termination by our customers on short notice or, in one instance, no advance notice. We caution investors that the annual minimum purchase commitments in our long-term supply agreements can understate the actual net sales that we are likely to generate in a given period or periods if all of our long-term supply agreements remain in place and pricing remains materially unchanged, and they could potentially overstate the actual net sales that we are likely to generate in a given period or periods if one or more of our agreements were to be terminated by our customers for any reason. See “Business—Wind Blade Long-Term Supply Agreements” for additional information.

 

    We expect our new manufacturing facilities to generate operating losses in their first 12 to 24 months of operations due to startup costs and expenses as they initially operate far below capacity during the pre-production and production ramp up periods. As a result, this generally has a negative impact on our results of operations during these ramp-up periods. These losses include initial operating losses and pre-production expenses such as the selection of the plant site, infrastructure investment, build-out cost, customer qualification and associated legal, regulatory and personnel costs. In addition, construction of new facilities and expansion of existing facilities, including the fabrication of precision molding and assembly systems to outfit those facilities, is complex and involves inherent risks. For planning purposes, we generally estimate that the startup of a new six-line manufacturing facility requires cash for net operating expenses and working capital of between $15 million to $25 million. We also estimate that additional capital expenditures primarily related to machinery and equipment for new facilities or facility expansions of between $15 million and $25 million will be required.

 

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    We recently extended our long-term supply agreements with GE Wind and entered into new or amended supply agreements with several other customers that increase the number of manufacturing lines dedicated to these customers as well as the aggregate minimum volume purchase commitments of our customers. We are in the process of establishing new manufacturing facilities in Turkey and Mexico and expanding certain of our existing manufacturing facilities to meet this demand. For the reasons described in the preceding bullet, we believe that over the first 12 to 24 months of operations of these new manufacturing facilities in Turkey and Mexico, these facilities are likely to generate operating losses during pre-production and production ramp-up periods, which are likely to have a negative overall effect on our consolidated net income (loss) and adjusted EBITDA. However, over the longer term, and once these new manufacturing facilities and new manufacturing lines are operating at capacity, we expect this expansion in lines, facilities and purchase commitments to have a positive overall effect on our consolidated net income (loss) and adjusted EBITDA in future periods.

 

    Changing customer demands, including shifts to bigger wind turbines with larger wind blades, have driven some of our customers to require us to transition to new wind blade models one or two times during the term of a long-term supply agreement. Although we do receive transition payments to compensate us for the costs of the impact of reduced volumes during these transitions, these payments may not always fully cover the transition costs and lost margin. As a result, these transitions have and may continue to have a short-term, negative impact on our consolidated operating results and cash flows. However, our precision molding and assembly manufacturing business increases as we transition to larger wind blade models and larger wind blades generally have a higher average selling price, so that the transition to larger wind blades may increase our net sales over time. As we transition to new wind blade models, we also often extend our existing supply agreements.

 

    As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and The NASDAQ Global Market, impose various requirements on public companies, including requiring establishment and maintenance of effective disclosure controls and internal control over financial reporting and changes in corporate governance practices. We estimate that we will incur approximately $2.5 million to $3.0 million in expenses annually in response to these requirements.

COMPONENTS OF RESULTS OF OPERATIONS

Net Sales

Net sales reflect sales of our products, including wind blades, precision molding and assembly systems and transportation products, as well as transition revenue received. Several factors affect net sales in any period, including customer demand, wind blade model transitions, general economic conditions and weather conditions. We currently derive an immaterial amount of net sales from our transportation business. Under GAAP, we do not recognize revenue on our wind blade sales until the wind blades have been delivered to our customers. Under our long-term supply agreements with our customers, we invoice our customers for wind blades once the blades pass certain acceptance procedures and title passes to our customers. Our customers generally pay us for the wind blades between 15 to 65 days after receipt of the invoice based on negotiated payment terms. However, in many cases, our customers request that we store their wind blades until they are ready to assemble wind turbines at a particular wind farm project. We have no control over when our customers decide to ship wind blades from our storage sites, and in some cases, our customers have stored large numbers of their wind blades at our sites for six months or more. Even if the customer has paid us for the wind blades and title has passed to the customer, we do not recognize revenue for these wind blades until the wind blades are delivered. Instead, these transactions are recorded as deferred revenue in our consolidated financial statements.

 

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Cost of Goods Sold

Cost of goods sold includes the costs associated with products invoiced during the period as well as unallocated manufacturing overhead costs associated with startup and transition costs. Cost of sales includes all costs incurred at our production facilities to make products saleable, such as raw materials, direct labor and indirect labor and facilities costs, including purchasing and receiving costs, plant management, inspection costs, product engineering and internal transfer costs. In addition, all depreciation associated with assets used to produce composite products and make them saleable is included in cost of sales. Direct labor costs consist of salaries, benefits and other personnel related costs for employees engaged in the manufacture of our products.

Startup costs represent the unallocated overhead related to both new manufacturing facilities as well as new lines in existing manufacturing facilities. Transition costs represent the unallocated overhead related to the transition of wind blade models at the request of our customers. The startup and transition costs are primarily fixed overhead costs incurred during the period production facilities are under-utilized while transitioning wind blade models and ramping up manufacturing, that are not allocated to products and are expensed as incurred. The cost of sales for the initial wind blades from a new model manufacturing line is generally higher than when the line is operating at optimal production volume levels due to inefficiencies during ramp-up related to labor hours per blade, cycle times per blade and raw material usage. Additionally, manufacturing overhead as a percentage of net sales is generally higher during the period in which a facility is ramping up to full production capacity due to underutilization of the facility. Manufacturing overhead at each of our facilities includes virtually all indirect costs (including share-based compensation costs) incurred at the plants, including engineering, finance, information technology, human resources and plant management.

General and Administrative Expenses

General and administrative expenses are primarily incurred at our corporate headquarters and our research facilities and include salaries, benefits and other personnel related costs for employees engaged in research and development, engineering, finance, information technology, human resources, marketing and executive management. Other costs include outside legal and accounting fees, risk management (insurance), global operational excellence, global supply chain, in-house legal, share-based compensation and certain other administrative and global resources costs.

For the three months ended March 31, 2016 and 2015 and for the years ended December 31, 2015, 2014 and 2013, our research and development expenses (included in general and administrative expenses) totaled $0.3 million, $0.2 million, $0.9 million, $0.8 million and $0.6 million, respectively.

Other Income (Expense)

Other income (expense) consists primarily of interest expense on our credit facilities and the amortization of deferred financing costs and beneficial conversion features related to debt borrowings. Other income (expense) also includes realized gains and losses on foreign currency remeasurement, interest income and miscellaneous income and expense. During the year ended December 31, 2014, we incurred a $2.9 million loss on the extinguishment of our senior term loan. This loss included prepayment penalties, an end of term fee and the write off of the remaining debt issuance costs under our senior term loan.

Income Tax Benefit (Provision)

Income tax benefit (provision) consists of federal, state, provincial, local and foreign taxes based on income in jurisdictions in which we operate, including in the United States, China, Mexico and Turkey. The composite income tax rate, tax provisions, deferred tax assets and deferred tax liabilities vary according to the jurisdiction in which the income (loss) arises. Tax laws are complex and subject to different interpretations by management and the respective governmental taxing authorities, and require us to exercise judgment in determining our income tax provision, our deferred tax assets and liabilities and the valuation allowance recorded against our net deferred tax assets.

 

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Net Loss Attributable to Noncontrolling Interest

From the time we began operations in Turkey in March 2012 through December 2013, we had minority shareholders who owned 25% of TPI Turkey. We purchased that 25% ownership interest in December 2013 and now own 100% of TPI Turkey. Net loss attributable to noncontrolling interest reflects the portion of our overall net income or loss that is attributable to this noncontrolling interest through the date we acquired 100% of the Turkey operation. The remaining balance equates to the net income or loss.

Net Income Attributable to Preferred Shareholders

Net income attributable to preferred shareholders relates to the annual accrual of dividends on our convertible and senior redeemable preferred shares and the accretion to redemption amounts on our convertible preferred shares and warrant fair value adjustment. Effective upon the closing of this offering, our preferred shares will be converted into shares of our common stock and as a result, the accrual of dividends on our preferred shares will cease.

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 the performance of our company. The “non-GAAP” financial measures consist of total billings, EBITDA, adjusted EBITDA and net 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 invoiced, estimated MWs of energy capacity for wind blades invoiced, total manufacturing line capacity, manufacturing lines dedicated to customers under long-term supply agreements, manufacturing lines in startup and manufacturing lines in transition, which help us evaluate our operational performance. We believe that these measures are useful to investors in evaluating our performance.

Key Financial Measures

 

     Three Months Ended
March 31,
    Year Ended
December 31,
 

(in thousands)

   2016      2015     2015      2014     2013  

Net sales

   $ 176,110       $ 95,589      $ 585,852       $ 320,747      $ 215,054   

Total billings (1)

   $ 174,538       $ 117,090      $ 600,107       $ 362,749      $ 221,057   

Net income (loss)

   $ 1,746       $ (5,737   $ 7,682       $ (6,648   $ 1,279   

EBITDA (1)

   $ 10,951       $ 36      $ 37,479       $ 8,768      $ 6,502   

Adjusted EBITDA (1)

   $ 11,390       $ (127   $ 39,281       $ 13,457      $ 8,430   

Capital expenditures

   $ 10,888       $ 10,605      $ 26,361       $ 18,924      $ 7,065   

Total debt, net of debt issuance costs and discount

   $ 131,163       $ 115,287      $ 129,346       $ 120,849      $ 36,562   

Net debt (1)

   $ 101,392       $ 98,070      $ 90,667       $ 87,547      $ 26,590   

Key Operating Metrics

 

     Three Months Ended
March 31,
     Year Ended
December 31,
 
     2016      2015      2015      2014      2013  

Sets (2)

     486         303         1,609         966         648   

Estimated megawatts (3)

     1,113         645         3,595         2,029         1,173   

Total manufacturing line capacity (4)

     32         30         32         30         16   

Dedicated manufacturing lines (5)

     38         29         34         29         16   

Manufacturing lines in startup (6)

     0         8         10         9         2   

Manufacturing lines in transition (7)

     3         4         11         8         2   

 

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(1) See below for more information and a reconciliation of total billings, EBITDA, adjusted EBITDA and net debt to net sales, net income (loss), net income (loss) and total debt, net of debt issuance costs and discount, respectively, the most directly comparable financial measures calculated and presented in accordance with GAAP.

 

(2) Number of wind blade sets (which consist of three wind blades) invoiced worldwide.

 

(3) Estimated megawatts of energy capacity to be generated by wind blade sets invoiced in the period.

 

(4) Number of manufacturing lines our facilities can accommodate.

 

(5) Number of manufacturing lines that are dedicated to our customers under long-term supply agreements. Dedicated manufacturing lines may be greater than total manufacturing line capacity in instances where we have signed new supply agreements for manufacturing facilities that are under construction or have not yet been built.

 

(6) Number of manufacturing lines in a startup phase during the period.

 

(7) Number of manufacturing lines that were being transitioned to a new wind blade model during the period.

Net sales and total billings

We define total billings, a non-GAAP financial measure, as the total amounts we have invoiced our customers for products and services for which we are entitled to payment under the terms of our long-term supply agreements or other contractual agreements. We monitor total billings, and believe it is useful to present to investors as a supplement to our GAAP measures, because we believe it more directly correlates to sales activity and operations based on the timing of actual transactions with our customers, which facilitates comparison of our performance between periods and provides a more timely indication of trends in sales. Under GAAP, we do not recognize revenue on our wind blade sales until the wind blades have been delivered to our customers. Under our long-term supply agreements with our customers, we invoice our customers for wind blades once the blades pass certain acceptance procedures and title passes to our customers. Our customers generally pay us for the wind blades between 15 to 65 days after receipt of the invoice based on negotiated payment terms. However, in many cases, our customers request that we store their wind blades until they are ready to assemble wind turbines at a particular wind farm project. We have no control over when our customers decide to ship wind blades from our storage sites, and in some cases, our customers have stored large numbers of their wind blades on our sites for six months or more. Even if the customer has paid us for the wind blades and title has passed to the customer, we do not recognize revenue for these wind blades until the wind blades are delivered. Instead, these transactions are recorded as deferred revenue in our consolidated financial statements. However, we are contractually entitled to payment for those wind blades and, accordingly, invoice them when the blades are placed in storage.

Our use of total billings has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

 

    Total billings includes wind blades that have not been delivered and for which we are responsible if damage occurs to them while we hold them; and

 

    Other companies, including companies in our industry, may define total billings differently, which reduces its usefulness as a comparative measure.

 

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EBITDA and Adjusted EBITDA

We define EBITDA, a non-GAAP financial measure, as net income or loss plus interest expense (net of interest income), income taxes and depreciation and amortization. We define adjusted EBITDA as EBITDA plus any share-based compensation expense, plus or minus any realized gains or losses from foreign currency remeasurement plus any losses on extinguishment of debt. Adjusted EBITDA is the primary metric used by our management and our board of directors to establish budgets and operational goals for managing our business and evaluating our performance. In addition, our Credit Facility contains minimum EBITDA (as defined in the Credit Facility) covenants with which we must comply. We monitor adjusted EBITDA as a supplement to our GAAP measures, and believe it is useful to present to investors, because we believe that it facilitates evaluation of our period-to-period operating performance by eliminating items that are not operational in nature, allowing comparison of our recurring core business operating results over multiple periods unaffected by differences in capital structure, capital investment cycles and fixed asset base. In addition, we believe adjusted EBITDA and similar measures are widely used by investors, securities analysts, ratings agencies, and other parties in evaluating companies in our industry as a measure of financial performance and debt-service capabilities.

Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

 

    adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

    adjusted EBITDA does not reflect our cash expenditures for capital equipment or other contractual commitments;

 

    adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness;

 

    adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;

 

    although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect capital expenditure requirements relating to the future need to augment or replace those assets;

 

    adjusted EBITDA does not reflect the realized gains or losses from foreign currency remeasurement in our international operations;

 

    adjusted EBITDA does not reflect share-based compensation expense on equity-based incentive awards to our officers, employees, directors and consultants;

 

    adjusted EBITDA does not reflect losses on extinguishment of debt relating to prepayment penalties, termination fees and the write off of the remaining debt discount and debt issuance costs upon the repayment or refinancing of our debt; and

 

    other companies, including companies in our industry, may calculate EBITDA and adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

In evaluating EBITDA and adjusted EBITDA, you should be aware that in the future, we will incur expenses similar to the adjustments in this presentation. Our presentations of EBITDA and adjusted EBITDA should not be construed as suggesting that our future results will be unaffected by these expenses or any unusual or non-recurring items. When evaluating our performance, you should consider EBITDA and adjusted EBITDA alongside other financial performance measures, including our net income (loss) and other GAAP measures.

 

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Net debt

We define net debt as the total principal amount of debt outstanding less unrestricted cash and cash equivalents. The total principal amount of debt outstanding is comprised of the long-term debt and current maturities of long-term debt as presented in our consolidated balance sheets adjusting for any debt issuance costs and discount. We believe that the presentation of net debt provides useful information to investors because our management reviews net debt as part of our oversight of overall liquidity, financial flexibility and leverage. Net debt is important when we consider opening new plants and expanding existing plants, as well as for capital expenditure requirements.

The following table reconciles our non-GAAP key financial measures to the most directly comparable GAAP measures:

 

    Three Months Ended
March 31,
    Year Ended December 31,  
    2016     2015     2015     2014     2013  
    (in thousands)  

Net sales

  $ 176,110      $ 95,589      $ 585,852      $ 320,747      $ 215,054   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in deferred revenue:

         

Blade-related deferred revenue at beginning of period (1)

    (65,520     (59,476     (59,476     (20,646     (16,730

Blade-related deferred revenue at end of period (1)

    65,027        76,534        65,520        59,476        20,646   

Foreign exchange impact (2)

    (1,079     4,443        8,211        3,172        2,087   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in deferred revenue

    (1,572     21,501        14,255        42,002        6,003   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total billings

  $ 174,538      $ 117,090      $ 600,107      $ 362,749      $ 221,057   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss )

  $ 1,746      $ (5,737   $ 7,682      $ (6,648   $ 1,279   

Adjustments:

         

Depreciation and amortization

    3,011        2,401        11,416        7,441        5,250   

Interest expense (net of interest income)

    3,891        3,492        14,404        7,050        3,319   

Income tax provision (benefit)

    2,303        (120     3,977        925        (3,346
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

    10,951        36        37,479        8,768        6,502   

Realized loss (gain) on foreign currency remeasurement

    439        (163     1,802        1,743        1,892   

Share-based compensation expense

    —          —          —          —          36   

Loss on extinguishment of debt

    —          —          —          2,946        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 11,390      $ (127   $ 39,281      $ 13,457      $ 8,430   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(1) Total billings is reconciled using the blade-related deferred revenue amounts at the beginning and the end of the period as follows:

 

    Three Months Ended
March 31,
    Year ended December 31,  
    2016     2015     2015     2014     2013  
   

(in thousands)

 

Blade-related deferred revenue at beginning of period

  $ 65,520      $ 59,476      $ 59,476      $ 20,646      $ 16,730   

Non-blade related deferred revenue at beginning of period

    —          —          —          757        1,512   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current and noncurrent deferred revenue at beginning of period

  $ 65,520      $ 59,476      $ 59,476      $ 21,403      $ 18,242   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Blade-related deferred revenue at end of period

  $ 65,027      $ 76,534      $ 65,520      $ 59,476      $ 20,646   

Non-blade related deferred revenue at end of period

    —          3,351        —          —          757   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current and noncurrent deferred revenue at end of period

  $ 65,027      $ 79,885      $ 65,520      $ 59,476      $ 21,403   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(2) Represents the effect of the difference the exchange rate used by our various foreign subsidiaries on the invoice date versus the exchange rate used at the period-end balance sheet date.

Net debt is reconciled as follows:

 

     March 31,     December 31,  
     2016     2015     2015     2014     2013  

Total debt, net of debt issuance costs and discount

   $ 131,163      $ 115,287      $ 129,346      $ 120,849      $ 36,562   

Add debt issuance costs

     3,808        3,995        4,220        4,256        1,425   

Add discount on debt

     2,263        5,350        3,018        6,034        358   

Less cash and cash equivalents

     (35,842     (26,562     (45,917     (43,592     (11,755
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net debt

   $ 101,392      $ 98,070      $ 90,667      $ 87,547      $ 26,590   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Key Operating Metrics

Key operating metrics consist of sets invoiced, estimated megawatts of energy capacity for wind blade sets invoiced, total manufacturing line capacity, dedicated manufacturing lines, manufacturing lines in startup and manufacturing lines in transition. Sets represents the number of wind blade sets, consisting of three wind blades each, that we invoiced worldwide during the period. We monitor sets and believe that presenting sets to investors is helpful because we believe that it is the most direct measurement of our manufacturing output during the period. Sets primarily impact net sales and total billings. Estimated megawatts are the energy capacity to be generated by wind blade sets sold in the period. Our estimate is based solely on name-plate capacity of the wind turbine on which our wind blades are expected to be installed. We monitor estimated megawatts and believe that presenting estimated megawatts to investors is helpful because we believe that it is a commonly followed measurement of energy capacity across our industry and provides an indication of our share of the overall wind blade market. Total manufacturing line capacity is the number of manufacturing lines our facilities can accommodate (but that may not yet have been installed). Dedicated manufacturing lines are the number of manufacturing lines that we have dedicated to our customers pursuant to our long-term supply agreements. We monitor total manufacturing line capacity and dedicated manufacturing lines and believe that presenting both of these metrics to investors is helpful because we believe that the number of dedicated manufacturing lines is the best indicator of demand for our wind blades from customers under our long-term supply agreements in any

 

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given period. Dedicated manufacturing lines primarily impacts our net sales and total billings. We also believe that total manufacturing line capacity together with dedicated manufacturing lines provide an understanding of additional capacity within an existing facility. Manufacturing lines in startup is the number of dedicated manufacturing lines that were in a startup phase during the pre-production and production ramp up period, pursuant to the opening of a new manufacturing facility, the expansion of an existing manufacturing facility or the addition of new manufacturing lines in an existing manufacturing facility. We monitor and present this metric because we believe it helps investors to better understand the impact of the startup phase of our new manufacturing facilities on our gross profit (loss) and net income (loss). Manufacturing lines in transition is the number of dedicated manufacturing lines that were being transitioned to a new wind blade model during the period. We monitor and present this metric because we believe it helps investors to better understand the impact of these transitions on our gross profit (loss) and net income (loss).

RESULTS OF OPERATIONS

Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015

The following table summarizes certain information relating to our operating results for the three months ended March 31, 2016 and 2015 that has been derived from our unaudited condensed consolidated financial statements.

 

     Three Months Ended
March 31,
 

(in thousands)

   2016      2015  

Net sales

   $ 176,110       $ 95,589   
  

 

 

    

 

 

 

Cost of sales

     159,866         90,884   

Startup and transition costs

     3,306         4,154   
  

 

 

    

 

 

 

Total cost of goods sold

     163,172         95,038   
  

 

 

    

 

 

 

Gross profit

     12,938         551   

General and administrative expenses

     4,749         3,208   
  

 

 

    

 

 

 

Income (loss) from operations

     8,189         (2,657

Other expense

     (4,140      (3,200
  

 

 

    

 

 

 

Income (loss) before income taxes

     4,049         (5,857

Income tax benefit (provision)

     (2,303      120   
  

 

 

    

 

 

 

Net income (loss)

     1,746         (5,737

Net income attributable to preferred shareholders

     2,437         2,356   
  

 

 

    

 

 

 

Net loss attributable to common shareholders

   $ (691    $ (8,093
  

 

 

    

 

 

 

 

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The following table summarizes certain information relating to our operating results as a percentage of total net sales.

 

     Three Months Ended
March 31,
 
         2016             2015      

Net sales

     100.0     100.0
  

 

 

   

 

 

 

Cost of sales

     90.8     95.1

Startup and transition costs

     1.9     4.3
  

 

 

   

 

 

 

Total cost of goods sold

     92.7     99.4
  

 

 

   

 

 

 

Gross profit

     7.3     0.6

General and administrative expenses

     2.7     3.4
  

 

 

   

 

 

 

Income (loss) from operations

     4.6     -2.8

Other expense

     -2.3     -3.3
  

 

 

   

 

 

 

Income (loss) before income taxes

     2.3     -6.1

Income tax benefit (provision)

     -1.3     0.1
  

 

 

   

 

 

 

Net income (loss)

     1.0     -6.0

Net income attributable to preferred shareholders

     1.4     2.5
  

 

 

   

 

 

 

Net loss attributable to common shareholders

     -0.4     -8.5
  

 

 

   

 

 

 

Net sales for the three months ended March 31, 2016 increased by $80.5 million or 84% to $176.1 million compared to $95.6 million in the same period in 2015. This was primarily driven by a 141% increase in the number of wind blades delivered in the three months ended March 31, 2016 compared to the same period in 2015. Net sales of wind blades were $164.7 million for the three months ended March 31, 2016 as compared to $78.6 million in the same period in 2015. These increases were primarily the result of additional wind blade volume in our plants in Mexico, China, Turkey and the U.S. Net sales from the manufacturing of precision molding and assembly systems during the three months ended March 31, 2016 decreased to $9.9 million from $17.0 million in the same period in 2015. This decrease was primarily the result of our customers not requiring precision molding and assembly systems from our China facility during the three months ended March 31, 2016. Total billings for the three months ended March 31, 2016 increased by $57.4 million or 49% to $174.5 million compared to $117.1 million in the same period in 2015. The impact of the strengthening of the U.S. dollar against the Euro at our Turkey operation on consolidated net sales and total billings for the three months ended March 31, 2016 was not significant compared to reductions of 4.2% and 4.4%, respectively, for the same period in 2015.

Total cost of goods sold for the three months ended March 31, 2016 was $163.2 million and included aggregate costs of $3.3 million related to startup costs in our new plants in Mexico and Turkey as well as the transition of wind blade models in our original plant in Mexico. This compares to total cost of goods sold for the three months ended March 31, 2015 of $95.0 million, including aggregate costs of $4.2 million related to the transition of wind blades in our U.S. plant and startup costs in Mexico and Dafeng, China. Cost of goods sold as a percentage of net sales of wind blades decreased by 9.9% in the three months ended March 31, 2016 as compared to the same period in 2015, driven by improved operating efficiency in China, Mexico and the U.S., which was partially offset by higher operating costs in our Turkey plant due to increased warranty costs. Cost of goods sold as a percentage of net sales from the manufacturing of precision molding and assembly systems increased by 6.5% during the three months ended March 31, 2016 as compared to the same period in 2015. The impact of the strengthening of the U.S. dollar against the Euro at our Turkey operation reduced consolidated cost of goods sold by 1.9% for three months ended March 31, 2016, compared to a 3.1% reduction for the same period in 2015.

General and administrative expenses for the three months ended March 31, 2016 totaled $4.7 million as compared to $3.2 million for the same period in 2015. As a percentage of net sales, general and administrative expenses were 2.7% for the three months ended March 31, 2016, down from 3.4% in the same period in 2015. The increased expenditures for general and administrative expenses were driven by the costs of enhancing our corporate support functions during this period of growth.

 

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Other expense increased to $4.1 million for the three months ended March 31, 2016 from $3.2 million for the same period in 2015. This was driven by higher interest expense from additional borrowings under our credit facilities to fund our growth initiatives, most notably our expansions and ramp-ups in Dafeng, China, Mexico and Turkey.

Income tax provision increased to $2.3 million for the three months ended March 31, 2016 from a benefit of $0.1 million for the same period in 2015. The increase was primarily due to the operating results in China and Mexico.

Net income for the three months ended March 31, 2016 was $1.7 million, as compared to a net loss of $5.7 million in the same period in 2015. The increase was primarily due to the reasons set forth above.

Net income attributable to preferred shareholders was $2.4 million during both the three months ended March 31, 2016 and 2015.

Net loss attributable to common shareholders was $0.7 million during the three months ended March 31, 2016, versus a loss of $8.1 million in the same period in 2015. This was primarily due to the increase in net income (loss) discussed above.

Segment Discussion

The following table summarizes our net sales and income (loss) from operations by our four geographic operating segments:

 

Net Sales

   Three Months Ended
March 31,
 

(in thousands)

   2016      2015  

U.S.

   $ 51,761       $ 37,376   

Asia

     64,352         28,005   

Mexico

     25,540         12,676   

EMEA

     34,457         17,532   
  

 

 

    

 

 

 

Total net sales

   $ 176,110       $ 95,589   
  

 

 

    

 

 

 

Income (Loss) from Operations

   Three Months Ended
March 31,
 

(in thousands)

   2016      2015  

U.S.

   $ (661    $ (2,222

Asia

     15,542         2,520   

Mexico

     967         (1,328

EMEA

     (7,659      (1,627
  

 

 

    

 

 

 

Income (loss) from operations

   $ 8,189       $ (2,657
  

 

 

    

 

 

 

U.S. Segment

Net sales in the three months ended March 31, 2016 were $51.8 million, up from $37.4 million in the same period in 2015. Net sales of wind blades were $40.3 million during the three months ended March 31, 2016 as compared to $29.0 million in the same period of 2015. The increase was driven by an increase in the number of wind blades delivered in the three months ended March 31, 2016 compared to the same period in 2015 due to the transition in 2015 to the production of larger wind blade models at our customer’s request. Net sales from the manufacturing of precision molding and assembly systems during the three months ended March 31, 2016 were $9.9 million compared to $8.4 million during the same period in 2015. This increase was primarily the result of model-specific tooling equipment manufactured in our Rhode Island facility as required by our customers due to the transition to larger wind blade models for use in our Mexico plant as well as for use at the plants of another U.S. wind blade manufacturer.

 

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The loss from operations for the three months ended March 31, 2016 was $0.7 million as compared to a loss of $2.2 million in the same period in 2015, primarily driven by increased wind blade and precision molding volume discussed above.

Asia Segment

Net sales in the three months ended March 31, 2016 were $64.4 million, up from $28.0 million in the same period in 2015. Net sales of wind blades were $64.4 million in the three months ended March 31, 2016 as compared to $19.4 million in the same period in 2015. The increase was the result of a 328% increase in the number of wind blades delivered during the three months ended March 31, 2016 compared to the same period in 2015, along with a change in the mix of wind blade models sold. This was primarily the result of the start of production for a new customer in our Dafeng facility during the latter half of 2015 as well as the addition of one manufacturing line for an existing customer. There were no net sales from the manufacturing of precision molding and assembly systems during the three months ended March 31, 2016 compared to $8.6 million in the same period in 2015. The 2015 sales were driven by demand from our customers for precision molding in the United States, China and Turkey that we manufactured in our Taicang City facility.

Income from operations in the Asia segment for the three months ended March 31, 2016 was $15.5 million as compared to $2.5 million in the same period in 2015. In addition to the factors noted above, this increase reflected continued increasing operational efficiencies and other improvements in our Taicang Port and Dafeng wind blade facilities relative to the same period in 2015.

Mexico Segment

The Mexico segment had net sales of $25.5 million in the three months ended March 31, 2016 as compared to $12.7 million in the same period in 2015, reflecting a 123% increase in wind blade volume, notwithstanding the transition to the production of a larger wind blade model at our customer’s request during the period. Net sales of wind blades represents the entirety of net sales in the Mexico segment in the 2016 and 2015 periods.

Income from operations in the Mexico segment for the three months ended March 31, 2016 was $1.0 million as compared to a loss of $1.3 million in the same period in 2015. The improvement was due to the increase in wind blade volume in 2016 compared to the same period in 2015, partially offset by costs to transition to a larger wind blade model as described above.

EMEA Segment

Net sales during the three months ended March 31, 2016 were $34.5 million, up from $17.5 million in the same period in 2015. The increase was driven by a 121% increase in wind blade volume and changes in our wind blade mix. Net sales of wind blades represents the entirety of net sales in the EMEA segment in 2016 and 2015.

The loss from operations in the EMEA segment for the three months ended March 31, 2016 was $7.7 million as compared to a loss of $1.6 million in the same period in 2015. The decline was driven by an increase in the warranty reserve. This was partially offset by the higher wind blade volume noted above and improved operating performance. The impact of the strengthening U.S. dollar against the Euro and Turkish Lira reduced net sales and costs of goods sold in the three months ended March 31, 2016 by 1.7% and 10.8%, respectively. This compares to a 23.6% and 15.5% impact on net sales and cost of goods sold, respectively, for the comparable 2015 period.

 

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Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

The following table summarizes certain information relating to our operating results for the years ended December 31, 2015 and 2014 that has been derived from our consolidated financial statements.

 

    

Year

Ended December 31,

 

(in thousands)

  

2015

    

2014

 

Net sales

   $ 585,852       $ 320,747   
  

 

 

    

 

 

 

Cost of sales

     528,247         289,528   

Startup and transition costs

     15,860         16,567   
  

 

 

    

 

 

 

Total cost of goods sold

     544,107         306,095   
  

 

 

    

 

 

 

Gross profit

     41,745         14,652   

General and administrative expenses

     14,126         9,175   
  

 

 

    

 

 

 

Income from operations

     27,619         5,477   

Other expense

     (15,960      (11,200
  

 

 

    

 

 

 

Income (loss) before income taxes

     11,659         (5,723

Income tax provision

     (3,977      (925
  

 

 

    

 

 

 

Net income (loss)

     7,682         (6,648

Net income attributable to preferred shareholders

     9,423         13,930   
  

 

 

    

 

 

 

Net loss attributable to common shareholders

   $ (1,741    $ (20,578
  

 

 

    

 

 

 

The following table summarizes certain information relating to our operating results as a percentage of total net sales.

 

     Year Ended December 31,  
       2015         2014    

Net sales

     100.0     100.0
  

 

 

   

 

 

 

Cost of sales

     90.2     90.2

Startup and transition costs

     2.7     5.2
  

 

 

   

 

 

 

Total cost of goods sold

     92.9     95.4
  

 

 

   

 

 

 

Gross profit

     7.1     4.6

General and administrative expenses

     2.4     2.9
  

 

 

   

 

 

 

Income from operations

     4.7     1.7

Other expense

     -2.7     -3.5
  

 

 

   

 

 

 

Income (loss) before income taxes

     2.0     -1.8

Income tax provision

     -0.7     -0.3
  

 

 

   

 

 

 

Net income (loss)

     1.3     -2.1

Net income attributable to preferred shareholders

     1.6     4.3
  

 

 

   

 

 

 

Net loss attributable to common shareholders

     -0.3     -6.4
  

 

 

   

 

 

 

Net sales for the year ended December 31, 2015 increased by $265.2 million or 83% to $585.9 million compared to $320.7 million in the same period in 2014. This was primarily driven by a 74% increase in the number of wind blades delivered in the year ended December 31, 2015 compared to the same period in 2014. Net sales of wind blades were $535.2 million for the year ended December 31, 2015 as compared to $293.0 million in the same period in 2014. These increases were primarily the result of additional wind blade volume in our plants in Mexico, China and Turkey, partially offset by lower volume in the U.S. Net sales from the manufacturing of precision

 

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molding and assembly systems during the year ended December 31, 2015 increased to $47.3 million from $25.8 million in the same period in 2014. This increase was a result of precision molding and assembly systems manufactured in the United States and Asia for use in our U.S., China and Mexico facilities. Total billings for the year ended December 31, 2015 increased by $237.3 million or 65% to $600.1 million compared to total billings of $362.8 million in the same period in 2014. The impact of the strengthening of the U.S. dollar against the Euro at our Turkey operation on consolidated net sales and total billings were reductions of 4.8% and 4.1%, respectively, for the year ended December 31, 2015, with no material impact in the same period in 2014.

Total cost of goods sold for the year ended December 31, 2015 was $544.1 million and included aggregate costs of $15.9 million related to startup costs in our Mexico and Dafeng, China plants as well as the transition of wind blade models across all of our plants. This compares to total cost of goods sold for the year ended December 31, 2014 of $306.1 million, including aggregate costs of $16.6 million related to the transition of wind blades in our U.S. plant and startup costs in Mexico, Turkey and Dafeng, China. Cost of goods sold as a percentage of net sales of wind blades decreased by 3% in the year ended December 31, 2015 as compared to the same period in 2014 driven by improved operating efficiency in Mexico and Turkey, which was partially offset by higher operating costs in our U.S. and China plants due to the transition to the production of larger wind blade models at our customer’s request. Cost of goods sold as a percentage of net sales from the manufacturing of precision molding and assembly systems decreased by 1% during the year ended December 31, 2015 as compared to the same period in 2014. Similar to the impact to net sales above, the impact of the strengthening of the U.S. dollar against the Euro reduced consolidated cost of goods sold at our Turkey operation by 4.7% for year ended December 31, 2015, compared to 1.8% in the same period in 2014.

General and administrative expenses for the year ended December 31, 2015 totaled $14.1 million as compared to $9.2 million for the same period in 2014. As a percentage of net sales, general and administrative expenses were 2.4% for the year ended December   31, 2015, down from 2.9% in the same period in 2014. The increased expenditures for general and administrative expenses were driven by the costs of enhancing our corporate support functions during this period of growth.

Other expense increased to $16.0 million for the year ended December   31, 2015 from $11.2 million for the same period in 2014. This was driven by higher interest expense from additional borrowings under our credit facilities to fund our growth initiatives, most notably our expansions and ramp-ups in Dafeng, China and Turkey. The increase also related to the amortization of the beneficial conversion feature on our Subordinated Convertible Promissory Notes during 2015.

Income tax provision increased to $4.0 million for the year ended December   31, 2015 from $0.9 million for the same period in 2014. The increase was primarily due to the operating results in China and Mexico.

Net income for the year ended December   31, 2015 was $7.7 million, as compared to a net loss of $6.6 million in the same period in 2014. The increase was primarily due to the reasons set forth above.

Net income attributable to preferred shareholders decreased to $9.4 million during the year ended December   31, 2015 from $13.9 million during the same period in 2014. This decrease was primarily due to the Series B, B-1 and C convertible preferred shares being fully accreted to their respective redemption amounts in 2014, partially offset by the normal period-over-period increase in the ongoing accrual of dividends.

Net loss attributable to common shareholders decreased to $1.7 million during the year ended December   31, 2015 from a loss of $20.6 million in the same period in 2014. This decrease was primarily due to the decrease in the net income attributable to preferred shareholders and net income (loss) discussed above.

 

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Segment Discussion

The following table summarizes our net sales and income from operations by our four geographic operating segments:

 

Net Sales

   Year Ended
December 31,
 

(in thousands)

   2015      2014  

U.S.

   $ 149,614       $ 145,691   

Asia

     206,779         79,325   

Mexico

     97,912         28,725   

EMEA

     131,547         67,006   
  

 

 

    

 

 

 

Total net sales

   $ 585,852       $ 320,747   
  

 

 

    

 

 

 

Income (Loss) from Operations

   Year Ended
December 31,
 

(in thousands)

   2015      2014  

U.S.

   $ (13,405    $ (1,199

Asia

     34,998         14,771   

Mexico

     7,531         (6,567

EMEA

     (1,505      (1,528
  

 

 

    

 

 

 

Income from operations

   $ 27,619       $ 5,477   
  

 

 

    

 

 

 

U.S. Segment

Net sales in the year ended December 31, 2015 were $149.6 million, up from $145.7 million in the same period in 2014. Net sales of wind blades were $122.4 million during the year ended December 31, 2015 as compared to $128.5 million in the same period of 2014. The decrease was driven by a reduction in the number of wind blades delivered in the year ended December 31, 2015 compared to the same period in 2014 due to the transition to the production of larger wind blade models at our customer’s request. Net sales from the manufacturing of precision molding and assembly systems during the year ended December 31, 2015 were $23.9 million compared to $15.3 million during the same period in 2014. This increase was primarily the result of model-specific tooling equipment manufactured in our Rhode Island facility as required by our customers due to the transition to larger wind blade models for use in the U.S. and Mexico facilities.

The loss from operations for the year ended December 31, 2015 was $13.4 million as compared to the loss from operations of $1.2 million in the same period in 2014, primarily driven by reduced wind blade volume discussed above as well as higher general and administrative expenses in the U.S., including at our headquarters, required to facilitate our growth worldwide.

Asia Segment

Net sales in the year ended December 31, 2015 were $206.8 million, up from $79.3 million in the same period in 2014. Net sales of wind blades were $183.4 million in the year ended December 31, 2015 as compared to $68.8 million in the same period in 2014. The increase was the result of a 160% increase in the number of wind blades delivered during the year ended December 31, 2015 compared to the same period in 2014, along with a change in the mix of wind blade models sold. This was primarily the result of the start of production for a new customer in our Dafeng facility during 2015 as well as the addition of one manufacturing line for an existing customer for a portion of the year. Net sales from the manufacturing of precision molding and assembly systems were $23.4 million during the year ended December 31, 2015 compared to $10.5 million in the same period in 2014. These sales were driven by demand from our customers for precision molding and assembly systems in the United States, China and Turkey that we manufactured in our Taicang City facility.

 

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Income from operations in the Asia segment for the year ended December 31, 2015 was $35.0 million as compared to $14.8 million in the same period in 2014. In addition to the factors noted above, this increase reflected continued increasing operational efficiencies and other improvements in our Taicang Port and Dafeng facilities relative to the prior period and the start of production for a new customer in our Dafeng facility.

Mexico Segment

The Mexico segment had net sales of $97.9 million in the year ended December 31, 2015 as compared to $28.7 million in the same period in 2014. This increase reflects the ramp-up of production in Mexico. Net sales of wind blades represents the entirety of net sales in the Mexico segment in 2015 and 2014.

Income from operations in the Mexico segment for the year ended December 31, 2015 was $7.5 million as compared to a loss of $6.6 million in the same period in 2014. The improvement was due to the increased production levels during the year ended December 31, 2015 approaching a normalized capacity, compared to the ramp up of production in the same period in 2014.

EMEA Segment

Net sales during the year ended December 31, 2015 were $131.5 million, up from $67.0 million in the same period in 2014. The increase was driven by a 104% increase in wind blade volume and changes in our wind blade mix, which resulted in a higher average sale price. Net sales of wind blades represents the entirety of net sales in the EMEA segment in 2015 and 2014.

The loss from operations in the EMEA segment for the years ended December 31, 2015 and 2014 were each $1.5 million. The higher wind blade volume and improved operating performance was more than offset by the impact of the strengthening of the U.S. dollar against the Euro and Turkish Lira in 2015. The impact of the strengthening U.S. dollar reduced net sales by 21.4% and cost of goods sold by 19.7%. The impact of the U.S. dollar against the Euro and Turkish Lira reduced net sales and cost of goods sold by 2.2% and 8.2%, respectively, in the comparable year ended December 31, 2014.

 

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RESULTS OF OPERATIONS

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

The following table summarizes certain information relating to our operating results for the year ended December 31, 2014 and 2013 that has been derived from our consolidated financial statements.

 

    

Year Ended

December 31,

 

(in thousands)

  

2014

    

2013

 

Net sales

   $ 320,747       $ 215,054   
  

 

 

    

 

 

 

Cost of sales

     289,528         200,182   

Startup and transition costs

     16,567         6,607   
  

 

 

    

 

 

 

Total cost of goods sold

     306,095         206,789   
  

 

 

    

 

 

 

Gross profit

     14,652         8,265   

General and administrative expenses

     9,175         7,566   
  

 

 

    

 

 

 

Income from operations

     5,477         699   

Other expense

     (11,200      (5,071
  

 

 

    

 

 

 

Loss before income taxes

     (5,723      (4,372

Income tax benefit (provision)

     (925 )        3,346   
  

 

 

    

 

 

 

Net loss before noncontrolling interest

     (6,648      (1,026

Net loss attributable to noncontrolling interest

     —           2,305   
  

 

 

    

 

 

 

Net income (loss)

     (6,648      1,279   

Net income attributable to preferred shareholders

     13,930         14,149   
  

 

 

    

 

 

 

Net loss attributable to common shareholders

   $ (20,578    $ (12,870
  

 

 

    

 

 

 

The following table summarizes certain information relating to our operating results as a percentage of total net sales.

 

    

Year Ended

December 31,

 
     2014     2013  

Net sales

     100.0     100.0
  

 

 

   

 

 

 

Cost of sales

     90.2     93.1

Startup and transition costs

     5.2     3.0
  

 

 

   

 

 

 

Total cost of goods sold

     95.4     96.1
  

 

 

   

 

 

 

Gross profit

     4.6     3.9

General and administrative expenses

     2.9     3.5
  

 

 

   

 

 

 

Income from operations

     1.7     0.4

Other expense

     -3.5     -2.4
  

 

 

   

 

 

 

Loss before income taxes

     -1.8     -2.0

Income tax benefit (provision)

     -0.3     1.5
  

 

 

   

 

 

 

Net loss before noncontrolling interest

     -2.1     -0.5

Net loss attributable to noncontrolling interest

     —          1.1
  

 

 

   

 

 

 

Net income (loss)

     -2.1     0.6

Net income attributable to preferred shareholders

     4.3     6.6
  

 

 

   

 

 

 

Net loss attributable to common shareholders

     -6.4     -6.0
  

 

 

   

 

 

 

 

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Net sales for the year ended December 31, 2014 increased by $105.7 million or 49% to $320.8 million compared to $215.1 million in 2013. This was primarily a result of a 31% increase in the number of wind blades delivered in 2014 compared to 2013. Net sales of wind blades were $293.0 million for the year ended December 31, 2014 as compared to $195.2 million in 2013. These increases were primarily the result of additional wind blade volume in our plants in China, Mexico and Turkey. Net sales from the manufacturing of precision molding and assembly systems during the year ended December 31, 2014 increased to $25.8 million from $14.1 million in the same period in 2013. This increase was a result of precision molding and assembly systems manufactured in the United States and Asia for use in our Iowa, Dafeng, China, Mexico and Turkey facilities. Total billings for the year ended December 31, 2014 increased by $141.7 million or 64% to $362.8 million compared to total billings of $221.1 million in 2013. The impact of the strengthening of the U.S. dollar against the Euro in our Turkey facility on net sales and total billings did not have a material impact in the 2014 or 2013 period.

Total cost of goods sold in 2014 was $306.1 million and included aggregate costs of $16.6 million related to the transition of wind blade models in our Iowa, Mexico and Turkey plants and startup costs related to our manufacturing facilities in Turkey, Mexico and Dafeng, China for the manufacturing of wind blades. This compares to total cost of goods sold in 2013 of $206.8 million including the transition of wind blades in Taicang Port, China and startup costs in Mexico and Turkey of $6.6 million. Cost of goods sold as a percentage of net sales of wind blades decreased by less than 1% in the year ended December 31, 2014 as compared to the same period in 2013 driven by improved operating efficiency in Turkey and Taicang Port, China, which was offset by the transition to the production of larger wind blade models at our customer’s request as well as from the startup costs related to our new plants in Dafeng, China and Mexico and our plant expansion in Turkey. Cost of goods sold as a percentage of net sales from the manufacturing of precision molding and assembly systems increased by 3% during the year ended December 31, 2014 as compared to the 2013 period. The impact of the strengthening of the U.S. dollar against the Euro on cost of goods sold was a reduction of 1.8% for the year ended December 31, 2014 with no material impact in the 2013 period.

General and administrative expenses for the year ended December 31, 2014 totaled $9.2 million as compared to $7.6 million for the same period in 2013. As a percentage of net sales, general and administrative expenses were 2.9% in 2014, down from 3.5% in the same period in 2013. The increased general and administrative expenses in absolute dollars were driven by the costs of enhancing our corporate support functions during this period of growth.

Other expense increased to $11.2 million in 2014 from $5.1 million in 2013. This increase was largely the result of the refinancing of a significant portion of our debt in the third quarter of 2014, for which we incurred prepayment penalties and an end of term fee and wrote off the remaining debt issuance costs that had been capitalized in connection with the refinanced debt. These amounts aggregated to $2.9 million. In addition, we incurred higher interest expense from additional borrowings under our credit facilities to fund our growth initiatives, most notably our expansions and ramp-ups in Dafeng, China, Mexico and Turkey.

Income tax provision for the year ended December 31, 2014 was $0.9 million compared to an income tax benefit of $3.3 million for the same period in 2013. These amounts reflect substantial net operating losses, resulting in relatively low income tax provisions in the United States.

Net loss attributable to noncontrolling interest for the year ended December 31, 2013 was $2.3 million with no comparable amount in 2014 as we purchased the minority interest in our Turkey operation in December 2013.

Net loss for 2014 was $6.6 million, as compared to net income of $1.3 million in the comparable period of 2013. The decrease was primarily due to the reasons set forth above.

 

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Net income attributable to preferred shareholders decreased to $13.9 million during the year ended December 31, 2014 from $14.1 million during 2013. This decrease was primarily due to the Series B, B-1 and C convertible preferred shares being fully accreted to their respective redemption amounts in 2014, mostly offset by the normal period-over-period increase in the accrual of ongoing dividends.

Net loss attributable to common shareholders increased to $20.6 million during the year ended December 31, 2014 from $12.9 million in 2013. This increase was due to the increase in the net loss discussed above.

Segment Discussion

The following table summarizes our net sales and income from operations by our four geographic operating segments:

 

Net Sales

  

Year Ended

December 31,

 

(in thousands)

  

2014

    

2013

 

U.S.

   $ 145,691       $ 160,600   

Asia

     79,325         37,045   

Mexico

     28,725         —    

EMEA

     67,006         17,409   
  

 

 

    

 

 

 

Total net sales

   $ 320,747       $ 215,054   
  

 

 

    

 

 

 

 

Income (Loss) from Operations

  

Year Ended

December 31,

 

(in thousands)

  

2014

    

2013

 

U.S.

   $ (1,199    $ 8,381   

Asia

     14,771         3,807   

Mexico

     (6,567      (2,870

EMEA

     (1,528      (8,619
  

 

 

    

 

 

 

Income from operations

   $ 5,477       $ 699   
  

 

 

    

 

 

 

U.S. Segment

Net sales in the year ended December 31, 2014 were $145.7 million, down from $160.6 million in the same period in 2013. Net sales of wind blades were $128.5 million during the year ended December 31, 2014 as compared to $143.4 million in the same period of 2013. The decrease was driven by a reduction in the number of blades delivered in 2014 compared to 2013 due to the transition to the production of larger wind blade models at our customer’s request. Net sales from the manufacturing of precision molding and assembly systems during the year ended December 31, 2014 was $15.3 million compared to $11.4 million during the same period of 2013. This increase was primarily the result of model-specific tooling equipment required by our customers for use in EMEA and Mexico that was manufactured in our Rhode Island facility.

The loss from operations for the year ended December 31, 2014 was $1.2 million as compared to income of $8.4 million in the 2013 period. The decrease was primarily the result of the reduced production volume mentioned above as well as higher consulting costs and increased general and administrative expenses required to facilitate our growth worldwide.

Asia Segment

Net sales in the year ended December 31, 2014 were $79.3 million, up from $37.0 million in the same period in 2013. Net sales of wind blades were $68.8 million in 2014 as compared to $34.3 million in 2013. The increase was the result of a 61% increase in the number of wind blades delivered during 2014 compared to 2013,

 

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along with a change in the mix of wind blade models sold. The increase was primarily the result of the start of production for a new customer in our Dafeng facility in December 2013, which led to a larger volume of wind blades being delivered in 2014. Net sales from the manufacturing of precision molding and assembly systems were $10.5 million during the year ended December 31, 2014 as compared to $2.7 million in 2013. These sales were driven by demand from our customers for precision molding and assembly systems in the United States, China, Mexico and Turkey that we manufactured in our Taicang City facility.

Income from operations in the Asia segment for the year ended December 31, 2014 was $14.8 million as compared to $3.8 million in the 2013 period. In addition to the factors noted above, this increase reflected the continued operational efficiencies and improvements in our Taicang Port facility and an efficient start of production of our Dafeng facility.

Mexico Segment

The Mexico segment had net sales of $28.7 million in the year ended December 31, 2014 with no comparable net sales in the 2013 period as the Juárez, Mexico facility opened in late 2013. Net sales of wind blades represented the entirety of net sales in the Mexico segment in 2014.

The loss from operations for the year ended December 31, 2014 was $6.6 million as compared to a loss of $2.9 million in the 2013 period. The increase was primarily the result of higher year-over-year personnel and training costs, raw material usage during the startup of operations along with higher manufacturing overhead as a percentage of net sales due to the underutilization of the facility while the manufacturing lines operate at less than full volume production levels.

EMEA Segment

Net sales during the year ended December 31, 2014 were $67.0 million, up from $17.4 million in the same period in 2013. The increase was driven by a 109% increase in wind blade volume and changes in our wind blade mix, whereby we produced a greater proportion of wind blades at a higher average sale price.

The EMEA segment incurred a loss from operations of $1.5 million in the year ended December 31, 2014 compared to a loss of $8.6 million in the same period in 2013. This was a result of improved operating performance on our manufacturing lines offset by the additional costs related to the start of production for one customer and the startup of new production lines for our other customer in Turkey. The impact of the strengthening of the U.S. dollar against the Euro and Turkish Lira on net sales and operating results was a reduction of 3.0% and 0.7%, respectively, for the year ended December 31, 2014. The impact for the comparable period in 2013 was not material.

LIQUIDITY AND CAPITAL RESOURCES

Our primary needs for liquidity have been, and in the future will continue to be, capital expenditures, new facility startup costs, working capital and debt service costs. 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 and proceeds received from our credit facilities and our preferred stock offerings, including $6.8 million of net proceeds from preferred stock offerings in the year ended December 31, 2014 (no preferred stock was offered during the years ended December 31, 2015 or 2013). We received net proceeds from financing arrangements and customer advances of $2.7 million for the three months ended March 31, 2016 as well as $1.6 million, $81.7 million and $15.4 million during the years ended December 31, 2015, 2014 and 2013, respectively. During the three months ended March 31, 2015, we had net repayments of debt of $5.9 million. As of March 31, 2016 and December 31, 2015, we had $137.2 million and $136.6 million in outstanding indebtedness, respectively, excluding debt issuance costs and debt discount. Additionally, as of March 31, 2016, we had a customer advance of $2.0 million outstanding, none of which was

 

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outstanding as of December 31, 2015. As of March 31, 2016, we had an aggregate of $30.5 million of remaining capacity and $27.3 million of availability under our various credit facilities. Working capital requirements have increased as a result of our overall growth and the need to fund higher accounts receivable and inventory levels as our business volumes have increased. Based upon current and anticipated levels of operations, we believe that cash on hand, available credit facilities and cash flow from operations will be adequate to fund our working capital and capital expenditure requirements and to make required payments of principal and interest on our indebtedness over the next twelve months. We anticipate that any new facilities and future facility expansions will be funded through the proceeds of this offering, the incurrence of other indebtedness and other potential sources of liquidity.

At March 31, 2016 and December 31, 2015, we had unrestricted cash, cash equivalents and short-term investments totaling $35.8 million and $45.9 million, respectively. The March 31, 2016 balances included $9.1 million of cash located outside of the United States, including $7.9 million in China, $0.8 million in Turkey and $0.4 million in Mexico. The December 31, 2015 balances included $12.7 million of cash located outside of the United States, including $5.3 million in China, $7.2 million in Turkey and $0.2 million in Mexico. Our ability to repatriate funds from China to the United States is subject to a number of restrictions imposed by the Chinese government. We repatriate funds through a Technology License Contract, a Services Agreement and dividends. Under the Technology License Contract, TPI Composites (Taicang) Co, Ltd., or TPI Taicang, is required to pay TPI Technology, Inc., our wholly-owned subsidiary, 4.9% of its net sales for the use of an exclusive and non-transferable license to use Technical Information, as defined in the Technology License Contract, to produce products at its facilities. Under the Services Agreement, we provide (i) accounting and financial advisory services, (ii) environmental and EHS programs, (iii) information technology and data services, (iv) global sourcing and procurement services and (v) engineering and development services to TPI Taicang. We are compensated quarterly based on agreed upon hourly rates for those services. Certain of our subsidiaries are limited in their ability to declare dividends without first meeting statutory restrictions of the People’s Republic of China, including retained earnings as determined under Chinese-statutory accounting requirements. Additionally, under the terms of our credit agreement with the Bank of China, we are required to obtain its approval to pay dividends and have a current ratio of not less than one. Until 50% ($5.2 million) of registered capital is contributed to a surplus reserve, our Chinese operations can only pay dividends equal to 90% of after-tax profits (10% must be contributed to the surplus reserve). Once the surplus reserve fund requirement is met, we can pay dividends equal to 100% of after-tax profit assuming other conditions are met. At December 31, 2015, the amount of surplus reserve fund was $2.9 million.

Operating Cash Flows

 

     Three Months Ended
March 31,
   

Year Ended December 31,

 
(in thousands)    2016     2015      2015        2014       2013   

Net income (loss)

   $ 1,746      $ (5,737   $ 7,682       $ (6,648   $ (1,026

Depreciation and amortization

     3,011        2,401        11,416         7,441        5,250   

Other non-cash items

     1,167        996        3,741         2,995        2,122   

Changes in assets and liabilities

     (7,063     3,169        8,454         (37,005     (4,719
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net cash provided by (used in) operating activities

   $ (1,139   $ 829      $ 31,293       $ (33,217   $ 1,627   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net cash used in operating activities totaled $1.1 million for the three months ended March 31, 2016 and was primarily the result of net changes in working capital, mostly offset by net income for the period of $1.7 million and non-cash depreciation and amortization of $3.0 million. The key components of the $7.1 million decrease in working capital include a $14.1 million increase in accounts receivable, an $8.3 million increase in prepaid expenses and other current assets, a $5.3 million increase in inventory and a $3.0 million increase in other noncurrent assets. This was partially offset by a $14.3 million increase in accrued warranty, a $6.8 million increase in accounts payable and accrued expenses, and a $2.5 million increase in customer deposits. The

 

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working capital changes in accounts receivable, inventory, accounts payable and accrued expenses and deferred revenue are primarily the result of the material increase in and the timing of sales in the three months ended March 31, 2016.

Net cash provided by operating activities totaled $0.8 million for the three months ended March 31, 2015 and was primarily the result of net changes in working capital and the net loss for the period of $5.7 million, partly offset by non-cash depreciation and amortization charges totaling $2.4 million. The key components of the $3.2 million increase in working capital include a $20.4 million increase in deferred revenue and a $10.2 million increase in accounts payable and accrued expenses, offset by a $13.5 million increase in inventory, a $5.3 million increase in prepaid expenses and other current assets, a $4.1 million decrease in customer deposits and a $3.8 million increase in accounts receivable. The working capital changes in accounts receivable, inventory, accounts payable and accrued expenses and deferred revenue are primarily the result of the material increase in and the timing of sales in the three months ended March 31, 2015.

Net cash provided by operating activities totaled $31.3 million for the year ended December 31, 2015 and was primarily the result of non-cash depreciation and amortization charges totaling $11.4 million and other non-cash items of $3.7 million, as well as net income of $7.7 million and net changes in working capital. The key components of the $8.5 million increase in working capital includes a $34.4 million increase in accounts payable and accrued expenses, a $7.7 million increase in accrued warranty, a $6.0 million increase in deferred revenue and a $4.2 million decrease in other noncurrent assets. This was partially offset by a $29.7 million increase in accounts receivable, an $11.0 million increase in prepaid expenses and other current assets and a $3.2 million decrease in customer deposits. The working capital changes in accounts receivable, inventory, accounts payable and accrued expenses and deferred revenue are primarily the result of the material increase in and the timing of sales in the year ended December 31, 2015.

Net cash used in operating activities totaled $33.2 million for the year ended December 31, 2014. This cash usage was primarily the result of net changes in working capital and the net loss for the year ended December 31, 2014 of $6.6 million, partly offset by non-cash depreciation and amortization of $7.4 million. The key components of the working capital changes include a $60.3 million increase in inventory, a $31.7 million increase in accounts receivable and a $9.2 million increase in prepaid expenses and other current assets, partially reduced by $38.3 million increase in deferred revenue and a $26.1 million increase in accounts payable and accrued expenses. The working capital changes in accounts receivable, inventory, accounts payable and accrued expenses and deferred revenue are primarily the result of the material increase in and the timing of sales in the year ended December 31, 2014.

Net cash provided by operating activities totaled $1.6 million in the year ended December 31, 2013. This cash inflow was primarily the result of non-cash depreciation and amortization charges of $5.3 million, mostly offset by net unfavorable changes in working capital and a net loss for the year ended December 31, 2013 of $1.0 million. The key components of the working capital change included a $9.8 million increase in inventory, a $6.4 million increase in accounts receivable and a $6.1 million increase in prepaid expenses and other current assets, partially offset by a $10.8 million increase in accounts payable and accrued expenses and a $9.3 million increase in customer deposits. The working capital changes in accounts receivable, inventory and accounts payable and accrued expenses are primarily the result of the material increase in and the timing of sales in the year ended December 31, 2013.

 

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Investing Cash Flows

 

     Three Months
Ended March 31,
    Year Ended December 31,  
(in thousands)    2016     2015     2015     2014     2013  

Purchase of property and equipment

   $ (10,888   $ (10,605   $ (26,361   $ (18,924   $ (7,065

Contribution to joint venture

     —          —          —          —          (84

Proceeds from sale of assets

     —          —          146        —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

   $ (10,888   $ (10,605   $ (26,215   $ (18,924   $ (7,149
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash flows used in investing activities totaled $10.9 million and $10.6 million for the three months ended March 31, 2016 and 2015, respectively, as well as $26.2 million, $18.9 million and $7.1 million in the years ended December 31, 2015, 2014 and 2013, respectively, driven primarily by capital expenditures for new facilities and expansion or improvements at existing facilities. The capital expenditures for the three months ended March 31, 2016 primarily related to the construction of our second wind blade plants in Mexico and Turkey as well as the expansion of our original wind blade facilities in Mexico and Turkey. The capital expenditures for the three months ended March 31, 2015 primarily related to the expansion of our China and Iowa wind blade facilities. The capital expenditures for the year ended December 31, 2015 primarily related to the expansion of our China and Iowa wind blade facilities. For the years ended December 31, 2014 and 2013, the capital expenditures were primarily for the Turkey, Mexico and China plant build outs.

We anticipate fiscal year 2016 capital expenditures of approximately $60 million. We estimate that the cost after March 31, 2016 that we will incur to complete our current projects in process is approximately $9.1 million. We have used and will continue to use proceeds obtained prior to this offering for major projects currently being undertaken, which include new manufacturing facilities in Mexico and Turkey as well as continued investment in existing China and Turkey wind blade facilities.

Financing Cash Flows

 

     Three Months
Ended March 31,
    Year Ended December 31,  

(in thousands)

   2016     2015     2015     2014     2013  

Net proceeds from term loans

   $     —        $     —        $ 19,375      $ 23,901      $ 14,797   

Net proceeds from (repayments of) accounts receivable financing

  

 

6,800

  

    (6,144     (2,472     34,450        2,183   

Net proceeds from (repayments of) working capital loans

     (4,958     (71     (12,572     5,999        3,393   

Proceeds from subordinated debt arrangements

     —          —          —          15,000        —     

Net proceeds from (repayments of) other debt

     (1,192     348        (2,777     (2,130     40   

Net proceeds from (repayments of) customer advances

     2,000        —          —          4,500        (5,007

Proceeds from issuance of preferred stock

     —          —          —          6,846        —     

Debt issuance costs

     —          —          (1,113     (4,818     (1,154

Restricted cash and other

     (647     (1,301     (2,864     273        (1,304
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

   $ 2,003        (7,168   $ (2,423   $ 84,021      $ 12,948   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The net cash flows provided by financing activities totaled $2.0 million for the three months ended March 31, 2016 and $84.0 million and $12.9 million for the years ended December 31, 2014 and 2013, respectively. Net cash flows used in financing activities for the year ended December 31, 2015 and three months ended March 31, 2015 totaled $2.4 million and $7.2 million, respectively. The net cash flows provided by financing activities of $2.0 million for the three months ended March 31, 2016 primarily related to the proceeds

 

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of a customer advance. The net cash flows used in financing activities of $7.2 million for the three months ended March 31, 2015 was primarily the result of the repayment of accounts receivable loans. Net cash flows used in financing activities for the year ended December 31, 2015 primarily reflects the net repayments of working capital loans and accounts receivable loans as well as payments related to the acquisition of noncontrolling interest of our Turkey operation in 2013 and additions to restricted cash. This was partially offset by additional net proceeds from term loans. The net cash flows from financing activities for the years ended December 31, 2014 and 2013 were primarily comprised of additional indebtedness provided by our senior lenders, accounts receivable financings, working capital loans and subordinated debt. During 2014, we also received $6.8 million from preferred stock offerings. The net cash provided by financing activities in the years ended December 31, 2014 and 2013 was primarily used for capital expenditures for the Dafeng, China, Mexico and Turkey facility startups and production ramp-ups, working capital and operating loss funding for Dafeng, China, Mexico and Turkey and the startup costs of manufacturing for a new customer in Turkey.

Description of Our Indebtedness

Senior Term Loan: We entered into a senior term loan in 2013 to fund working capital and our continued startup of manufacturing lines in Turkey and new startup of manufacturing lines in Mexico. In February 2014, we drew an additional $5.0 million under this facility. The loan bore interest at 11.25%. In connection with our credit facility described below, the senior term loan was repaid in full in August 2014.

Subordinated Convertible Promissory Notes: In February 2014, we entered into a note purchase agreement with two of our investors for the purchase of $5.0 million of subordinated convertible promissory notes. These notes bore interest at a rate of 12.0%, payable quarterly, starting April 1, 2014. We had the right to prepayment without the consent of the note holders. The note holders held conversion rights upon our future financing into new equity financing, convertible note financing or senior redeemable preferred stock. In connection with our credit facility described below, these notes were paid in full in August 2014.

Senior Financing Agreement: In August 2014, we entered into an agreement to borrow up to $75.0 million through a credit facility, or the Credit Facility, in order to refinance existing indebtedness as well as to fund current operations and future growth opportunities. The initial amount drawn on the closing date was $50.0 million and an additional $5.0 million was drawn in December 2014. In December 2014, in connection with the additional $5.0 million draw on our Credit Facility, we amended the Credit Facility with the lender. In December 2015, we further amended the Credit Facility to increase the total available principal amount under the Credit Facility from $75.0 million to $100.0 million. The borrowing has an initial term of four years and matures in 2018, provides for various financial covenants and bears interest at the London Interbank Offered Rate, or LIBOR, with a 1.0% floor, plus 8.0%. The Credit Facility contains various affirmative and negative covenants that are customary for facilities of this type, including EBITDA (as defined in the Credit Facility) minimum covenants, a leverage ratio and a fixed-charge coverage ratio. The Credit Facility limits annual capital expenditures based on budgets submitted to and agreed to with the lender and there is also an annual excess cash flow sweep requirement. In connection with the December 2015 amendment, all financial covenants were revised and the measurement period changed from monthly to quarterly. Concurrent with the December 2015 amendment, we borrowed an additional $20.0 million under the Credit Facility to fund our future growth and expansion. As of both March 31, 2016 and December 31, 2015, the outstanding balance under the Credit Facility was $74.4 million. We cannot assure you that we will be able to maintain appropriate minimum EBITDA (as defined in the Credit Facility), leverage or fixed-charge coverage ratio requirements in the future.

The Credit Facility, as amended, requires us to make principal payments in the amount of 1.25% of the then outstanding principal loan balance each quarter and deferred any further principal payments until September 2016. If we prepay any of the outstanding principal loan balance prior to December 8, 2016, we are required to pay Highbridge a premium in an amount equal to the amount of interest that otherwise would have been payable from the date of prepayment until December 8, 2016 plus 3.0% of the amount of the principal loan balance that was prepaid. We are not required to pay such a premium if we prepay the outstanding principal loan balance

 

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under the Credit Facility with proceeds from this offering and we refinance the Credit Facility with the lender or its affiliates. If we prepay any of the outstanding principal loan balance after December 8, 2016 through December 8, 2017, we are required to pay the lender 3.0% of the principal loan balance that was prepaid, and if we prepay any of the outstanding loan balance after December 8, 2017 through August 18, 2018, we are required to pay a premium of 1.5% of the amount of the principal loan balance that was prepaid.

In conjunction with the additional $5.0 million borrowing under the Credit Facility in December 2014 discussed above, we entered into a note purchase agreement with five current investors for the purchase of $10.0 million of Subordinated Convertible Promissory Notes, or the Subordinated Convertible Promissory Notes. The Subordinated Convertible Promissory Notes bear interest at a rate of 12.0% per annum and will automatically mature and be due and payable on the earlier of the completion of any change of control, a qualified initial public offering or at the election of the note holders at any time after the occurrence of an event of default. Any amount outstanding on the Subordinated Convertible Promissory Notes on December 31, 2016 will automatically convert into shares of Super Senior Redeemable preferred stock. We have the right to prepay the Subordinated Convertible Promissory Notes without the consent of the note holders and the note holders hold conversion rights that would be triggered in connection with a new equity or convertible note financing, other than a qualified IPO (as defined in the Subordinated Convertible Promissory Notes). The amount outstanding under the Subordinated Convertible Promissory Notes was $10.0 million at both March 31, 2016 and December 31, 2015. The note purchase agreement contains a beneficial conversion feature that was originally valued at $5.2 million and was accounted for as a debt discount and an increase in shareholders’ equity. The debt discount is being accreted to interest expense ratably over the term of the Subordinated Convertible Promissory Notes. The amount of the unamortized debt discount at March 31, 2016 and December 31, 2015 was $2.3 million and $3.0 million, respectively.

Working Capital Agreements: The Asia segment has entered into several working capital financing agreements with Chinese financial institutions and as of March 31, 2016 and December 31, 2015, we had $5.4 million and $9.5 million outstanding, respectively, under the agreements. These loans bear interest at rates ranging from 5.6% to 6.9% annually, and interest is payable monthly. The principal on these loans is scheduled to be paid from between 3 to 12 months from each loan origination date but have been, and we anticipate will continue to be, renewed at their maturities. Under certain of these agreements, we are required to obtain lender consent in order to repatriate dividends.

In connection with the December 2015 amendment to the Credit Facility noted above, we have agreed to repay all but $2.1 million of the outstanding indebtedness incurred in connection with our working