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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

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

For the quarterly period ended March 31, 2021

OR

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

Commission File Number 001-37839

 

TPI Composites, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-1590775

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

8501 N. Scottsdale Rd.

Gainey Center II, Suite 100

Scottsdale, AZ 85253

(480305-8910

(Address, including zip code, and telephone number,

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

 

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01

 TPIC

NASDAQ Global Market

 

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

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

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

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

 

 

Smaller reporting company

 

 

Emerging growth company

 

 

 

 

 

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

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

As of April 30, 2021, there were 36,711,525 shares of common stock outstanding.     

 

 

 

 


 

 

TPI COMPOSITES, INC. AND SUBSIDIARIES

INDEX

 

 

 

 

 

Page

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

ITEM 1.

  

Condensed Consolidated Financial Statements (Unaudited)

 

5

 

 

 

 

 

 

  

Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020

 

5

 

 

 

 

 

 

  

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020

 

6

 

 

 

 

 

 

  

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2021 and 2020

 

7

 

 

 

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020

 

8

 

 

 

 

 

 

  

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020

 

9

 

 

 

 

 

 

  

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

11

 

 

 

 

 

ITEM 2.

  

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

 

21

 

 

 

 

 

ITEM 3.

  

Quantitative and Qualitative Disclosures About Market Risk

 

31

 

 

 

 

 

ITEM 4.

  

Controls and Procedures

 

31

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

  

Legal Proceedings

 

32

 

 

 

 

 

ITEM 1A.

  

Risk Factors

 

32

 

 

 

 

 

ITEM 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

 

32

 

 

 

 

 

ITEM 3.

  

Defaults Upon Senior Securities

 

32

 

 

 

 

 

ITEM 4.

  

Mine Safety Disclosures

 

32

 

 

 

 

 

ITEM 5.

  

Other Information

 

32

 

 

 

 

 

ITEM 6.

  

Exhibits

 

33

 

 

 

 

 

SIGNATURES

 

34

 

 

2


 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

 

the potential impact of the COVID-19 pandemic on our business and results of operations;

 

competition from other wind blade and wind blade turbine manufacturers;

 

the discovery of defects in our products and our ability to estimate the future cost of warranty campaigns;

 

growth of the wind energy market and our addressable market;

 

the potential impact of the increasing prevalence of auction-based tenders in the wind energy market and increased competition from solar energy on our gross margins and overall financial performance;  

 

our future financial performance, including our net sales, cost of goods sold, gross profit or gross margin, operating expenses, ability to generate positive cash flow, and ability to achieve or maintain profitability;

 

changes in domestic or international government or regulatory policy, including without limitation, changes in trade policy;  

 

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

 

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

 

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

 

our ability to successfully expand in our existing wind energy markets and into new international wind energy markets, including our ability to expand our field service inspection and repair services business and manufacture wind blades for offshore wind energy projects;

 

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

 

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

 

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

 

worldwide economic conditions and their impact on customer demand;

 

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

 

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

 

the attraction and retention of qualified employees and key personnel;

 

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

 

our ability to procure adequate supplies of raw materials and components to fulfill our wind blade volume commitments to our customers; and

 

the potential impact of one or more of our customers becoming bankrupt or insolvent, or experiencing other financial problems.

These forward-looking statements are only predictions. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, levels of activity, performance or achievements to materially differ from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. We have described in the “Risk Factors” section of our Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on February 25, 2021 the principal risks and uncertainties

3


 

that we believe could cause actual results to differ from these forward-looking statements. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as guarantees of future events.

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

 

 

4


 

 

PART I—FINANCIAL INFORMATION

ITEM l. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands, except par value data)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

136,236

 

 

$

129,857

 

Restricted cash

 

 

336

 

 

 

339

 

Accounts receivable

 

 

130,417

 

 

 

132,768

 

Contract assets

 

 

216,035

 

 

 

216,928

 

Prepaid expenses

 

 

23,128

 

 

 

29,507

 

Other current assets

 

 

19,389

 

 

 

27,921

 

Inventories

 

 

11,829

 

 

 

10,839

 

Total current assets

 

 

537,370

 

 

 

548,159

 

Property, plant and equipment, net

 

 

212,129

 

 

 

209,001

 

Operating lease right of use assets

 

 

151,212

 

 

 

158,827

 

Other noncurrent assets

 

 

53,345

 

 

 

40,270

 

Total assets

 

$

954,056

 

 

$

956,257

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

291,947

 

 

$

295,992

 

Accrued warranty

 

 

45,956

 

 

 

50,852

 

Current maturities of long-term debt

 

 

53,294

 

 

 

32,551

 

Current operating lease liabilities

 

 

26,496

 

 

 

26,099

 

Contract liabilities

 

 

2,132

 

 

 

614

 

Total current liabilities

 

 

419,825

 

 

 

406,108

 

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

 

 

180,976

 

 

 

184,316

 

Noncurrent operating lease liabilities

 

 

150,289

 

 

 

155,925

 

Other noncurrent liabilities

 

 

8,358

 

 

 

8,873

 

Total liabilities

 

 

759,448

 

 

 

755,222

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common shares, $0.01 par value, 100,000 shares authorized, 36,920

   shares issued and 36,712 shares outstanding at March 31, 2021

   and 100,000 shares authorized, 36,771 shares issued and 36,564

   shares outstanding at December 31, 2020

 

 

369

 

 

 

368

 

Paid-in capital

 

 

353,201

 

 

 

349,472

 

Accumulated other comprehensive loss

 

 

(41,316

)

 

 

(32,990

)

Accumulated deficit

 

 

(111,513

)

 

 

(109,716

)

Treasury stock, at cost, 208 shares at March 31, 2021 and 207 shares at

  December 31, 2020

 

 

(6,133

)

 

 

(6,099

)

Total stockholders’ equity

 

 

194,608

 

 

 

201,035

 

Total liabilities and stockholders’ equity

 

$

954,056

 

 

$

956,257

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

5


 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands, except per share data)

 

Net sales

 

$

404,680

 

 

$

356,636

 

Cost of sales

 

 

383,056

 

 

 

348,475

 

Startup and transition costs

 

 

14,354

 

 

 

12,034

 

Total cost of goods sold

 

 

397,410

 

 

 

360,509

 

Gross profit (loss)

 

 

7,270

 

 

 

(3,873

)

General and administrative expenses

 

 

8,922

 

 

 

9,496

 

Loss on sale of assets and asset impairments

 

 

1,297

 

 

 

1,918

 

Restructuring charges, net

 

 

258

 

 

 

117

 

Loss from operations

 

 

(3,207

)

 

 

(15,404

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(2,704

)

 

 

(1,771

)

Foreign currency income (loss)

 

 

(3,727

)

 

 

960

 

Miscellaneous income

 

 

739

 

 

 

695

 

Total other expense

 

 

(5,692

)

 

 

(116

)

Loss before income taxes

 

 

(8,899

)

 

 

(15,520

)

Income tax benefit

 

 

7,102

 

 

 

15,028

 

Net loss

 

$

(1,797

)

 

$

(492

)

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

36,601

 

 

 

35,213

 

Diluted

 

 

36,601

 

 

 

35,213

 

 

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

 

 

Basic

 

$

(0.05

)

 

$

(0.01

)

Diluted

 

$

(0.05

)

 

$

(0.01

)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

6


 

 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Net loss

 

$

(1,797

)

 

$

(492

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(5,291

)

 

 

(9,224

)

Unrealized loss on hedging derivatives, net of taxes of $651 and $2,039, respectively

 

 

(3,035

)

 

 

(7,669

)

Comprehensive income (loss)

 

$

(10,123

)

 

$

(17,385

)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 


7


 

 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

Three Months Ended March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Paid-in

 

 

other comprehensive

 

 

Accumulated

 

 

Treasury stock,

 

 

Total stockholders'

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

loss

 

 

deficit

 

 

at cost

 

 

equity

 

 

 

(in thousands)

 

Balance at December 31, 2020

 

 

36,771

 

 

$

368

 

 

$

349,472

 

 

$

(32,990

)

 

$

(109,716

)

 

$

(6,099

)

 

$

201,035

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,797

)

 

 

 

 

 

(1,797

)

Share-based compensation expense

 

 

 

 

 

 

 

 

2,494

 

 

 

 

 

 

 

 

 

 

 

 

2,494

 

Issuances under share-based compensation

plan

 

 

149

 

 

 

1

 

 

 

1,235

 

 

 

 

 

 

 

 

 

 

 

 

1,236

 

Common stock repurchased for treasury

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(34

)

 

 

(34

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(8,326

)

 

 

 

 

 

 

 

 

(8,326

)

Balance at March 31, 2021

 

 

36,920

 

 

$

369

 

 

$

353,201

 

 

$

(41,316

)

 

$

(111,513

)

 

$

(6,133

)

 

$

194,608

 

 

 

 

 

Three Months Ended March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Paid-in

 

 

other comprehensive

 

 

Accumulated

 

 

Treasury stock,

 

 

Total stockholders'

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

loss

 

 

deficit

 

 

at cost

 

 

equity

 

 

 

(in thousands)

 

Balance at December 31, 2019

 

 

35,326

 

 

$

353

 

 

$

322,906

 

 

$

(23,612

)

 

$

(90,689

)

 

$

(3,908

)

 

$

205,050

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(492

)

 

 

 

 

 

(492

)

Share-based compensation expense

 

 

 

 

 

 

 

 

2,970

 

 

 

 

 

 

 

 

 

 

 

 

2,970

 

Issuances under share-based compensation

plan

 

 

109

 

 

 

1

 

 

 

861

 

 

 

 

 

 

 

 

 

 

 

 

862

 

Common stock repurchased for treasury

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(459

)

 

 

(459

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(16,893

)

 

 

 

 

 

 

 

 

(16,893

)

Balance at March 31, 2020

 

 

35,435

 

 

$

354

 

 

$

326,737

 

 

$

(40,505

)

 

$

(91,181

)

 

$

(4,367

)

 

$

191,038

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

8


 

 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(1,797

)

 

$

(492

)

Adjustments to reconcile net loss to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

11,609

 

 

 

11,028

 

Loss on sale of assets and asset impairments

 

 

1,297

 

 

 

1,918

 

Restructuring charges, net

 

 

258

 

 

 

117

 

Share-based compensation expense

 

 

2,399

 

 

 

2,942

 

Amortization of debt issuance costs

 

 

114

 

 

 

56

 

Deferred income taxes

 

 

(11,574

)

 

 

(17,612

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(428

)

 

 

50,328

 

Contract assets and liabilities

 

 

(132

)

 

 

(32,574

)

Operating lease right of use assets and operating lease liabilities

 

 

2,376

 

 

 

2,018

 

Inventories

 

 

(1,129

)

 

 

(3,515

)

Prepaid expenses

 

 

6,105

 

 

 

(4,558

)

Other current assets

 

 

8,302

 

 

 

4,552

 

Other noncurrent assets

 

 

(1,526

)

 

 

167

 

Accounts payable and accrued expenses

 

 

(3,724

)

 

 

(17,557

)

Accrued warranty

 

 

(4,896

)

 

 

3,889

 

Other noncurrent liabilities

 

 

(514

)

 

 

1,861

 

Net cash provided by operating activities

 

 

6,740

 

 

 

2,568

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(18,786

)

 

 

(26,983

)

Net cash used in investing activities

 

 

(18,786

)

 

 

(26,983

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from revolving loans

 

 

 

 

 

50,000

 

Net repayments of accounts receivable financing

 

 

 

 

 

(101

)

Principal repayments of finance leases

 

 

(1,406

)

 

 

(1,492

)

Net proceeds from other debt

 

 

18,695

 

 

 

16,505

 

Debt issuance costs

 

 

 

 

 

(183

)

Proceeds from exercise of stock options

 

 

1,216

 

 

 

812

 

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

 

 

(34

)

 

 

(459

)

Net cash provided by financing activities

 

 

18,471

 

 

 

65,082

 

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

 

 

(49

)

 

 

(1,806

)

Net change in cash, cash equivalents and restricted cash

 

 

6,376

 

 

 

38,861

 

Cash, cash equivalents and restricted cash, beginning of year

 

 

130,196

 

 

 

71,749

 

Cash, cash equivalents and restricted cash, end of period

 

$

136,572

 

 

$

110,610

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

9


 

 

TPI COMPOSITES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

2,617

 

 

$

1,773

 

Cash paid for income taxes, net of refunds

 

 

5,130

 

 

 

3,414

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

 

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

 

 

1,245

 

 

 

55,156

 

Accrued capital expenditures in accounts payable

 

 

6,975

 

 

 

14,669

 

 

 

Reconciliation of Cash, Cash Equivalents and Restricted Cash:

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

2020

 

 

2019

 

 

 

(in thousands)

 

  Cash and cash equivalents

 

$

136,236

 

 

$

129,857

 

 

$

109,473

 

 

$

70,282

 

  Restricted cash

 

 

336

 

 

 

339

 

 

 

662

 

 

 

992

 

  Restricted cash included within other noncurrent assets

 

 

 

 

 

 

 

 

475

 

 

 

475

 

Total cash, cash equivalents and restricted cash shown in

  the condensed consolidated statements of cash flows

 

$

136,572

 

 

$

130,196

 

 

$

110,610

 

 

$

71,749

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

10


 

 

TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 1. Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by us without audit, pursuant to the rules and regulations of the SEC and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2020 included in our Annual Report on Form 10-K. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted, as permitted by the SEC, although we believe the disclosures that are made are adequate to make the information presented herein not misleading. The accompanying condensed consolidated financial statements reflect, in the opinion of our management, all normal recurring adjustments necessary to present fairly our financial position at March 31, 2021, and the results of our operations, comprehensive income (loss) and cash flows for the periods presented. Interim results for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the full years. Certain prior period amounts in the condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation.

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

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

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

Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Convertible Instruments

In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU is intended to simplify the accounting for certain convertible instruments with characteristics of both liability and equity. This ASU removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. As a result, after the adoption of this guidance, an entity’s convertible debt instrument will be wholly accounted for as debt. This ASU also expands disclosure requirements for convertible instruments and simplifies areas of the guidance for diluted earnings-per-share calculations by requiring the use of the if-converted method.

This ASU is effective for all public business entities (other than smaller reporting companies) for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020 and can be adopted on either a fully retrospective or modified retrospective basis. An entity should adopt the guidance at the beginning of its annual fiscal year. We adopted this standard on January 1, 2021 on a modified retrospective basis and it did not have a material effect on our condensed consolidated financial statements.   

Recently Issued Accounting Pronouncements

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This ASU only applies to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. This ASU is effective for all entities beginning on March 12, 2020 and entities may elect to apply the ASU prospectively through December 31, 2022. The FASB later issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, to clarify the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848. We are currently evaluating the impact this guidance may have on our condensed consolidated financial statements and related disclosures.

11


TPI COMPOSITES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)