PART I. FINANCIAL INFORMATION ITEM 1. Condensed Consolidated Financial Statements Unaudited condensed consolidated financial statements for Q2 and H1 2019 and 2018 are presented, reflecting revenue growth but a net loss for the six-month period Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (as of June 30, 2019 vs. Dec 31, 2018) | Account | June 30, 2019 ($ thousands) | Dec 31, 2018 ($ thousands) | Change | | :--- | :--- | :--- | :--- | | Total Assets | $787,960 | $604,855 | +30.3% | | Cash and cash equivalents | $58,664 | $85,346 | -31.2% | | Contract assets | $157,315 | $116,708 | +34.8% | | Operating lease right of use assets | $130,512 | $— | N/A (New Standard) | | Total Liabilities | $575,928 | $383,898 | +50.0% | | Accounts payable and accrued expenses | $239,909 | $199,078 | +20.5% | | Operating lease liabilities (Current & Noncurrent) | $136,635 | $— | N/A (New Standard) | | Total Stockholders' Equity | $212,032 | $220,957 | -4.0% | - The adoption of the new lease accounting standard (Topic 842) on January 1, 2019, had a material effect, resulting in the recognition of $130.5 million in Right-of-Use (ROU) assets and $136.6 million in total lease liabilities on the balance sheet143133 Condensed Consolidated Statements of Operations Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2019 | Q2 2018 | Y/Y Change | H1 2019 | H1 2018 | Y/Y Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | $330,771 | $230,610 | +43.4% | $630,551 | $484,591 | +30.1% | | Gross Profit | $22,551 | $15,051 | +49.8% | $21,115 | $43,309 | -51.2% | | Income (Loss) from Operations | $4,497 | $4,062 | +10.7% | $(7,159) | $21,157 | -133.8% | | Net Income (Loss) | $1,828 | $(4,053) | N/A | $(10,276) | $4,595 | -323.6% | | Diluted EPS | $0.05 | $(0.12) | N/A | $(0.29) | $0.13 | -323.1% | - For the three months ended June 30, 2019, the company recorded new restructuring charges of $3.9 million and a realized loss on sale of assets of $5.0 million, which were not present in the same period of 201816 Condensed Consolidated Statements of Cash Flows Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Category | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(1,518) | $2,535 | | Net cash used in investing activities | $(37,739) | $(42,310) | | Net cash provided by financing activities | $10,446 | $6,692 | | Net change in cash, cash equivalents and restricted cash | $(28,115) | $(33,536) | - Cash used in operating activities for H1 2019 was driven by a net loss of $10.3 million and a $23.1 million net increase in working capital, primarily due to a $46.7 million increase in contract assets24213 Notes to Unaudited Condensed Consolidated Financial Statements - Revenue: The aggregate amount of the transaction price allocated to remaining performance obligations was approximately $4.9 billion as of June 30, 2019, expected to be recognized through 202389 - Significant Risks: The company recorded significant charges due to operational issues, including a $10.0 million reduction in expected consideration from liquidated damages related to a strike in Matamoros, Mexico, and a $6.7 million revenue reduction related to the insolvency of customer Senvion GmbH9294 - Customer Concentration: For Q2 2019, three customers accounted for a significant portion of revenues: Vestas (43.0%), GE (27.8%), and Nordex (16.2%)127 - Restructuring: In Q2 2019, the company incurred $3.9 million in restructuring charges related to the consolidation of manufacturing facilities in China, including shutting down two blade lines and moving a tooling operation123124 - Subsequent Event: After quarter-end, the company entered a new agreement with a wind farm operator to recover approximately 90% of the $16.2 million in gross amounts due from the insolvent customer, Senvion132 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 43.4% YoY revenue increase for Q2 2019, driven by higher production, despite profitability challenges from operational disruptions and customer issues Key Financial Metrics (Non-GAAP) | Metric (in thousands) | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Billings | $304,469 | $237,355 | $583,940 | $461,056 | | EBITDA | $11,671 | $10,101 | $7,574 | $31,075 | | Adjusted EBITDA | $19,547 | $13,477 | $22,472 | $40,850 | Key Operating Metrics | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | :--- | | Blade Sets Invoiced | 716 | 576 | 1,378 | 1,145 | | Estimated Megawatts | 2,029 | 1,544 | 3,890 | 3,008 | | Dedicated Manufacturing Lines | 54 | 52 | 54 | 52 | | Manufacturing Lines in Startup | 13 | 7 | 14 | 7 | - Long-term supply agreements as of August 7, 2019, provide for minimum volume commitments of approximately $3.5 billion and a total potential contract value of approximately $6.2 billion through the end of 2023134 - Operational challenges significantly impacted results, including a strike in Matamoros, Mexico, the insolvency of customer Senvion, and startup delays in Yangzhou, China, and Newton, Iowa137138140141 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are foreign currency exchange rates, commodity prices, and interest rates, with global operations exposing it to related fluctuations - Foreign Currency Risk: A hypothetical 10% change in foreign exchange rates would have impacted income from operations by approximately $5.4 million for the six months ended June 30, 2019245 - Commodity Price Risk: A 10% change in the price of resin and resin systems would have impacted income from operations by approximately $3.8 million for the first half of 2019247 - Interest Rate Risk: Exposure to variable interest rates is limited, with a 10% change in LIBOR or EURIBOR not expected to have a material impact on earnings or cash flows248 ITEM 4. Controls and Procedures The company's CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal controls - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2019250 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls251 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings A lawsuit filed by a former employee was resolved in the company's favor in June 2019 with no damages, and other legal proceedings are not expected to have a material adverse effect - In June 2019, a trial concluded in the company's favor regarding a complaint from a former employee, resulting in no obligation to pay damages253 ITEM 1A. Risk Factors The company reports no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K - There have been no material changes to the Risk Factors as disclosed in the company's Annual Report on Form 10-K255 Other Information and Exhibits This section confirms no unregistered sales of equity securities, defaults, or mine safety disclosures, and lists exhibits filed with the Form 10-Q - The company reported no unregistered sales of equity securities, use of proceeds, defaults upon senior securities, or mine safety disclosures for the period256 - The report includes standard exhibits, such as an amendment to a credit agreement and certifications from the CEO and CFO as required by the Sarbanes-Oxley Act258
TPI Composites(TPIC) - 2019 Q2 - Quarterly Report