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TPI Composites(TPIC) - 2020 Q2 - Quarterly Report
TPI CompositesTPI Composites(US:TPIC)2020-08-06 20:24

PART I. FINANCIAL INFORMATION Condensed Consolidated Financial Statements (Unaudited) The company presents its unaudited condensed consolidated financial statements for the three and six months ended June 30, 2020 Condensed Consolidated Balance Sheets Total assets increased to $895.3 million while stockholders' equity decreased to $128.8 million as of June 30, 2020 Condensed Consolidated Balance Sheets (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $498,923 | $468,422 | | Total Assets | $895,285 | $826,677 | | Total Current Liabilities | $374,255 | $373,881 | | Total Liabilities | $766,440 | $621,627 | | Total Stockholders' Equity | $128,845 | $205,050 | Condensed Consolidated Statements of Operations The company reported a net loss of $66.1 million for Q2 2020, a significant downturn from a net income of $1.8 million in Q2 2019 Statements of Operations Highlights (in thousands, except per share data) | Metric | Q2 2020 | Q2 2019 | Six Months 2020 | Six Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $373,817 | $330,771 | $730,453 | $630,551 | | Gross Profit (Loss) | $(4,747) | $22,551 | $(8,620) | $21,115 | | Income (Loss) from Operations | $(13,255) | $4,497 | $(28,659) | $(7,159) | | Net Income (Loss) | $(66,101) | $1,828 | $(66,593) | $(10,276) | | Diluted EPS | $(1.87) | $0.05 | $(1.89) | $(0.29) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased to $27.0 million, while financing activities provided $97.3 million in cash Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(27,005) | $(1,518) | | Net cash used in investing activities | $(42,030) | $(37,739) | | Net cash provided by financing activities | $97,255 | $10,446 | | Net change in cash, cash equivalents and restricted cash | $25,695 | $(28,115) | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail accounting policies, segment data, and the significant impact of the COVID-19 pandemic on operations - The company operates in four geographic segments: U.S., Asia, Mexico, and EMEAI, primarily manufacturing composite wind blades272930 - The COVID-19 pandemic adversely impacted operations and financial results for the first half of 2020 due to reduced production levels909193 - As of June 30, 2020, the company had approximately $3.5 billion in remaining performance obligations under its contracts, expected to be recognized as revenue through 202387 Customer Revenue Concentration (Q2 2020 vs Q2 2019) | Customer | Q2 2020 Revenue | % of Total | Q2 2019 Revenue | % of Total | | :--- | :--- | :--- | :--- | :--- | | Vestas | $193,426 | 51.7% | $142,101 | 43.0% | | GE | $71,176 | 19.0% | $92,018 | 27.8% | | Nordex | $62,258 | 16.7% | $53,662 | 16.2% | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the adverse impact of COVID-19, which led to a net loss despite sales growth and varied segment performance - The COVID-19 pandemic significantly impacted operations, with management estimating an adverse impact on net sales of approximately $96 million in Q2 2020 and $134 million in the first six months of 2020140 - The net loss for Q2 2020 was estimated to be adversely impacted by approximately $39 million (net of taxes) from lost production and an additional $16 million (net of taxes) in COVID-related costs141179 - To manage liquidity amidst the pandemic, the company drew down $80.0 million under its Credit Agreement and entered into new unsecured credit facilities in Turkey during the first half of 2020139210 Key Financial Metrics (in thousands) | Metric | Q2 2020 | Q2 2019 | Six Months 2020 | Six Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $373,817 | $330,771 | $730,453 | $630,551 | | Net Income (Loss) | $(66,101) | $1,828 | $(66,593) | $(10,276) | | Adjusted EBITDA | $3,295 | $23,421 | $4,591 | $26,346 | Results of Operations Q2 2020 net sales rose 13.0% YoY, but higher costs led to a gross loss of $4.7 million compared to a prior year profit - Q2 2020 net sales increased by $43.0 million (13.0%) YoY, primarily from a 10% increase in wind blades produced and higher average sales prices, despite an estimated $96 million negative impact from COVID-19171172 - Total cost of goods sold as a percentage of net sales increased by approximately 8% in Q2 2020 compared to Q2 2019, driven by higher direct material and warranty costs, and COVID-19 related expenses173 - Startup and transition costs decreased to $10.9 million in Q2 2020 from $22.9 million in Q2 2019, reflecting the maturation of newer facilities171173 Segment Discussion Segment performance was mixed, with strong growth in Asia contrasting with operating losses in Mexico and EMEAI due to COVID-19 - The Asia segment's revenue surged 72.3% YoY in Q2 2020, driven by an 87% net increase in wind blade volume and higher average selling prices184 - The Mexico segment's operating results shifted from a $4.1 million income in Q2 2019 to an $11.3 million loss in Q2 2020, primarily due to reduced production levels from the COVID-19 pandemic187 Segment Income (Loss) from Operations - Q2 (in thousands) | Segment | Q2 2020 | Q2 2019 | | :--- | :--- | :--- | | U.S. | $(12,045) | $(22,222) | | Asia | $18,492 | $131 | | Mexico | $(11,324) | $4,120 | | EMEAI | $(8,378) | $22,468 | Liquidity and Capital Resources The company bolstered liquidity by drawing $80.0 million from its credit facility, increasing total debt to $239.2 million - The company increased its revolving credit facility from $150.0 million to $205.0 million in February 2020 and drew down $80.0 million during the first six months of the year to bolster liquidity210226 - Capital expenditures for the first six months of 2020 were $42.0 million, with a full-year 2020 projection of $80-$90 million217218 - The company utilizes several off-balance sheet accounts receivable assignment agreements, under which $459.9 million of receivables were sold in the first half of 2020245255 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from foreign currency, commodity prices, and interest rate fluctuations - A hypothetical 10% change in foreign currency exchange rates would have resulted in a change to income from operations of approximately $21.2 million for the six months ended June 30, 2020260 - The company faces commodity price risk for resin and balsa wood, where a 10% price change could impact operating income by $5.1 million and $4.1 million, respectively263264 - Interest rate risk is linked to variable-rate debt, including $117.4 million of unhedged principal on the main Credit Agreement tied to LIBOR265 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2020 - Based on an evaluation as of June 30, 2020, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective267 - No material changes occurred in the company's internal control over financial reporting during the quarter ended June 30, 2020268 PART II. OTHER INFORMATION Legal Proceedings The company is involved in ordinary course legal proceedings not expected to have a material adverse effect on its financials - The company is party to various lawsuits, claims, and other legal proceedings arising in the ordinary course of business, which management does not expect to have a material adverse effect on its financials271 Risk Factors A material update to risk factors highlights the adverse effects of the COVID-19 pandemic on business operations - A significant risk factor has been added concerning the adverse effects of the COVID-19 pandemic on the company's business, operations, and financial condition273 - The pandemic caused production suspensions or reductions at most manufacturing facilities during Q2 2020, and such measures may be reinstated if cases resurge273 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 2,731 shares of common stock from employees to cover tax withholding obligations Issuer Purchases of Equity Securities (Q2 2020) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2020 | — | $— | | May 2020 | 2,731 | $17.87 | | June 2020 | — | $— | | Total | 2,731 | $17.87 | Exhibits This section lists exhibits filed with the Form 10-Q, including certifications and an amendment to a credit agreement