TPI COMPOSITES, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q (Form 10-Q). Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to plans and strategy for our business, 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 Form 10-Q or in our previously filed Annual Report on Form 10-K for the year endedDecember 31, 2021 , particularly those under the heading "Risk Factors."
OVERVIEW
Our Company
We are the only independent manufacturer of composite wind blades for the wind energy market with a global manufacturing footprint. We deliver high-quality, cost-effective composite solutions through long term relationships with leading original equipment manufacturers (OEM) in the wind market. We also provide field service inspection and repair services to our OEM customers and wind farm owners and operators, and supply high strength, lightweight and durable composite products to the transportation market. We are headquartered inScottsdale, Arizona and operate factories throughoutthe United States (U.S ).,China ,Mexico ,Turkey , andIndia . We operate additional engineering development centers inDenmark andGermany and a service facility inSpain . Our business operations are defined geographically into five geographic operating segments-(1)the United States (U.S. ), (2)Asia , (3)Mexico , (4)Europe , theMiddle East andAfrica (EMEA) and (5)India . See Note 16, Segment Reporting, to our condensed consolidated financial statements for more details about our operating segments.
KEY TRENDS AND RECENT DEVELOPMENTS AFFECTING OUR BUSINESS
During the three and six months endedJune 30, 2022 , there have been both price increases and supply constraints as compared to the same prior year comparative periods, for key raw materials that we use to manufacture our products, as well as increases in logistics costs to obtain raw materials.Carbon fiber and resin prices have increased primarily due to the cost of raw material inputs and petroleum-based feedstocks as well as increased global demand across multiple industries. We expect that the price of resin andcarbon fiber will remain at elevated levels for the remainder of 2022 and into 2023. Approximately 60% of the resin and resin systems, and approximately 90% of thecarbon fiber we use is purchased under contracts either controlled or borne by two of our customers, and therefore these customers receive/bear 100% of any decrease or increase in resin and/orcarbon fiber prices. With respect to our other customer supply agreements, our customers typically receive/bear 70% of any raw material price decreases or increases. If the supply of resin feedstocks andcarbon fiber continue to be constrained for an extended period of time, such shortages could impact our ability to meet our customers' forecasted demand for our products for the remainder of 2022 and 2023 and could have a material adverse impact on our results of operations for the remainder of 2022 and 2023. Although all of our manufacturing facilities currently are operating without any COVID-19 impacts or restrictions, we may be required to reinstate temporary production suspensions or volume reductions at our manufacturing facilities to the extent there are new resurgences of COVID-19 cases in the regions where we operate or there is an outbreak of positive COVID-19 cases in any of our manufacturing facilities. While our global supply chain was adversely affected by the COVID-19 pandemic in 2021, our supply chain has not been materially impacted by the COVID-19 pandemic in the first half of 2022. Our results of operations for 2022 have been adversely impacted by increased raw material and logistics costs arising from a variety of factors, including the current geopolitical climate, rising energy costs, curtailed energy supply inEurope and continued interruptions in logistics with global logistics strikes and labor negotiations in theU.S. . In addition, certain of our customers source certain key raw materials and components, including resin andcarbon fiber. If these customers have challenges procuring adequate supplies of resin andcarbon fiber, it may have an adverse impact on our production volumes and results of operations and could adversely impact our business in the second half of 2022 if such challenges occur. We expect decreased demand for our wind blades from our customers during the remainder of 2022 and 2023. We believe this decrease in demand is due to the continued global renewable energy regulatory and policy uncertainty and the raw material and logistics cost increases mentioned above. We believe that uncertainty around potential legislation in theU.S. to extend the Production Tax Credit (PTC) is causing developers to delay project timelines in anticipation of being able to build projects at higher PTC levels if such an extension is implemented. We are, however, encouraged by the proposed Inflation Reduction Act of 2022 and the stability the act could provide in the U.S. market as well as the impact this could have on demand should it ultimately get signed into law. 24 -------------------------------------------------------------------------------- Furthermore, we are encouraged by the long-term prospects of the European wind market after the announcement of theEuropean Commission's REPowerEU plan inMay 2022 .
We are forecasting to incur a total of approximately
EffectiveJanuary 1, 2022 , the functional currency for our operations inTurkey changed from Turkish Lira to Euros. TheFinancial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 830 (ASC 830), "Foreign Currency Matters," requires a change in functional currency to be reported as of the date it is determined there has been a change, and it is generally accepted practice that the change is made at the start of the most recent period that approximates the date of the change. While the change of the functional currency was based on a factual assessment, the determination of the date of the change required management's judgement given the change over time in the primary economic and business environment in which we operate. Based on the analysis of the Turkish domestic renewable energy demand through 2021 and anticipated future demand, management concluded that Turkish domestic sales will not grow as previously envisioned and most of the future growth will continue to be predominately export sales to the eurozone, which are primarily denominated in Euros. See Footnote 1, Significant Accounting Policies, for more details.
KEY METRICS USED BY MANAGEMENT TO MEASURE PERFORMANCE
For a detailed discussion of our key financial measures and our key operating metrics, refer to the discussion in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Key Metrics Used By Management To Measure Performance" included in Part II, Item 7 of our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
KEY FINANCIAL MEASURES
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(in thousands)
Net sales $ 452,368 $ 458,841 $ 837,238 $ 863,521
Net loss (5,510 ) (39,797 ) (21,310 ) (41,594 )
EBITDA (1) 13,853 4,285 13,519 9,699
Adjusted EBITDA (1) 10,288 17,361 16,405 30,456
Capital expenditures 8,010 27,059
Free cash flow (1) (67,171 ) (30,314 )
June 30, December 31,
2022 2021
(in thousands)
Total debt $ 62,306 $ 74,646
Net cash (1) 92,714 167,519
(1)
See below for a reconciliation of earnings before interest, taxes, depreciation
and amortization (EBITDA), adjusted EBITDA, free cash flow and net cash to net
loss attributable to common stockholders, net cash provided by (used in)
operating activities and cash and cash equivalents, respectively, the most
directly comparable financial measures calculated and presented in accordance
with accounting principles generally accepted in the U.S. (GAAP).
25
--------------------------------------------------------------------------------The following tables reconcile our non-GAAP key financial measures to the most directly comparable GAAP measures:
EBITDA and adjusted EBITDA are reconciled as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(in thousands)
Net loss attributable to common
stockholders $ (20,060 ) $ (39,797 ) $ (49,992 ) $ (41,594 )
Preferred stock dividends
and accretion 14,550 - 28,682 -
Net loss (5,510 ) (39,797 ) (21,310 ) (41,594 )
Adjustments:
Depreciation and amortization 11,696 12,501 23,449 24,110
Interest expense, net 913 2,691 1,682 5,395
Income tax provision 6,754 28,890 9,698 21,788
EBITDA 13,853 4,285 13,519 9,699
Share-based compensation expense 3,748 2,925 7,057 5,324
Foreign currency loss (income) (9,886 ) 6,504 (10,096 ) 10,231 Loss on sale of assets and asset
impairments 2,563 1,451 3,522 2,748 Restructuring charges, net 10 2,196 2,403 2,454 Adjusted EBITDA$ 10,288 $ 17,361 $ 16,405 $ 30,456
Free cash flow is reconciled as follows:
Six Months Ended
June 30,
2022 2021
(in thousands)
Net cash used in operating activities $ (59,161 ) $ (3,255 )
Less capital expenditures (8,010 ) (27,059 )
Free cash flow $ (67,171 ) $ (30,314 ) Net cash is reconciled as follows:
June 30, December 31,
2022 2021
(in thousands)
Cash and cash equivalents $ 155,020 $ 242,165
Less total debt (62,306 ) (74,646 )
Net cash $ 92,714 $ 167,519
KEY OPERATING METRICS
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Sets 783 843 1,385 1,657
Estimated megawatts 3,410 3,303 6,054 6,375
Utilization 84 % 82 % 75 % 80 %
Dedicated manufacturing lines 43 50 43 50
Manufacturing lines installed 43 51 43 52
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RESULTS OF OPERATIONS
The following table summarizes our operating results as a percentage of net
sales for the three and six months ended
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Net sales 100 % 100 % 100 % 100 %
Cost of sales 97.5 96.0 97.0 95.4
Startup and transition costs 2.2 2.2 3.1 2.8
Total cost of goods sold 99.7 98.2 100.1 98.2
Gross profit (loss) 0.3 1.8 (0.1 ) 1.8
General and administrative expenses 1.5 1.5 1.7 1.8
Loss on sale of assets and asset
impairments 0.6 0.3 0.4 0.3
Restructuring charges, net 0.0 0.5 0.3 0.3
Loss from operations (1.8 ) (0.5 ) (2.5 ) (0.6 )
Total other income (expense) 2.1 (1.9 ) 1.1 (1.7 )
Income (loss) before income taxes 0.3 (2.4 ) (1.4 ) (2.3 )
Income tax provision (1.5 ) (6.3 ) (1.2 ) (2.5 )
Net loss (1.2 %) (8.7 %) (2.6 %) (4.8 %)
Net sales
Consolidated discussion
The following table summarizes our net sales by product/service for the three
and six months ended
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands) (in thousands)
Wind blade sales
assembly
systems sales 2,834 13,603 (10,769 ) (79.2 )
6,840 22,530 (15,690 ) (69.6 ) Transportation sales
10,660 14,915 (4,255 ) (28.5 ) 23,517 23,046 471 2.0
Field service,
inspection and
repair
services sales 15,036 8,286 6,750 81.5
24,886 12,601 12,285 97.5 Other sales
9,802 3,333 6,469 194.1
13,378 7,461 5,917 79.3
Total net sales
The decrease in net sales of wind blades during the three and six months endedJune 30, 2022 , as compared to the same periods in 2021, was primarily driven by a 7% and 16% decrease in the number of wind blades produced, respectively, due to a reduction in manufacturing lines, transitions of existing lines and currency fluctuations, which were partially offset by a higher average sales price due to the mix of wind blade models produced. Net sales from the manufacturing of precision molding and assembly systems decreased during the three and six months endedJune 30, 2022 , as compared to the same periods in 2021 primarily due to a decrease in volume of molds produced. Additionally, there was an increase in our field service, inspection and repair service sales during the three and six months endedJune 30, 2022 , as compared to the same periods in 2021, due to an increase in demand for such services. The decrease in transportation sales for the three months endedJune 30, 2022 , as compared to the same period in 2021, was primarily due to a cumulative catch-up adjustment in the prior comparative period as a result of a previous contract modification under one of our supply agreements. Transportation sales have remained consistent for the six months endedJune 30, 2022 , as compared to the same period in 2021. The increase in other sales for the three and six months endedJune 30, 2022 , as compared to the same periods in 2021, is primarily due to an increase in volume of ancillary wind-related sales and services. The fluctuatingU.S. dollar against the Euro in our operations inTurkey had an unfavorable impact of 3.1% and 2.8% on consolidated net sales for the three and six months endedJune 30, 2022 , respectively, as compared to the same periods in 2021. 27 --------------------------------------------------------------------------------
Segment discussion
The following table summarizes our net sales by our five geographic operating
segments for the three and six months ended
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands) (in thousands)
U.S. $ 20,657 $ 59,449 $ (38,792 ) (65.3 )% $ 42,214 $ 110,442 $ (68,228 ) (61.8 )%
Asia 59,865 91,106 (31,241 ) (34.3 ) 101,211 168,034 (66,823 ) (39.8 )
Mexico 191,985 140,482 51,503 36.7 322,381 257,234 65,147 25.3
EMEA 129,610 105,350 24,260 23.0 279,295 217,716 61,579 28.3
India 50,251 62,454 (12,203 ) (19.5 )
92,137 110,095 (17,958 ) (16.3 )
Total net sales
U.S. Segment
The following table summarizes our net sales by product/service for the
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands) (in thousands)
Wind blade
sales $ - $ 39,427 $ (39,427 ) NM $ - $ 79,054 $ (79,054 ) NM
Transportation
sales 10,660 14,915 (4,255 ) (28.5 ) 23,517 23,046 471 2.0
Field service,
inspection and
repair
services sales 9,930 5,071 4,859 95.8 18,531 8,065 10,466 129.8
Other sales 67 36 31 86.1 166 277 (111 ) (40.1 )
Total net sales
NM - not meaningful The decrease in theU.S. segment's net sales of wind blades during the three and six months endedJune 30, 2022 , as compared to the same periods in 2021, was due to the shutdown of production at ourNewton, Iowa manufacturing facility at the end of the fourth quarter of 2021. The increase in theU.S. segment's field service, inspection and repair services sales was primarily due to increases in overall volume and demand for such services during the three and six months endedJune 30, 2022 , as compared to the same periods in 2021. The decrease in transportation sales for the three months endedJune 30, 2022 , as compared to the same period in 2021, was primarily due to cumulative catch-up adjustments in the prior comparative period as a result of a previous contract modification under one of our supply agreements. Transportation sales have remained consistent for the six months endedJune 30, 2022 as compared to the same period in 2021. Asia Segment
The following table summarizes our net sales by product/service for the
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands) (in thousands)
Wind blade
sales $ 56,232 $ 82,491 $ (26,259 ) (31.8 )% $ 92,631 $ 154,994 $ (62,363 ) (40.2 )%
Precision
molding and
assembly
systems sales 2,607 7,634 (5,027 ) (65.9 )
6,466 11,598 (5,132 ) (44.2 ) Field service, inspection and repair services sales 812 981 (169 ) (17.2 ) 1,780 1,289 491 38.1 Other sales 214 - 214 NM 334 153 181 118.3
Total net sales
28
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The decrease in the Asia segment's net sales of wind blades during the three and
six months ended June 30, 2022 , as compared to the same periods in 2021, was
primarily due to a 43% and 56% decrease in the number of wind blades produced,
respectively, due to a reduction of contracted manufacturing lines in China and
the startup of additional lines in 2022. The net sales decrease during the three
and six months ended June 30, 2022 was partially offset by an increase in the
average sales price of wind blades due to a change in the mix of wind blades
produced in the comparative periods.
Mexico Segment
The following table summarizes our net sales by product/service for the
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands) (in thousands)
Wind blade
sales $ 181,273 $ 131,188 $ 50,085 38.2 % $ 310,879 $ 239,630 $ 71,249 29.7 %
Precision
molding and
assembly
systems sales 227 5,969 (5,742 ) (96.2 ) 374 10,932 (10,558 ) (96.6 )
Field service,
inspection and
repair
services sales 3,015 962 2,053 NM 3,015 962 2,053 NM
Other sales 7,470 2,363 5,107 NM 8,113 5,710 2,403 42.1
Total netsales$ 191,985 $ 140,482 $ 51,503 36.7 %$ 322,381 $ 257,234 $ 65,147 25.3 % The increase in theMexico segment's net sales of wind blades during the three and six months endedJune 30, 2022 , as compared to the same periods in 2021, is primarily due to the commencement of production at our second manufacturing facility inMatamoros, Mexico that we took over fromNordex inJuly 2021 , and also reflects an increase in the average sales price of wind blades due to the mix of wind blades produced in the comparative periods. This increase was partially offset by the stop of production in one of ourJuarez, Mexico facilities at the end of the fourth quarter of 2021. The decrease in net sales from the manufacturing of precision molding and assembly systems is primarily due to a decrease in volume in the comparative periods. The increase in other sales for the three and six months endedJune 30, 2022 , as compared to the same periods in 2021, is primarily due to an increase in volume of ancillary wind-related sales and services.
EMEA Segment
The following table summarizes our net sales by product/service for the EMEA
segment for the three and six months ended
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands) (in thousands)
Wind blade
sales $ 126,438 $ 103,201 $ 23,237 22.5 % $ 273,287 $ 214,228 $ 59,059 27.6 %
Field service,
inspection and
repair
services sales 1,277 1,272 5 0.4 1,558 2,285 (727 ) (31.8 )
Other sales 1,895 877 1,018 116.1 4,450 1,203 3,247 NM
Total netsales$ 129,610 $ 105,350 $ 24,260 23.0 %$ 279,295 $ 217,716 $ 61,579 28.3 % The increase in the EMEA segment's net sales of wind blades during the three and six months endedJune 30, 2022 , as compared to the same periods in 2021, was primarily driven by a 29% and 26% increase in wind blade production at our twoTurkey plants. These net sales increases were partially offset by currency fluctuations. The fluctuatingU.S. dollar relative to the Euro had an unfavorable impact of 10.9% and 8.4% on net sales, respectively, during the three and six months endedJune 30, 2022 , as compared to the same periods in 2021. 29 --------------------------------------------------------------------------------
India Segment
The following table summarizes our net sales by product/service for the
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands) (in thousands)
Wind blade
sales $ 50,093 $ 62,397 $ (12,304 ) (19.7 )% $ 91,820 $ 109,977 $ (18,157 ) (16.5 )%
Field service,
inspection and
repair
services sales 2 - 2 NM 2 - 2 NM
Other sales 156 57 99 173.7 315 118 197 166.9
Total net
sales $ 50,251 $ 62,454 $ (12,203 ) (19.5 )% $92,137$ 110,095 $ (17,958 ) (16.3 )% The decrease in theIndia segment's net sales of wind blades during the three and six months endedJune 30, 2022 , as compared to the same periods in 2021, was primarily driven by a decrease in the average sales price of wind blades, a decrease in the year over year number of wind blades still in the production process at the end of the period and the transition of two of our manufacturing lines from one type of wind blade to a new type of wind blade in 2022.
Total cost of goods sold
The following table summarizes our total cost of goods sold for the three and
six months ended
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands) (in thousands)
Cost of sales$ 441,098 $ 440,416 $ 682 0.2 % $
812,052
Startup costs 2,527 4,504 (1,977 ) (43.9 ) 7,994 9,056 (1,062 ) (11.7 )
Transition
costs 7,520 5,595 1,925 34.4
17,596 15,397 2,199 14.3
Total startup and transition costs 10,047 10,099 (52 ) (0.5 )
25,590 24,453 1,137 4.7
Total cost of goods sold$ 451,145 $ 450,515 $ 630 0.1 $
837,642
% of net sales 99.7 % 98.2 % 1.5 % 100.0 % 98.2 % 1.8 % Total cost of goods sold as a percentage of net sales increased by approximately 1.5% and 1.8% during the three and six months endedJune 30, 2022 , respectively, as compared to the same periods in 2021, primarily driven by an increase in direct material costs. The fluctuatingU.S. dollar against the Turkish Lira, Euro, Chinese Renminbi and Mexican Peso had a favorable impact of 5.8% and 5.4% on consolidated cost of goods sold, respectively, for the three and six months endedJune 30, 2022 as compared to the 2021 periods. Included in the cost of sales for the three and six months endedJune 30, 2022 , is approximately$8.0 million and$15.1 million , respectively, in non-restructuring related operating costs that were associated with certain manufacturing facilities inNewton, Iowa ; Dafeng,China ; andJuarez, Mexico , where production has stopped.
General and administrative expenses
The following table summarizes our general and administrative expenses for the
three and six months ended
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands) (in thousands)
General and
administrative
expenses $ 6,688 $ 6,712 $ (24 ) (0.4 )% $ 14,548 $ 15,634 $ (1,086 ) (6.9 )%
% of net sales 1.5 1.5 0.0 1.7 1.8 (0.1 )
30-------------------------------------------------------------------------------- General and administrative expenses as a percentage of net sales for the three and six months endedJune 30, 2022 , remained consistent as compared to the same periods in 2021. Restructuring costs, net
The following table summarizes our restructuring costs, net for the three and
six months ended
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands) (in thousands)
Restructuring
charges, net $ 10 $ 2,196 $ (2,186 ) (99.5 )% $ 2,403 $ 2,454 $ (51 ) (2.1 )%
% of net
sales 0.0 0.5 (0.5 ) 0.3 0.3 -
The decrease in restructuring costs, net for the three and six months ended June
30, 2022 , as compared to the same periods in 2021, was primarily due to a
decrease in severance costs. The restructuring is associated with the
optimization of our global footprint, comprised primarily of severance benefits
to terminated employees as a result of the closure of our Newton, Iowa ; Dafeng,
China and Taicang, China manufacturing facilities.
Income (loss) from operations
Segment discussion
The following table summarizes our income (loss) from operations by our five geographic operating segments for the three and six months endedJune 30, 2022 and 2021: Three Months Ended Six Months Ended June 30, Change June 30, Change 2022 2021 $ % 2022 2021 $ % (in thousands) (in thousands)
U.S.$ (16,643 ) $ 2,836 $ (19,479 ) NM$ (23,177 ) $ (7,077 ) $ (16,100 ) NM Asia (156 ) 8,105 (8,261 ) (101.9 ) (6,265 ) 10,814 (17,079 ) (157.9 ) Mexico (14,268 ) (27,944 ) 13,676 48.9 (37,972 ) (33,675 ) (4,297 ) (12.8 ) EMEA 20,102 10,782 9,320 86.4 43,719 20,570 23,149 112.5 India 2,927 4,188 (1,261 ) (30.1 )
2,818 4,128 (1,310 ) (31.7 )
Total loss from
operations
NM % of net sales -1.8 % -0.4 % (1.4 )% -2.5 % -0.6 % (1.9 )% U.S. Segment The increase in the loss from operations in theU.S. segment for the three and six months endedJune 30, 2022 , as compared to the same periods in 2021, was primarily due to the decrease in wind blade volume due to the shutdown of production at ourNewton, Iowa manufacturing facility, a decrease in transportation sales, and increased labor costs for our field services, inspection and repair services.
Asia Segment
The decrease in the income from operations in theAsia segment for the three and six months endedJune 30, 2022 , as compared to the same periods in 2021, was primarily due to the decrease in the net sales of wind blades, restructuring charges incurred at our Taicang City,China and Dafeng,China manufacturing facilities and foreign currency fluctuations. This was partially offset by the fluctuatingU.S. dollar against the Chinese Renminbi which had a favorable impact of 1.7% and 0.5% on cost of goods sold, respectively, for the three and six months endedJune 30, 2022 , respectively, as compared to the 2021 periods.
Mexico Segment
The decrease in the loss from operations in theMexico segment for the three months endedJune 30, 2022 , as compared to the same period in 2021, was primarily due to an increase in average sales price and wind blade volume, partially offset by increased direct material and startup and transition costs at ourMexico manufacturing facilities. The increase in the loss from operations for the six 31 --------------------------------------------------------------------------------
months ended
EMEA Segment
The increase in the income from operations in the EMEA segment for the three and six months endedJune 30, 2022 , as compared to the same periods in 2021, was primarily driven by increased wind blade production at our twoTurkey manufacturing facilities and a decrease in startup and transition costs, partially offset by an increase in direct material costs as compared to the same periods in 2021. The fluctuatingU.S. dollar relative to the Turkish Lira and Euro had a favorable impact of 22.4% and 19.4% on cost of goods sold, respectively, for the three and six months endedJune 30, 2022 , respectively, as compared to the same periods in 2021.
India Segment
The decrease in the income from operations in theIndia segment for the three and six months endedJune 30, 2022 , as compared to the same periods in 2021, was primarily driven by a decrease in the average sales price of wind blades, a decrease in volume due to the transition of two of our manufacturing lines from one type of wind blade to a new type of wind blade and the continued expansion of ourIndia manufacturing facility, resulting in an increase in manufacturing overhead costs. Other income (expense)
The following table summarizes our total other income (expense) for the three
and six months ended
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands) (in thousands)
Interest
expense, net$ (913 ) $ (2,691 ) $ 1,778 66.1 %$ (1,682 ) $ (5,395 ) $ 3,713 68.8 % Foreign currency income (loss) 9,886 (6,504 ) 16,390 NM 10,096 (10,231 ) 20,327 198.7
Miscellaneous
income 309 321 (12 ) (3.7 )
851 1,060 (209 ) (19.7 )
Total other income (expense)$ 9,282 $ (8,874 ) $ 18,156 NM$ 9,265 $ (14,566 ) $ 23,831 163.6 % The change in the total other income (expense) for the three and six months endedJune 30, 2022 , as compared to the same periods in 2021, was primarily due to favorable foreign currency fluctuations, as well as a decrease in interest expense due to the repayment of the outstanding senior revolving credit facility in the prior year. Income taxes
The following table summarizes our income taxes for the three and six months
ended
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands) (in thousands)
Income tax benefit
(provision)
Effective tax rate 542.9 % -264.9 %
-83.5 % -110.0 %
See Note 11, Income Taxes, to our condensed consolidated financial statements for more details about our income taxes for the three and six months endedJune 30, 2022 and 2021.
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, the impact of transitions,
raw materials purchases, working capital, debt service costs, warranty costs and
restructuring costs associated with the optimization of our global footprint.
Our capital expenditures have been primarily related to machinery and equipment
at our
32
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new facilities and expansion and improvements at our existing facilities.
Historically, we have funded our working capital needs through cash flows from
operations, the proceeds received from our credit facilities and from proceeds
received from the issuance of stock. We had net repayments under our financing
arrangements of $12.4 million for the six months ended June 30, 2022 as compared
to net proceeds under our financing arrangements of $19.0 million in the
comparable period of 2021. As of June 30, 2022 and December 31, 2021 , we had
$62.3 million and $74.6 million in outstanding indebtedness, respectively. As of
June 30, 2022 , we had an aggregate of $88.9 million of remaining capacity for
cash and non-cash financing, including $64.5 million of remaining availability
for cash borrowing under our various credit facilities. In addition, we also may
elect, at our option through November 2023 , to require the holders of our Series
A Preferred Stock to purchase an additional $50.0 million of Series A Preferred
Stock on the same terms and conditions as the initial issuance of the Series A
Preferred Stock. Based upon current and anticipated levels of operations, we
believe that cash on hand, available credit facilities, and cash flows 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 cash flows from operations, the incurrence of other indebtedness
and other potential sources of liquidity. At June 30, 2022 and December 31,
2021 , we had unrestricted cash, cash equivalents and short-term investments
totaling $155.0 million and $242.2 million , respectively. The June 30, 2022
balance includes $59.8 million of cash located outside of the United States ,
including $12.5 million in China , $39.3 million in Turkey , $4.9 million in
India , $2.4 million in Mexico and $0.7 million in other countries.
Our ability to repatriate funds from China is subject to a number of
restrictions imposed by the Chinese government. We repatriate funds through
several technology license and corporate/administrative service agreements. We
are compensated quarterly based on agreed upon royalty rates for such
intellectual property licenses and quarterly fees for those services. Certain of
our subsidiaries are limited in their ability to declare dividends without first
meeting statutory restrictions of China , including retained earnings as
determined under Chinese-statutory accounting requirements. Until 50% ($26.6
million and $26.7 million , respectively, as of June 30, 2022 and December 31,
2021 ) of registered capital is contributed to a surplus reserve, our China
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, our China operations can pay dividends equal to 100% of after-tax profit
assuming other conditions are met. At June 30, 2022 and December 31, 2021 , the
amount of the surplus reserve fund was $9.5 million and $10.0 million ,
respectively. In July 2021 , China paid a dividend of approximately $19.5
million , net of withholding taxes, to our subsidiary in Switzerland .
Financing Facilities
Our total principal amount of debt outstanding as ofJune 30, 2022 was$62.3 million , including our secured and unsecured financing, working capital and term loan agreements and equipment finance leases. See Note 6, Long-Term Debt, Net of Current Maturities, to our condensed consolidated financial statements for more details on our debt balances.
Cash Flow Discussion
The following table summarizes our key cash flow activity for the six months
ended
Six Months Ended
June 30,
2022 2021 $ Change
(in thousands)
Net cash used in operating activities $ (59,161 ) $ (3,255 ) $ (55,906 )
Net cash used in investing activities (8,010 ) (27,059 ) 19,049
Net cash provided by (used in) financing activities (12,726 ) 23,702 (36,428 ) Impact of foreign exchange rates on cash, cash equivalents and restricted cash (8,649 ) (323 ) (8,326 ) Net change in cash, cash equivalents and restricted cash$ (88,546 ) $ (6,935 ) $ (81,611 ) Operating Cash Flows Net cash used in operating activities increased by$55.9 million for the six months endedJune 30, 2022 , as compared to the same period in 2021, as a result of working capital usage, primarily related to an increase in accounts receivable, and a decrease in accounts payable. In addition, the increase in net cash used in operating activities for the six months endedJune 30, 2022 , as compared to the same period in 2021, is due to an increase in contract assets, which was the result of increased procurement of customer specific 33 --------------------------------------------------------------------------------
materials in order to minimize the risk of potential production disruptions that
may occur given the recent COVID-19 impacts in
Investing Cash Flows
Net cash used in investing activities decreased by$19.0 million for the six months endedJune 30, 2022 , as compared to the same period in 2021, as a result of a decrease in capital expenditures. We anticipate fiscal year 2022 capital expenditures of approximately$17 million and we estimate that the cost that we will incur afterJune 30, 2022 to complete our current projects in process will be approximately$6.8 million . We have used, and will continue to use, cash flows from operations, the proceeds received from our credit facilities and the proceeds received from the issuance of stock for major projects currently being undertaken, which include the expansion of our manufacturing facility inChennai, India and the continued investment in our existing facilities inTurkey andMexico .
Financing Cash Flows
Net cash provided by financing activities decreased by$36.4 million for the six months endedJune 30, 2022 , as compared to the same period in 2021, primarily as a result of increased repayments of outstanding borrowings. We are not presently involved in any off-balance sheet arrangements, including transactions with unconsolidated special-purpose or other entities that would materially affect our financial position, results of operations, liquidity or capital resources, other than our accounts receivable assignment agreements described below. Furthermore, we do not have any relationships with special-purpose or other entities that provide off-balance sheet financing; liquidity, market risk or credit risk support; or engage in leasing or other services that may expose us to liability or risks of loss that are not reflected in the condensed consolidated financial statements and related notes. Our segments enter into accounts receivable assignment agreements with various financial institutions. Under these agreements, the financial institution buys, on a non-recourse basis, the accounts receivable amounts related to our segments' customers at an agreed-upon discount rate.
The following table summarizes certain key details of each of the accounts
receivable assignment agreements in place as of
Year Of Initial Agreement Segment(s) Related To Current Annual Discount Rate 2014 Mexico LIBOR plus 0.75% 2018 Mexico LIBOR plus 1.25% 2018 EMEA EURIBOR plus 0.75% 2019 Asia and Mexico LIBOR plus 1.00% 2019 Asia Fixed rate of 3.85% 2020 EMEA EURIBOR plus 1.95% 2020 India LIBOR plus 1.00% 2020 U.S. SOFR plus 0.16% 2021 Mexico SOFR plus 0.16% 2022 EMEA EURIBOR plus 1.97% As the receivables are purchased by the financial institutions under the agreements noted above, the receivables are removed from our condensed consolidated balance sheet. During the three and six months endedJune 30, 2022 ,$321.0 million and$541.1 million , respectively, of receivables were sold under the accounts receivable assignment agreements described above as compared to$360.8 million and$654.9 million , respectively, in the comparative prior year periods.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no significant changes to our critical accounting policies as
disclosed in our Annual Report on Form 10-K for the year ended
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2, Basis of Presentation, under the heading "Accounting Pronouncements"
to our condensed consolidated financial statements for a discussion of recent
accounting pronouncements.
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