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OFFON

TPI COMPOSITES, INC.

(TPIC)
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TPI COMPOSITES : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

08/05/2021 | 04:16pm EST
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, particularly those under "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 and transportation markets.
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 in Scottsdale, Arizona and operate factories throughout
the U.S., China, Mexico, Turkey, and India. We operate additional engineering
development centers in Denmark and Germany.

Our business operations are defined geographically into five geographic
operating segments-(1) the United States (U.S.), (2) Asia, (3) Mexico, (4)
Europe, the Middle East and Africa (EMEA) and (5) India. See Note 14, Segment
Reporting, to our condensed consolidated financial statements for more details
about our operating segments.

KEY TRENDS AND RECENT DEVELOPMENTS AFFECTING OUR BUSINESS


The COVID-19 pandemic did not materially adversely affect our business and
operations during the three and six months ended June 30, 2021. Although all of
our manufacturing facilities currently are operating at or near normal
production levels, 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. For example, India and Turkey recently experienced significant
increases in positive COVID-19 cases although these resurgences did not have a
material impact on our operations during the three months ended June 30, 2021.
In addition, although we currently have not experienced any significant
disruptions in our global supply chain due to the COVID-19 pandemic, our global
supply chain may in the future be adversely affected if the COVID-19 pandemic
persists.



We expect decreased demand for our wind blades from our customers during the
remainder of 2021, in particular during the fourth quarter. We believe this
decrease in demand is short term and due to the continued global renewable
energy regulatory and policy uncertainty and raw material cost increases
mentioned below. The result is an expected adverse impact to our Adjusted EBITDA
in 2021 of approximately $28 million. We believe that general optimism around
potential legislation in the U.S. to extend the Production Tax Credit (PTC) on a
long-term basis is causing developers to reevaluate project timelines in
anticipation of being able to build projects at higher PTC levels once the
expected extensions are in place and therefore are not purchasing wind blades or
turbines to satisfy current PTC safe harbor requirements.



In 2021, there have been both significant price increases and supply constraints
with respect to resin and carbon fiber, which are key raw materials that we use
to manufacture our products, as well as increases in logistics costs to obtain
raw materials. The resin price increases and supply constraints are due to a
multitude of factors, including the extreme cold weather in Texas in February
2021, fires at resin manufacturing facilities in China and unplanned maintenance
outages at resin manufacturing facilities in Europe.  Carbon fiber prices have
increased primarily due to the cost of raw material inputs as well as increased
global demand for carbon fiber across multiple industries. These raw material
price increases adversely affected our results of operations by approximately
$4.4 million for both the three and six months ended June 30, 2021. We expect
that the price of resin and carbon fiber will remain at elevated levels for the
remainder of 2021. Approximately 55% of the resin and resin systems we use are
purchased under contracts either controlled or borne by two of our customers and
therefore these customers receive/bear 100% of any increase in resin prices.
With respect to our other customer supply agreements, our customers typically
bear 70% of any raw material price increases. After taking into account our
contractual share of any price increases for resin and carbon fiber, we estimate
that the impact of these raw materials price increases, together with increased
logistics costs, will adversely impact our results of operations by
approximately $20 million for 2021. If the supply of resin feedstocks and carbon
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 2021 and have a further material adverse impact on
our results of operations for the remainder of 2021.

                                       21

--------------------------------------------------------------------------------




We are forecasting to incur a total of between $22 million and $37 million of
restructuring charges associated with our global footprint alignment and
consolidation in 2021 and 2022 relating to our China and North America
operations. Between $15 million and $22 million of the total is forecasted to be
incurred in 2021, with the remainder in 2022. We are forecasting that between
20% to 30% of the restructuring charges will be non-cash.



In July 2021, we commenced supplying wind blades to one of our customers at a
manufacturing facility in Matamoros, Mexico pursuant to a 3-year supply
agreement.  In connection with the supply agreement, we will, among other
things, (1) operate the manufacturing facility, and (2) utilize our workforce,
procure raw materials and manufacture blades for the customer. The customer will
resume management and operation of the wind blade manufacturing facility at the
end of the 3-year term if the supply agreement is not extended and we will cease
to operate and supply blades from the customer's manufacturing facility.

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.

KEY FINANCIAL MEASURES



                         Three Months Ended           Six Months Ended
                              June 30,                    June 30,
                         2021          2020          2021          2020
                                         (in thousands)
Net sales              $ 458,841     $ 373,817     $ 863,521     $ 730,453
Net loss               $ (39,797 )   $ (66,101 )   $ (41,594 )   $ (66,593 )
EBITDA (1)             $   4,285     $  (2,628 )   $   9,699     $  (5,349 )
Adjusted EBITDA (1)    $  17,361     $   3,295     $  30,456     $   4,591
Capital expenditures                               $  27,059     $  42,030
Free cash flow (1)                                 $ (30,314 )   $ (69,035 )






                                          June 30,       December 31,
                                            2021             2020
                                                (in thousands)

Total debt, net of debt issuance costs $ 236,275 $ 216,867 Net debt (1)

                             $ (113,991 )   $      (88,061 )






(1)
See below for a reconciliation of EBITDA, adjusted EBITDA, free cash flow and
net debt to net income (loss), net income (loss), net cash provided by (used in)
operating activities and total debt, net of debt issuance costs, respectively,
the most directly comparable financial measures calculated and presented in
accordance with GAAP.

                                       22

--------------------------------------------------------------------------------

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,
                                     2021          2020          2021          2020
                                                     (in thousands)
Net loss                           $ (39,797 )   $ (66,101 )   $ (41,594 )   $ (66,593 )
Adjustments:
Depreciation and amortization         12,501        11,616        24,110        22,644
Interest expense, net                  2,691         2,545         5,395         4,316
Income tax provision                  28,890        49,312        21,788        34,284
EBITDA                                 4,285        (2,628 )       9,699        (5,349 )
Share-based compensation expense       2,925         2,374         5,324    

5,316

Foreign currency loss                  6,504         1,928        10,231    

968

Loss on sale of assets and asset

 impairments                           1,451         1,440         2,748         3,358
Restructuring charges, net             2,196           181         2,454           298
Adjusted EBITDA                    $  17,361     $   3,295     $  30,456     $   4,591



Free cash flow is reconciled as follows:



                                           Six Months Ended
                                               June 30,
                                          2021          2020
                                            (in thousands)
Net cash used in operating activities   $  (3,255 )   $ (27,005 )
Less capital expenditures                 (27,059 )     (42,030 )
Free cash flow                          $ (30,314 )   $ (69,035 )



Net debt is reconciled as follows:



                                               June 30,       December 31,
                                                 2021             2020
                                                     (in thousands)
Cash and cash equivalents                     $  123,107     $      129,857
Less total debt, net of debt issuance costs     (236,275 )         (216,867 )
Less debt issuance costs                            (823 )           (1,051 )
Net debt                                      $ (113,991 )   $      (88,061 )


KEY OPERATING METRICS



                                  Three Months Ended          Six Months Ended
                                       June 30,                   June 30,
                                   2021          2020         2021         2020
Sets                                   843          788         1,657       1,519
Estimated megawatts                  3,303        2,655         6,375       4,984
Utilization                             82 %         70 %          80 %        70 %
Dedicated manufacturing lines           50           52            50          52
Manufacturing lines installed           51           54            52          54






                                       23
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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 June 30, 2021 and 2020 that have been derived from our condensed consolidated statements of operations:



                                         Three Months Ended             Six Months Ended
                                              June 30,                      June 30,
                                         2021           2020           2021          2020
Net sales                                  100.0    %     100.0   %      100.0   %     100.0   %
Cost of sales                               96.0           98.4           95.4          98.0
Startup and transition costs                 2.2            2.9            2.8           3.2
Total cost of goods sold                    98.2          101.3           98.2         101.2
Gross profit (loss)                          1.8           (1.3 )          1.8          (1.2 )
General and administrative expenses          1.5            1.8            1.8           2.2
Loss on sale of assets and asset
impairments                                  0.3            0.4            0.3           0.5
Restructuring charges, net                   0.5            0.1            0.3           0.0
Loss from operations                        (0.5 )         (3.6 )         (0.6 )        (3.9 )
Total other expense                         (1.9 )         (0.9 )         (1.7 )        (0.5 )
Loss before income taxes                    (2.4 )         (4.5 )         (2.3 )        (4.4 )
Income tax provision                        (6.3 )        (13.2 )         (2.5 )        (4.7 )
Net loss                                    (8.7 )  %     (17.7 ) %       (4.8 ) %      (9.1 ) %




Net sales

Consolidated discussion

The following table summarizes our net sales by product/service for the three and six months ended June 30, 2021 and 2020:



                            Three Months Ended                                    Six Months Ended
                                 June 30,                    Change                   June 30,                    Change
                            2021          2020           $            %          2021          2020            $           %
                                     (in thousands)                                       (in thousands)

Wind blade sales $ 418,704 $ 348,063 $ 70,641 20.3 % $ 797,883 $ 684,400 $ 113,483 16.6 % Precision molding and

assembly systems sales 13,603 6,894 6,709 97.3 % 22,530 13,657 8,873 65.0 % Transportation sales 14,915 14,902

           13         0.1 %      23,046        21,791         1,255        5.8 %
Other sales                  11,619         3,958        7,661       193.6 %      20,062        10,605         9,457       89.2 %
Total net sales           $ 458,841     $ 373,817     $ 85,024        22.7 %   $ 863,521     $ 730,453     $ 133,068       18.2 %




The increase in net sales of wind blades during the three and six months ended
June 30, 2021 as compared to the same periods in 2020 was primarily driven by a
7% and 9% increase in the number of wind blades produced, respectively,
primarily as a result of increased production at our Mexico, India, Turkey and
Iowa facilities. The increase was also due to a higher average sales price due
to the mix of wind blade models produced during the three and six months ended
June 30, 2021 as compared to the same periods in 2020 and foreign currency
fluctuations. Additionally, when comparing our net sales during the three and
six months ended June 30, 2021 against the comparable prior year periods, our
net sales were negatively impacted by the removal of five contracted
manufacturing lines that expired in China at the end of 2020, which was
partially offset by the adverse impact that the COVID-19 pandemic had on our net
sales in the prior year periods. Finally, the net sales increases in both
periods were partially offset by a decrease in the year over year number of wind
blades still in the production process at the end of the periods. The
fluctuating U.S. dollar against the Euro in our Turkey operations and the
Chinese Renminbi in our China operations had a favorable impact of 1.8% and 1.7%
on consolidated net sales for the three and six months ended June 30, 2021,
respectively, as compared to the 2020 periods.

                                       24

--------------------------------------------------------------------------------

Segment discussion

The following table summarizes our net sales by our five geographic operating segments for the three and six months ended June 30, 2021 and 2020:




                      Three Months Ended                                     Six Months Ended
                           June 30,                    Change                    June 30,                    Change
                      2021          2020            $            %          2021          2020            $            %
                               (in thousands)                                        (in thousands)
U.S.                $  56,761     $  42,079     $  14,682        34.9 %   $ 106,047     $  89,510     $  16,537        18.5 %
Asia                   91,106       145,918       (54,812 )     -37.6 %     168,034       237,055       (69,021 )     -29.1 %
Mexico                143,170        83,420        59,750        71.6 %     261,629       201,670        59,959        29.7 %
EMEA                  105,350        87,541        17,809        20.3 %     217,716       176,498        41,218        23.4 %
India                  62,454        14,859        47,595          NM      

110,095 25,720 84,375 NM Total net sales $ 458,841 $ 373,817 $ 85,024 22.7 % $ 863,521 $ 730,453 $ 133,068 18.2 %


NM - not meaningful

U.S. Segment

The following table summarizes our net sales by product/service for the U.S. segment for the three and six months ended June 30, 2021 and 2020:



                         Three Months Ended                                    Six Months Ended
                              June 30,                    Change                   June 30,                   Change
                          2021          2020          $            %          2021          2020          $            %
                                  (in thousands)                                      (in thousands)
Wind blade sales       $   39,427     $ 26,309     $ 13,118        49.9 %   $  79,054     $ 62,242     $ 16,812        27.0 %
Transportation sales       12,227       14,539       (2,312 )     -15.9 %      18,651       21,218       (2,567 )     -12.1 %
Other sales                 5,107        1,231        3,876          NM     

8,342 6,050 2,292 37.9 % Total net sales $ 56,761 $ 42,079 $ 14,682 34.9 % $ 106,047 $ 89,510 $ 16,537 18.5 %





The increase in the U.S. segment's net sales of wind blades during the three and
six months ended June 30, 2021 as compared to the same periods in 2020 was
primarily due to a 35% and 17% increase in the number of wind blades produced,
respectively, primarily due to the adverse impact of the COVID-19 pandemic in
the prior year periods, as well as a higher average sales price of wind blade
models produced in the two comparative periods.

Asia Segment

The following table summarizes our net sales by product/service for the Asia segment for the three and six months ended June 30, 2021 and 2020:



                      Three Months Ended                                     Six Months Ended
                           June 30,                    Change                    June 30,                    Change
                      2021          2020            $            %          2021          2020            $            %
                               (in thousands)                                        (in thousands)
Wind blade sales    $  82,491     $ 141,540     $ (59,049 )     -41.7 %   $ 154,994     $ 227,416     $ (72,422 )     -31.8 %
Precision molding
and
  assembly
systems sales           7,634         3,576         4,058       113.5 %      11,598         8,637         2,961        34.3 %
Other sales               981           802           179        22.3 %       1,442         1,002           440        43.9 %
Total net sales     $  91,106     $ 145,918     $ (54,812 )     -37.6 %   $ 168,034     $ 237,055     $ (69,021 )     -29.1 %




The decrease in the Asia segment's net sales of wind blades during the three
months ended June 30, 2021 as compared to the same period in 2020 was primarily
due to a 52% decrease in the number of wind blades produced, primarily due to
the removal of five contracted manufacturing lines that expired in China at the
end of 2020. The sales decrease during the three months ended June 30, 2021 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 two comparative periods.
Additionally, for the three months ended June 30, 2021, there was an increase in
the period over period number of wind blades still in the production process at
the end of the period. The fluctuating U.S. dollar against the Chinese Renminbi
in our China operations had a favorable impact of 0.1% on consolidated net sales
for the three months ended June 30, 2021 as compared to the 2020 period.



                                       25

--------------------------------------------------------------------------------


The decrease in the Asia segment's net sales of wind blades during the six
months ended June 30, 2021 as compared to the same period in 2020 was primarily
due to a 35% decrease in the number of wind blades produced, primarily due to
the removal of five contracted manufacturing lines that expired in China at the
end of 2020, partially offset by the adverse impact that the COVID-19 pandemic
had on our net sales in the prior year period. In addition, for the six months
ended June 30, 2021, there was a decrease in the period over period number of
wind blades still in the production process at the end of the period. The sales
decreases during the six months ended June 30, 2021 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 two comparative periods. The fluctuating U.S. dollar
against the Chinese Renminbi in our China operations had a favorable impact of
0.2% on consolidated net sales for the six months ended June 30, 2021 as
compared to the 2020 period.

Mexico Segment

The following table summarizes our net sales by product/service for the Mexico segment for the three and six months ended June 30, 2021 and 2020:



                       Three Months Ended                                    Six Months Ended
                            June 30,                    Change                   June 30,                    Change
                        2021          2020          $            %          2021          2020           $            %
                                (in thousands)                                       (in thousands)
Wind blade sales     $  131,188     $ 78,193     $ 52,995        67.8 %   $ 239,630     $ 193,379     $ 46,251        23.9 %
Precision molding
and
  assembly systems
sales                     5,969        3,318        2,651        79.9 %      10,932         5,020        5,912       117.8 %
Transportation
sales                     2,688          363        2,325          NM         4,395           573        3,822          NM
Other sales               3,325        1,546        1,779       115.1 %    

6,672 2,698 3,974 147.3 % Total net sales $ 143,170 $ 83,420 $ 59,750 71.6 % $ 261,629 $ 201,670 $ 59,959 29.7 %





The increase in the Mexico segment's net sales of wind blades during the three
and six months ended June 30, 2021 as compared to the same periods in 2020
reflects a 76% and 24% net increase in overall wind blade volume, respectively,
primarily due to the adverse impact of the COVID-19 pandemic in the prior year
periods, as well as an increase in the average sales price of wind blades due to
the mix of wind blades produced in the two comparative periods.

EMEA Segment

The following table summarizes our net sales by product/service for the EMEA segment for the three and six months ended June 30, 2021 and 2020:



                     Three Months Ended                                   Six Months Ended
                          June 30,                   Change                   June 30,                   Change
                      2021          2020          $           %          2021          2020           $           %
                              (in thousands)                                      (in thousands)
Wind blade sales   $  103,201     $ 87,162     $ 16,039       18.4 %   $ 214,228     $ 175,643     $ 38,585       22.0 %
Other sales             2,149          379        1,770         NM         3,488           855        2,633         NM

Total net sales $ 105,350 $ 87,541 $ 17,809 20.3 % $ 217,716 $ 176,498 $ 41,218 23.4 %





The increase in the EMEA segment's net sales of wind blades during the three and
six months ended June 30, 2021 as compared to the same periods in 2020 was
driven by a 19% and 14% increase in wind blade production at our two Turkey
plants, respectively, primarily due to transitions and the adverse impact of the
COVID-19 pandemic in the prior year, as well as an increase in the average sales
price of wind blades produced in the two comparative periods and foreign
currency fluctuations. The sales increases for three months ended June 30, 2021
were partially offset by a decrease in the year over year number of wind blades
still in the production process at the end of the period. The fluctuating U.S.
dollar relative to the Euro had a favorable impact of 7.9% and 6.5% on net sales
during the three and six months ended June 30, 2021, respectively, as compared
to the 2020 periods.

                                       26
--------------------------------------------------------------------------------

India Segment

The following table summarizes our net sales by product/service for the India segment for the three and six months ended June 30, 2021 and 2020:



                     Three Months Ended                             Six Months Ended
                          June 30,                 Change               June 30,                Change
                      2021          2020          $         %      2021          2020          $         %
                              (in thousands)                               (in thousands)
Wind blade sales   $   62,397     $ 14,859     $ 47,538     NM   $ 109,977     $ 25,720     $ 84,257     NM
Other sales                57            -           57     NM         118            -          118     NM
Total net sales    $   62,454     $ 14,859     $ 47,595     NM   $ 110,095     $ 25,720     $ 84,375     NM




The increase in the India segment's net sales of wind blades during the three
and six months ended June 30, 2021 as compared to the same period in 2020 was
driven by the commencement of production in 2020, and the ramp up of such
production in 2021.



Total cost of goods sold

The following table summarizes our total cost of goods sold for the three and six months ended June 30, 2021 and 2020:



                       Three Months Ended                                    Six Months Ended
                            June 30,                    Change                   June 30,                    Change
                       2021          2020           $            %          2021          2020            $            %
                                (in thousands)                             

(in thousands)

Cost of sales $ 440,416 $ 367,644 $ 72,772 19.8 % $ 823,472 $ 716,119 $ 107,353 15.0 %

 Startup costs           4,504         6,897       (2,393 )     -34.7 %     

9,056 14,753 (5,697 ) -38.6 %

Transition costs 5,595 4,023 1,572 39.1 %

15,397 8,201 7,196 87.7 %

 Total startup and
transition
  costs                 10,099        10,920         (821 )      -7.5 %     

24,453 22,954 1,499 6.5 %

 Total cost of
goods sold           $ 450,515     $ 378,564     $ 71,951        19.0 %   $ 

847,925 $ 739,073 $ 108,852 14.7 %

 % of net sales           98.2 %       101.3 %                   -3.1 %        98.2 %       101.2 %                    -3.0 %




Total cost of goods sold as a percentage of net sales decreased by approximately
three percentage points during the three and six months ended June 30, 2021 as
compared to the same periods in 2020, driven primarily by a decrease in warranty
costs and direct labor costs, partially offset by an increase in direct material
costs and foreign currency fluctuations. The fluctuating U.S. dollar against the
Euro, Turkish Lira, Chinese Renminbi and Mexican Peso had an unfavorable impact
of 2.2% and 1.7% on consolidated cost of goods sold for the three and six months
ended June 30, 2021, respectively, as compared to the 2020 periods.

General and administrative expenses

The following table summarizes our general and administrative expenses for the three and six months ended June 30, 2021 and 2020:



                     Three Months Ended                                 Six Months Ended
                          June 30,                   Change                 June 30,                  Change
                      2021          2020          $          %          2021         2020          $          %
                             (in thousands)                                    (in thousands)
 General and
 administrative
expenses           $    6,712      $ 6,887     $  (175 )     -2.5 %   $ 15,634     $ 16,383     $  (749 )     -4.6 %
 % of net sales           1.5 %        1.8 %                 -0.3 %        1.8 %        2.2 %                 -0.4 %



The decreases in general and administrative expenses as a percentage of net sales for the three and six months ended June 30, 2021 as compared to the same periods in 2020 were primarily driven by our continued focus on reducing costs.


Restructuring costs, net



The increases in restructuring costs, net for the three and six months ended
June 30, 2021 as compared to the same periods in 2020 were associated with the
optimization of our global footprint, comprised of $2.2 million and $2.5
million, respectively, of severance benefits to terminated employees. All
severance benefits were paid to the terminated employees by the end of July
2021.

                                       27

--------------------------------------------------------------------------------

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 ended June 30, 2021
and 2020:



                       Three Months Ended                                      Six Months Ended
                            June 30,                     Change                    June 30,                     Change
                       2021          2020            $            %           2021          2020            $            %
                                (in thousands)                                         (in thousands)
U.S.                 $     148     $ (12,045 )   $  12,193        101.2 %   $ (11,472 )   $ (27,631 )   $  16,159         58.5 %
Asia                     8,105        18,492       (10,387 )      -56.2 %      10,814        23,564       (12,750 )      -54.1 %
Mexico                 (25,256 )     (11,324 )     (13,932 )     -123.0 %     (29,280 )     (13,092 )     (16,188 )     -123.6 %
EMEA                    10,782        (1,145 )      11,927           NM        20,570         1,519        19,051           NM
India                    4,188        (7,233 )      11,421        157.9 %  

4,128 (13,019 ) 17,147 131.7 % Total loss from operations

           $  (2,033 )   $ (13,255 )   $  11,222         84.7 %   

$ (5,240 ) $ (28,659 ) $ 23,419 81.7 %

 % of net sales           -0.4 %        -3.5 %                      3.1 %        -0.6 %        -3.9 %                      3.3 %




U.S. Segment

The decrease in the loss from operations in the U.S. segment for the three and
six months ended June 30, 2021 as compared to the same periods in 2020 was
primarily due to the increase in wind blade volume, an increase in the average
sales price of wind blades and a decrease in direct labor costs, partially
offset by an increase in direct material costs at our Newton, Iowa blade
facility.

Asia Segment


The decrease in the income from operations in the Asia segment for the three and
six months ended June 30, 2021 as compared to the same periods in 2020 was
primarily due to the decrease in the net sales of wind blades and foreign
currency fluctuations, partially offset by an increase in the average sales
price of wind blades. In addition, for the six months ended June 30, 2021, there
was a decrease in startup and transition costs. The fluctuating U.S. dollar
against the Chinese Renminbi had an unfavorable impact of 6.7% and 6.5% on cost
of goods sold for the three and six months ended June 30, 2021, respectively, as
compared to the 2020 periods.

Mexico Segment


The increase in the loss from operations in the Mexico segment for the three and
six months ended June 30, 2021 as compared to the same periods in 2020 was
primarily due to an increase in direct material costs and startup and transition
costs, partially offset by the increase in wind blade volume and an increase in
the average sales price of wind blades. In addition, for the three and six
months ended June 30, 2021, there was an increase and a decrease, respectively,
in warranty costs as compared to the 2020 periods. The fluctuating U.S. dollar
relative to the Mexican Peso had an unfavorable impact of 2.1% and 1.1% on cost
of goods sold for the three and six months ended June 30, 2021, respectively, as
compared to the 2020 periods.

EMEA Segment

The increase in the income from operations in the EMEA segment for the three and
six months ended June 30, 2021 as compared to the same periods in 2020 was
primarily driven by increased wind blade production at our two Turkey
manufacturing facilities, an increase in the average sales price of wind blades,
and a decrease in warranty costs. In addition, for the three months ended
June 30, 2021, there was a decrease in startup and transition costs as compared
to the 2020 period. Additionally, for the six months ended June 30, 2021, there
was an increase in direct material costs as compared to the 2020 period. The
fluctuating U.S. dollar relative to the Turkish Lira and Euro had an unfavorable
impact of 1.1% and 0.4% on cost of goods sold for the three and six months ended
June 30, 2021, respectively, as compared to the 2020 periods.

India Segment


The increase in the income from operations in the India segment for the three
and six months ended June 30, 2021 as compared to the same periods in 2020 was
driven by the commencement of production in 2020, and the ramp up of such
production in 2021.

                                       28

--------------------------------------------------------------------------------

Other income (expense)

The following table summarizes our total other income (expense) for the three and six months ended June 30, 2021 and 2020:



                           Three Months Ended                                     Six Months Ended
                                June 30,                    Change                    June 30,                   Change
                            2021          2020          $            %           2021          2020           $            %
                                    (in thousands)                                        (in thousands)

Interest expense, net $ (2,691 ) $ (2,545 ) $ (146 ) -5.7 % $ (5,395 ) $ (4,316 ) $ (1,079 ) -25.0 %

Foreign currency loss (6,504 ) (1,928 ) (4,576 ) NM

(10,231 ) (968 ) (9,263 ) NM

 Miscellaneous income           321          939         (618 )      -65.8 

% 1,060 1,634 (574 ) -35.1 %

Total other expense $ (8,874 ) $ (3,534 ) $ (5,340 ) -151.1 % $ (14,566 ) $ (3,650 ) $ (10,916 ) NM





The increase in the total other expense for the three and six months ended
June 30, 2021 as compared to the same periods in 2020 were primarily due to an
increase in the foreign currency loss primarily due to net Euro liability
exposure against the Turkish Lira in the current year periods as compared to the
same periods in 2020.

Income taxes

The following table summarizes our income taxes for the three and six months ended June 30, 2021 and 2020:



                          Three Months Ended                                   Six Months Ended
                               June 30,                   Change                   June 30,                   Change
                          2021          2020           $           %          2021          2020           $           %
                                   (in thousands)                                      (in thousands)

Income tax provision $ (28,890 ) $ (49,312 ) $ 20,422 41.4 % $ (21,788 ) $ (34,284 ) $ 12,496 36.4 %

 Effective tax rate        -264.9 %      -293.7 %                              -110.0 %      -106.1 %




See Note 9, Income Taxes, to our condensed consolidated financial statements for
more details about our income taxes for the three and six months ended June 30,
2021 and 2020.



Net loss

The following table summarizes our net loss for the three and six months ended June 30, 2021 and 2020:



                     Three Months Ended                                   Six Months Ended
                          June 30,                   Change                   June 30,                   Change
                     2021          2020           $           %          2021          2020           $           %
                              (in thousands)                               

(in thousands)

Net loss $ (39,797 ) $ (66,101 ) $ 26,304 39.8 % $ (41,594 ) $ (66,593 ) $ 24,999 37.5 %



The decrease in the net loss for the three and six months ended June 30, 2021 as
compared to the same periods in 2020 was primarily due to the reasons set forth
above. The diluted net loss per share was $1.08 for the three months ended
June 30, 2021, compared to a diluted net loss per share of $1.87 for the three
months ended June 30, 2020. The diluted net loss per share was $1.13 for the six
months ended June 30, 2021, compared to a diluted net loss per share of $1.89
for the six months ended June 30, 2020.

LIQUIDITY AND CAPITAL RESOURCES


As a result of the uncertainty relating to: (i) the evolving nature, magnitude
and duration of the COVID-19 pandemic, (ii) the variety of measures implemented
by governments around the world to address its effects and (iii) the impact on
our manufacturing operations, we have and will continue to manage our liquidity
to ensure our long-term viability until the COVID-19 pandemic abates.

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,
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 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 proceeds under our financing
arrangements of $19.0 million for the six months ended June 30, 2021 as compared
to net proceeds under our financing arrangements of $97.1 million in the
comparable period of 2020. As of June 30, 2021 and December 31, 2020, we had
$237.1 million and $217.9 million in outstanding indebtedness, excluding debt
issuance costs, respectively. As of June 30, 2021,

                                       29

--------------------------------------------------------------------------------


we had an aggregate of $115.9 million of remaining capacity and $91.1 million of
remaining 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, as well as increased raw material costs primarily related to
resin, carbon fiber and logistics. 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, 2021 and December 31,
2020, we had unrestricted cash, cash equivalents and short-term investments
totaling $123.1 million and $129.9 million, respectively. The June 30, 2021
balance includes $67.9 million of cash located outside of the United States,
including $58.7 million in China, $5.1 million in Turkey, $2.3 million in
Mexico, $1.5 million in India, and $0.3 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 as of June 30, 2021 and December 31, 2020) 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, 2021 and December 31, 2020, the amount of the surplus
reserve fund was $9.4 million and $7.0 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 of June 30, 2021 was $237.1
million, including our Credit Agreement, secured and unsecured financing
agreements and equipment finance leases. See Note 5, 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 June 30, 2021 and 2020:



                                                    Six Months Ended
                                                        June 30,
                                                   2021           2020         $ Change
                                                             (in thousands)
Net cash used in operating activities           $   (3,255 )   $  (27,005 )   $   23,750
Net cash used in investing activities              (27,059 )      (42,030 ) 

14,971

Net cash provided by financing activities           23,702         97,255        (73,553 )
Impact of foreign exchange rates on cash,
cash equivalents
  and restricted cash                                 (323 )       (2,525 ) 

2,202

Net change in cash, cash equivalents and
restricted cash                                 $   (6,935 )   $   25,695     $  (32,630 )


Operating Cash Flows

Net cash used in operating activities decreased by $23.8 million for the six
months ended June 30, 2021 as compared to the same period in 2020 primarily as a
result of higher operating results and favorable working capital usage.

Investing Cash Flows


Net cash used in investing activities decreased by $15.0 million for the six
months ended June 30, 2021 as compared to the same period in 2020 as a result of
a decrease in capital expenditures.

We anticipate fiscal year 2021 capital expenditures of between $55 million to
$65 million and we estimate that the cost that we will incur after June 30, 2021
to complete our current projects in process will be approximately $8.5 million.
We have used, and will

                                       30
--------------------------------------------------------------------------------


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 new manufacturing facilities
in Chennai, India and the continued investment in our existing Tukey, Mexico,
China and U.S. facilities.

Financing Cash Flows

Net cash provided by financing activities decreased by $73.6 million for the six
months ended June 30, 2021 as compared to the same period in 2020 primarily as a
result of decreased net borrowings on our revolving loans.

OFF-BALANCE SHEET TRANSACTIONS


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
segment's 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 June 30, 2021:



Year Of Initial Agreement   Segment(s) Related To   Current Annual Interest Rate
2014                         Mexico                  LIBOR 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.                    LIBOR plus 1.25%
2021                         Mexico                  LIBOR plus 1.25%




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 months ended June 30, 2021 and
2020, $360.8 million and $235.7 million, respectively, and during the six months
ended June 30, 2021 and 2020, $654.9 million and $459.9 million, respectively,
of receivables were sold under the accounts receivable assignment agreements
described above.

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.

RECENT ACCOUNTING PRONOUNCEMENTS


See Note 1, Basis of Presentation, under the heading "Accounting Pronouncements"
to our condensed consolidated financial statements for a discussion of recent
accounting pronouncements.

CONTRACTUAL OBLIGATIONS


During the six months ended June 30, 2021, there have been no material changes
to the contractual obligations reported in our Annual Report on Form 10-K, other
than in the ordinary course of business.

© Edgar Online, source Glimpses

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