Business Strategy
Our long-term success will also be driven by our business strategy. The key elements of our business strategy are as follows:
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Grow our existing relationships and develop new relationships with leading industry OEMs. We plan to continue growing and expanding our relationships with existing customers who, according to data from MAKE, represented approximately 42% of the global onshore wind energy market, approximately 63% of that market excluding China, and over 99.8% of the U.S. onshore wind turbine market over the three years ended December 31, 2016, based on MWs of energy capacity installed, as well as developing new relationships with other leading industry OEMs. We are presented with opportunities to expand our existing relationships and develop new relationships with industry OEMs as they seek to capitalize on the benefits of outsourced wind blade manufacturing while maintaining high quality customization and dedicated capacity. In 2016, we extended the term of our existing Iowa and Mexico supply agreements with GE Wind and entered into a new supply agreement with GE Wind to supply them with wind blades from our third manufacturing facility in Mexico, which became operational in January 2017. In March 2017, the Company and GE Wind announced that the parties do not intend to renew the Turkey supply agreement. In January 2016, we also entered into a new supply agreement with Gamesa whereby we will continue to supply wind blades to them from our existing manufacturing facility in Mexico as well as from our second Mexico manufacturing facility. We also extended the term of our
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existing Turkey supply agreement with Nordex and entered into a new supply agreement with Nordex to supply them with wind blades from our second manufacturing facility in Turkey. In January 2017, we extended the term of our existing China supply agreement with Vestas and also amended our existing Turkey supply agreement with Vestas. In March 2017, we entered into a long-term agreement with Gamesa to supply wind blades from one of our manufacturing facilities in Izmir, Turkey through 2022.
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Expand our footprint in large and growing wind markets, capitalize on the continuing outsourcing trend and evaluate strategic acquisitions. As the wind energy market continues to expand globally and many wind turbine OEMs continue to shift towards increased outsourcing of wind blade manufacturing, we believe we are well-positioned to continue the expansion of our global footprint. We utilize our strengths in composites technology and manufacturing, combined with our collaborative dedicated supplier model to provide our customers with an efficient solution for their expansion in large and growing wind markets. Our quality, reliability and total delivered cost reduce sourcing risk for our customers. In addition, our demonstrated ability to expand into new markets and the strength of our manufacturing capabilities afford us the optionality either to build new factories or grow through strategic acquisitions.
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Focus on continuing innovation. We have a history of innovation in advanced composite technologies and production techniques and use several proprietary technologies related to wind blade manufacturing. With this culture of innovation and a collaborative “design for manufacturability” approach, we continue to address increasing physical dimensions, demanding technical specifications and strict quality control requirements for our customers’ most advanced wind blades. We also invest in ongoing simplification and selective automation of production processes for increased efficiency and precision. In addition, we plan to leverage our history of composite industry-first innovations to grow our business in the transportation market, in which we believe there is a demand for high precision, structural composites manufacturing.
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Continue to drive down costs of wind energy . We continue to work with our customers on larger size wind blade models that maximize the capture of wind energy and drive down the levelized cost of energy. We also continue to utilize our advanced technology, regional manufacturing facilities strategically located to cost effectively serve large and growing wind markets and ability to source materials globally at competitive costs to deliver high-performing, composite wind blades at a lower total delivered cost. Our collaborative engineering approach and our advanced precision molding and assembly systems allow us to integrate our customer’s design requirements with cost-efficient, replicable and scalable manufacturing processes. We also continue to collaborate with our customers to drive down the cost of materials and production, the benefit of which we typically share with our customers contractually in a manner that reduces LCOE for customers, further strengthens our customer relationships and improves our margins.
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Recent Developments
In April 2017, we entered into a multiyear supply agreement with Vestas to supply wind blades from two manufacturing lines at a new manufacturing facility that will be constructed in Matamoros, Mexico. We also granted Vestas an option to add additional manufacturing lines to the scope of the supply agreement. We expect that the manufacturing facility will open for production in the first half of 2018 and that the wind blades produced at this manufacturing facility will primarily serve wind markets in Mexico, Central America and South America.
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Risks Related to Our Business
Our business is subject to many risks and uncertainties of which you should be aware before you decide to invest in our common stock. These risks are discussed more fully under “Risk Factors” in this prospectus. Some of these risks include, but are not limited to, the following:
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GE’s acquisition of LM, our largest competitor, may materially harm our business, financial condition and results of operations and may cause the price of our common stock to decline.
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The results of the 2016 United States presidential and congressional elections has created regulatory uncertainty for our business and the wind energy sector, and may materially harm our business, financial condition and results of operations.
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A significant portion of our business is derived from a small number of customers, and one wind blade customer in particular, therefore any loss of or reduction in purchase orders, failure of these customers to fulfill their obligations or our failure to secure long-term supply agreement renewals from these customers would materially harm our business.
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Defects in materials and workmanship or wind blade failures could harm our reputation, expose us to product warranty or other liability claims, decrease demand for our wind blades, or materially harm existing or prospective customer relationships.
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We have experienced and could in the future experience quality or operational issues in connection with plant construction or expansion, wind blade model transition and wind blade manufacturing, which could result in losses and cause delays in our ability to complete our projects and may therefore materially harm our business, financial condition and results of operations.
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Demand for our wind blades may fluctuate for a variety of reasons, including the growth of the wind industry, and decreases in demand could materially harm our business and may not be sufficient to support our growth strategy.
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We may not be able to manage our future growth effectively, which may materially harm our business, operating results and financial condition.
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We operate a substantial portion of our business in international markets and we may be unable to effectively manage a variety of currency, legal, regulatory, economic, social and political risks associated with our global operations and those in developing markets.
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Our financial position, revenue, operating results and profitability are difficult to predict and may vary from quarter to quarter, which could cause our share price to decline significantly.
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Implications of Being an Emerging Growth Company
We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:
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an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal control over financial reporting;
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an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;
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reduced disclosure about our executive compensation arrangements; and
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exemptions from the requirements to obtain a non-binding advisory vote on executive compensation or a shareholder approval of any golden parachute arrangements.
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We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of our initial public offering (IPO); (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission (SEC). We may choose to take advantage of some but not all of these exemptions. We have taken advantage of reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different from the information you receive from other public companies in which you hold stock. We have irrevocably elected to “opt out” of the exemption for the delayed adoption of certain accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Company and Other Information
We were founded in 1968 and have been providing composite wind blades since 2001. Our knowledge and experience of composite materials and manufacturing originates with our predecessor company, Tillotson Pearson Inc., a leading manufacturer of high-performance sail and powerboats along with a wide range of composite structures used in other industrial applications. Following the separation from our boat building business in 2004, we reorganized in Delaware as LCSI Holding, Inc. and then changed our corporate name to TPI Composites, Inc. in 2008. Today, we are headquartered in Scottsdale, Arizona, and we have expanded our global footprint to include domestic facilities in Newton, Iowa; Fall River, Massachusetts; Warren, Rhode Island; and Santa Teresa, New Mexico and international facilities in Dafeng, China; Taicang Port, China; Taicang City, China; Juárez, Mexico; and Izmir, Turkey. Together, as of March 31, 2017, we have approximately 3.5 million square feet of manufacturing space and nearly 8,000 employees, including materials and process engineers, manufacturing process engineers, quality assurance personnel and production workers.
Our wind blade and precision molding and assembly systems manufacturing businesses accounted for over 99% of our total net sales for the three months ended March 31, 2017 and for each of the years ended December 31, 2016, 2015 and 2014. We also leverage our advanced composite technology and history of innovation to supply high strength, lightweight and durable composite products to the transportation market. For a further discussion regarding our wind blade and precision molding and assembly system businesses, refer to the discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” included elsewhere in this prospectus.
In July 2016, we completed an initial public offering of 7,187,500 shares of our common stock at a price of $11.00 per share, which included 937,500 shares issued pursuant to the underwriters’ exercise of their option to purchase additional shares. Certain of our existing shareholders, a non-employee director and executive officers purchased an aggregate of 1,250,000 shares of common stock in the IPO included in the total issuance above. The net proceeds from the IPO were $67.2 million after deducting underwriting discounts and offering expenses. Immediately prior to the closing of the IPO, all shares of the then-outstanding redeemable preferred shares converted into an aggregate of 21,110,204 shares of common stock and the redeemable preferred share
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warrants converted on a net issuance basis into 120,923 shares of common stock. In addition, concurrent with the closing of the IPO, certain subordinated convertible promissory notes in the aggregate principal and interest amount of $11.9 million were converted into 1,079,749 shares of common stock at the public offering price of $11.00 per share.
Prior to the IPO, in July 2016 we amended our amended and restated certificate of incorporation to effect a 360-for-1 forward stock split of our common stock. As a result of the stock split, we have adjusted the share amounts authorized and issuable under our share-based compensation plans. All share and per share common stock information (including those related to our share-based compensation plans) referenced throughout the consolidated financial statements and notes thereto have been retroactively adjusted to reflect this stock split. The stock split did not cause an adjustment to the par value of the authorized shares of common stock.
Our principal executive offices are located at 8501 North Scottsdale Road, Gainey Center II, Suite 100, Scottsdale, Arizona 85253 and our telephone number is (480) 305-8910. Our website address is www.tpicomposites.com . The information contained on our website or that can be accessed through our website is not part of this prospectus, and investors should not rely on any such information in deciding whether to purchase our common stock.
This prospectus contains references to our trademarks. This prospectus contains additional trade names, trademarks and service marks of other companies. Those other trade names, trademarks and service marks are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies. Solely for convenience, the trademarks and trade names in this prospectus are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.
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THE OFFERING
Common stock offered by the selling stockholders
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4,500,000 shares
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Option to purchase additional shares from the selling stockholders
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The selling stockholders have granted the underwriters an option for a period of 30 days to purchase up to an additional 675,000 shares of common stock at the public offering price, less underwriting discounts.
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Use of proceeds
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The selling stockholders, which include certain of our executive officers, will receive all of the proceeds from the sale of shares in this offering. We will not receive any proceeds from the sale of shares in this offering.
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Concentration of Ownership
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Upon the completion of this offering, our executive officers and directors and stockholders holding more than 5% of our capital stock, and their affiliates, will beneficially own, in the aggregate, approximately 68% of our outstanding shares of common stock.
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Dividend Policy
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We currently intend to retain earnings, if any, to finance the development and growth of our business and do not anticipate paying cash dividends on the common stock in the future.
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NASDAQ trading symbol
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“TPIC”
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Risk factors
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You should read “Risk Factors” beginning on page 18 and other information included in this prospectus for a discussion of factors that you should consider carefully before deciding to invest in our common stock.
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The number of shares of common stock to be outstanding after this offering is based on 33,736,863 shares of common stock outstanding as of March 31, 2017 and excludes:
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3,309,818 shares of common stock issuable upon exercise of outstanding options as of March 31, 2017 at a weighted-average exercise price of $12.72 per share;
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636,120 shares of common stock issuable upon the vesting of restricted stock units outstanding as of March 31, 2017;
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160,424 shares of our common stock reserved for issuance in connection with the exercise of our outstanding warrants to purchase common stock issued on December 29, 2014 (the Common Warrants) which we issued in connection with our subordinated convertible promissory notes issued in December 2014 (the Subordinated Convertible Promissory Notes); and
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4,958,767 shares of our common stock reserved for future issuance under our Amended and Restated 2015 Stock Option and Incentive Plan (the 2015 Plan) and which contains provisions that automatically increase its share reserve each year.
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Except as otherwise indicated, all information in this prospectus:
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assumes no exercise by the underwriters of their option to purchase up to an additional 675,000 shares of common stock from the selling stockholders in this offering; and
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assumes no exercise of the outstanding options described above.
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