Q1 2021 TPI Composites Inc Earnings Call
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[music], Inc.
Thank you for joining our call. In addition to Christian I'm joined today by Brian Shoemaker CFO on <unk>.
<unk> review, our first quarter results in activities discuss the current operational status of our manufacturing facilities, including our supply chain given update on our global services and transportation businesses and then of quick update on the wind energy market from.
Ryan will then review our financial results in detail and then we'll open the call for Q&A. Please turn to slide five we.
We had a strong first quarter of which we delivered net sales of 404 $7 million of 13.5% increase over Q1 of 2020.
And adjusted EBITDA of $13 $1 million or three 2% of net sales and $11.8 million increase over Q1 of 2020, we.
We started when Blair production in India for Nordics, We published our second ESG report, where we laid out specific goals related the safety gender and racial ethnicity for our board of directors and leadership teams as well as the place to become carbon neutral by 2030 with of 100% of our energy being procured from renewable sources.
We remain focused on operating our business is safely while continuing to mitigate the impact of COVID-19, and ensuring that we are prepared to deal with continued resurgence as of the virus and any of our global locations. We have and will continue to adapt our operating procedures in order to enable our associates to work safely and continue to meet our.
Customers demand.
Turning to slide seven on the now give you a quick update of our global operations as well as the market update.
During the first quarter, we continued to operate all of our facilities at normal levels and China production continued as normal we're still working on back filling the five lines that were taken out of production at the end of last year stay tuned.
In India production for versus continued on interrupted and we started production on two lines for Nordics. The country of India is currently experiencing a significant increase in COVID-19 cases, but this is not currently having the material impact on our operations. We will continue to monitor the situation very closely including the impact on our supply chain.
And work to protect our associates and their families as we have through the entire pandemic.
And Turkey production continued as normal while we continue the transition of three lines during the first quarter true.
He also experienced an increase in COVID-19 cases late in the queue. One in in the queue too. So we are monitoring the situation very closely and continuing our measures to protect our associates and their families. There's been no disruption to our operation as a result of the spike in cases and.
In Mexico production also continue that normal levels.
We are currently in the midst of of transition of two lines in Matamoros, and we plan to have four lines in transition in Juarez in queue to with four of more lines in transition in Mexico during 2021 and.
In the U S played in transportation production has continued uninterrupted we have already conducted multiple mass vaccination events for our associates in Newton, Iowa and are working with state and local authorities in Rhode Island to offer the same to our associates there.
On the service side of the business, we are continuing to build out the team in order to support the growing customer opportunities. We have in our securing and now have approximately 250 technicians and increase of of over 30% since the beginning of 2020.
Training facility incentive trace the new Mexico is up and operating and we plan to open another training facility in Europe. This year the support our European service operations.
From of transportation perspective during the quarter, we continued to the to deliver parts for multiple passenger electric vehicle manufacturers. We are pleased with the progress and experienced that we are gaining with the automated production line in Rhode Island to demonstrate cycle times quality, repeatability scalability and costs for our customers and.
To expand our product portfolio with these advanced technology solutions, we on our collaborating with six Oems on cabin body structures and with nine Oems related to electric vehicle component parts.
Examples of cabin body structures are buses class eight cabs and delivery vehicles that enable light waiting reduced upfront capital investments and are highly durable structures.
Examples of electric vehicle components include Underbody protection battery enclosures and body panels parts to enable lighter weight hydroa ability in the normal resistance. We are continuing to build our transportation team and plan to continue to add leadership with deep automotive experience to accelerate the execution of our strata.
Itchy.
With respect to our supply chain no issues materially impacted our production in Q1, but we have seen cost increases some availability issues unless the logistics challenges over the last quarter.
In addition to fabrics, which include fiberglass and carbon and consumables, we experienced both the price increases and supply constraints related to epoxy resin feedstocks due to the extreme cold weather in Texas in February factory fires plant closures and unplanned extended maintenance outages in China in Europe, we.
Continue to manage to the congestion in the Los Angeles area of ports and of global containers shortage, causing increases and logistics costs.
Brian will speak to the financial impact on a moment, but as they have demonstrated during the pandemic and prior materials challenges our supply chain team has done a phenomenal job of finding alternative sources, securing enough materials and finding new logistics routes to enable minimal disruptions to our operations and deliveries to our customers.
We see early signs of supply constraints easing and expect market price and to improve beginning in Q3.
And finally, we are actively engaged in evaluating multiple opportunities to build out and add to our current technologies and capabilities and are excited about the opportunities we see to accelerate the growth and expand the breath and strength of our business.
As it relates to the wind market since our last call. The Biden administration has made several significant announcements that could positively impact our business over the long term first the proposed infrastructure Bill has many components that have the potential to help accelerate the growth of wind installations in the U S to highlight of few first the energy efficiency and.
Clean electricity standard would aim to achieve the 100 per cent carbon free electricity by 2035.
Second transmission targeted investment tax credit that incentivizes, the build out of at least 20 gigawatts of high voltage capacity lines and third of tenure extension of of the production tax credit and potential for direct pay option separately, Sandra Senator Wyden reintroduced the bill.
With the technology neutral framework that would allow power producers to qualify for either of production tax credit on investment tax credit for facilities was zero of negative carbon emissions relating to offshore wind the bite administration announced the government why go to install 30 gigawatts of offshore by 2030 finally is.
Heart of the climate some of the administration announced the new go for the U S to cut its greenhouse gas emissions in half by 2030 as part of the Paris climate agreement.
Other countries, including Canada, Japan, Brazil, the UK and South Korea increase their commitments as well, while the EU Parliament in member States pass legislation requiring of 55% reduction in carbon emissions by 2030, compared with 19 levels and that's up from 40%.
Since our last call Woodmac has increased its onshore U S forecast for 2020 122025 by approximately 19% and that includes a 50% increase for 2022 alone. This forecast suggests that the competitiveness and strength of the wind markets continues to improve as we've been discussing for some time.
While these policy announcements may not cause of the short term installations to increase and in some cases, we may see installations pushed out of due to the additional potential time for developers and other stakeholders to recognize the benefits of incentives such as the PTC. These are clearly very strong positive signals as we look out over the longer term period.
We believe in the future for wind energy will continue to strength and given the initiatives and goals to promote the acceleration of the energy transition our long term goals, including 18 gigawatts of the capacity, 20% market share and 2 billion of wind revenue do not yet reflect the potential impact of the accelerating energy transition.
We believe the long term opportunity for us on the wind of significant and we will update our targets as we develop better clarity through discussions with our customers developers utilities, an asset owners. Finally, we remain focus on the health and safety of our associates, while executing on our operating imperatives and ESG activities to drive profitable growth and long term.
<unk> shareholder value with that let me turn the call over to Brian.
Thanks, Bill please turn to slide of 11.
All comparisons made today will be on a year over year basis compared to the same period in 2020 for the first quarter ended March 31, 2021, net sales increased by $48 million or 13.5% to $404 7 million net sales of wind blades increased by 12, 7% to three on.
Third $79.2 million. This was primarily driven by an 11% increase in the number of of wind blades produced year over year and an increase in the average selling price due to the mix of wind blades produced.
Startup in transition costs from the quarter increased by $2.3 million to 14.4 million as we continue to ramp or India facility and transition lines to bigger blade in Mexico, and Turkey are general and administrative expenses for the quarter decreased by $6 million to eight $9 million and G&A as a percentage of net sales.
Decreased 50 basis points to two 2% of net sales. This decrease was primarily related to a decrease in travel on training costs due to the COVID-19.
And our continued focus on reducing costs.
Before share based compensation G&A as a percentage of net sales was one 7% and one 9% in Q1 of 2021 and 2020, respectively.
Foreign currency loss was three 7 million in Q1, 2021 as compared to foreign currency income of $1 million in queue on 2020.
This increase was primarily due to euro liability exposure against the Turkish lira as a reminder on of cash flow basis. This exposures naturally hedge due to our euro denominated of revenue contracts approximately 22% of our revenue in Q1 2021 was denominated in euros.
Our income tax benefit for the quarter was seven $1 million as compared to $15 million for the prior year period.
This decrease was primarily due to our forecast the jurisdictional mix of income we're forecasting our cash tax liability to be approximately $20 million to $23 million for 2021.
Net loss for the quarter was $1.8 million as compared to a net loss of point $5 million in the same period in 2020.
This increase was primarily due to the reasons previously described net loss per share was five for the quarter compared to of net loss of one cent per.
Per share for the same period in 2020.
Or just did EBIT for Q1 was $13 $1 million or three 2% of net sales with the utilization rate of 77% for lines installed a quarter. In this compares to adjusted EBITDA of $1.3 million or 4% of net sales and utilization of 70% in the same period in 2020.
We estimate that adjusted EBITDA was negatively impacted by $2.4 million associated with COVID-19 related costs during Q1 2021.
Moving to slide 12.
We ended the quarter with of $136 $2 million of cash and cash equivalents net debt of $99 million and of driven down our net debt leverage ratio to lessen 175 as calculated under our credit agreement.
As you May recall call, we amended our credit facility last year to provide us with additional liquidity and increased flexibility with regards to our financial covenants to help manage through of COVID-19 pandemic during the quarter, we terminated the adjustment period of quarter early do our ability to drive on net leverage ratio down following the termination of the adjust.
My period adjustments to our total net leverage ratio covenants were removed interest rates were decreased and the minimum liquidity covenants and mandatory repayment triggers were discontinued.
During the quarter, we incurred $18 $8 million of Capex as we continue to build out our India plant in transition lines in Mexico and Turkey.
Turning to slide 13.
For 2021, we are reaffirming full year guidance that we provided in February. This is despite increased commodity prices, specifically rather than an inbound freight costs. The bill mentioned earlier, the supply constraints and resulting resin price increases are due to a multitude of factors, including the extreme cold weather in Texas in February.
Of 2021 fires at rather than manufacturing facilities in China, and unplanned extended maintenance outages at resin manufacturing facilities in Europe.
The capacity is beginning to come back on line and we expect rather than prices will begin to decline in Q3 2021.
We remain focused on managing our liquidity to provide financial security and flexibility as we drive through the current environment and execute our strategy to capitalize on the acceleration of the energy transition. We are excited about the multiple opportunities we are evaluating to build out and add to our current technologies and capabilities to support the growth breadth and strength of our.
Business.
Our overall mission to Decarbonize and electrify remains unchanged, we will continue to optimize our global footprint, while using leverage of our global scale.
For operating and supply chain efficiencies to continue to drive down cost all while maintaining a strong balance sheet.
Given the broader wind on electric vehicle industry tailwind our position on the market and our relationships with our customers. We remain excited because of the future here of TPI.
Finally, I want to thank our dedicated TPI associates for their commitment and dedication and for their continued resilience, enabling us to deliver on our commitments to our customers in these challenging times. Thank you again for your time today on with that operator. Please open the line for questions.
Thank you.
I would like to register a question. Please press the one followed by the four on your telephone you will hear three tone prompt to acknowledge the request. If your question has been answered on you would like to withdraw your registration. Please press. The one followed by the <unk> one moment. Please for the first question.
And our first question comes from the line of Eric Stine with Craig Hallum. Please proceed with your question.
Yes, good afternoon, it's Eric the hall on for Eric Thanks for taking the questions.
You bet good to hear did you talk to you.
You as well maybe first on on outsourcing given some of the things we've seen on the supply chain.
And as other industry dynamics.
Do you think that that's going to strengthen the the trend toward outsourcing or closing here as we look over the next year or so.
Yes, I don't think we've seen anything that would suggest otherwise so we still have a pretty robust pipeline with a lot of activity. So we.
We haven't seen anything that would suggest the trend would would slow on a reverse in any way.
Alright, Thanks, and maybe second on the EBIT side. Thanks for the color on on kind of the number of programs can you just maybe give a little more detail on how the.
The conversations have trended maybe in recent months.
And.
The more programs you.
You might look to add as we kind of progress towards that $500 million goal.
Yes, it's hard to tell how many will add go going forward clearly, but the conversations of obviously progressed very nicely. We've seen a lot of activity a lot of interest which is.
While we've added a number of development agreements over the last quarter.
So I think I think it's.
It's been extremely active I think people are starting to understand the true value proposition of the composite structure, whether that'd be a body or of component with the strength in the lightweight nature of it.
We're getting down to a place where we're working towards the cost parity.
Model and I think once we get there then youll see some more traction.
Alright sounds good thanks for taking the questions.
You bet. Thank you.
Okay.
Our next question comes from the line of Laura Sanchez with Morgan Stanley. Please proceed with your question.
Thanks, Hi, Bill and Brian. Thank you for taking my question.
You bet adjusted EBITDA of for the quarter. It came in a little bit above the guided level and you talked about the impact from increased raw material cost and and we also here the Oems talk about transportation challenges.
So are there any factors offsetting this.
Challenges that allow you to keep 2021 guidance unchanged.
Yeah I think.
On that one first of all of that Bryan speak, but I think we've got some pretty aggressive cost out goals.
And the number of areas that we're that we're executing on.
When we talk about raw material cost increases and I think most of you remember we have shared pain gain in our in our contracts. So there is a bit of of sharing but I think more importantly is our supply chain team just does an amazing job of locking in pricing on virtually all of our commodities with the exception of resin.
And that kind of adjust quarterly, but almost everything else. We're locking in a year in advance. So you may see market prices increasing on some of these commodities, but that may not actually impact what are all of our pricing is so although we will see a bit of a of an impact from resin as Brian suggested.
Most of the other commodities, we've we've locked in pricing. So any increase there is impacting us much less than it might otherwise.
Perfect and the follow up on line.
About the 70 30 sharing mechanism.
How often does that get reset warehouse of the accounting of work.
Well I'll, let Brian handle the accounting, but from a from a contract standpoint, it varies a bit by customer. So some of our customers. It's two times of year some of our customers, It's quarterly and then.
Another customer we have where it's just an annual.
Adjustments so it does vary across the board so really you're.
On one customer it's one year on everything else is generally quarterly or semiannual, but most of them are quarterly.
Yes, and then from an accounting standpoint of view think of under the 606 that we talked about quite of that.
If you look at that I mean, it gets smoothed out the margins over the life of the contracts. So just keeping that in mind, but again this piece of the $5 million. We believe we will hit in Q2, which will be the primary portion of it for the year.
Perfect.
Yes, that's a good reminder, and last one on the and this is more longer term.
Is there any potential.
Do you see on a potential and kind of being a part of the big organization of the shipping industry.
I remember correctly before you started manufacturing the blades manufactured sales and power boats. So I'm wondering if the ocean shipping industry would represent another market for you longer term.
Matt will be really.
Interestingly enough we've been approached on on some unique propulsion systems for ocean going.
Ships as it relates to wind.
But as far as the the ships themselves no that's not something that we're focused on at this point.
Understood. Thank you for your time.
You bet. Thank you Laura.
Okay.
And our next question comes from the line of Greg Lewis with the items. Please proceed with your question.
Yeah. Thank you and good afternoon everybody.
I was hoping to get a little bit more color.
Around the other revenue.
You maintained the guidance of that so it looks like that's going to step on.
Just looking on roughly.
Looks like on the revenue of more of a like downstream.
Laddish.
Any kind of color around that.
Knowing that you either have the component parts of that probably.
On the transport side that probably picks up before the <unk>.
Kathy.
The body.
It was kind of way to think about that over the next few quarters.
Yes, I mean, the guidance I gave earlier was about a third of third a third of kind of the overall total guidance that I gave now with that number is in there as the field services. So youll continue to see that increase as we have a bigger focus on that.
So thats why were.
Continue the focus on continuing to drive that and growing it. So you will see that going up over the period of the year.
Okay, and so then as I think about transport realizing that it's still kind of in the incubation stage.
Hum.
When we think you mentioned that the six Oems with the body.
The.
Parks.
Any kind of way, we should be thinking about the.
The growth of either I mean are they going to kind of be in parallel or do we think it could be something where one leads together and then as we think about that.
Should there be any differentiation around margin or to that line.
Kind of be the same.
So you are asking whether the cab or component will grab faster grow faster and then whether there's a differentiation in margin is that the question.
Yes, yes.
Yes exactly.
Greg of really just depends on which grows faster I mean, clearly we've got opportunities in both.
Some of the cat stuff takes a little bit longer to develop as you might imagine compared to the component.
But it might be longer run so I think it's a little hard to say, we're obviously focused on both.
So that's the answer as far as what the split may be or the or the speed of of growth for reach and on the margin side I think as I mentioned we.
We're working the cost side pretty hard to bring it down to not only be of benefit because of the light weight, but also be more of the cost parity.
But we believe right now margins should be relatively consistent across both and of part of it will just depend on volumes and what the what the capex requirements are.
From our customers, but at this point, it's a little early to tell.
Which will be a better margin, but we're working on them to be consistent with kind of with where our wind margins have been in the past.
Okay, great. Thank you very much.
Yes, Thank you Greg.
The next question comes from the line of Graham price with of Raymond James. Please proceed with your question.
Hi, good afternoon, and thanks for taking my questions.
You you spoke a bit last quarter about potentially of consolidated on your plate facilities in China.
Just wanted to check in and see if there are any updates on that front and I guess since the.
Indeed, the COVID-19 situation kind of plays into that in any way.
Yes, so we're still we're still looking to optimize our Chinese our China footprint, we've got three facilities there now.
So we are continuing to look on what the optimal situation for US is in China based on not only demand from our existing customers and other western Oems, but also because I think I mentioned in the last call discussions, we're having with some of the Chinese Oems. So we're.
So we're still working on on the optimization of the footprint.
So that's where I would leave that and as it relates to COVID-19.
The COVID-19 really no impact on what we're doing in China or as it relates to the footprint there.
<unk> had a COVID-19 hit hit us in China, very first but it has had the least amount of impact on operations there throughout the whole period.
So really no impact from COVID-19 for us there.
Got it thanks.
And then from my follow up.
Thank you specifically about sourcing balsa wood.
Any inflation concerns there.
In addition to the the Oxy RASM.
No actually quite the opposite we've seen a pretty significant drop in market price for balsa since last year.
Call of last year, we had some challenges at the end of the 19 and end of 'twenty exacerbated by COVID-19.
But we are in very good shape from a bulk standpoint in the Boston market at this point today.
Great Great that's good to hear.
Thats It from me thanks.
Great. Thank you I appreciate the questions.
And our next question comes from the line of Steven Kent Gary.
The Stifel. Please proceed with your question.
Thanks, Good afternoon gentlemen.
Good afternoon.
Two things from me. The first can you help us a little bit what's sort of the the.
On the stair steps really the big drivers of the.
The EBITDA.
Rent second half versus first half just kind of.
One of the major components.
Move us.
Sharply higher in the back half of the year.
Yes, there's a few things going on right you have one of the costs that we talked about that will be impacting on which is minimal but it's about the <unk> that we referenced from the raw material increase the other portion I mean, you have India ramping up so they'll continue to ramp up we have seven lines in transition right now.
Cross the Mexico, Turkey, and those will be ramping up that back half of the year also and we see some I'll say revenue shift from Q2 out of the Q3 Q4 timeframe. So that's another big push that we're seeing.
We feel I mean, right now I mean, it's starting to fill on that back half of the year and kind of where we're coming out to see that utilization going up to achieve those numbers. Yes. I think that's the key is the utilization of if you look at the utilization numbers going out in Q3 and Q4, you'll see numbers that are.
Much much higher than we than we experienced here in the first quarter for share.
Okay, great. Thank you and just sort.
The follow up when we think about the.
Opportunity.
Sure and I'm thinking probably more U S international with the question.
Where are you.
Sort of on the lead time on wing.
You start to when you start to.
Setup relationships contract book work with the Oems.
For the offshore side.
Just give me a sense of the timing.
Yeah, it's right its right now.
So.
I mean, if you think about the time it takes to set up the new facility.
Secure the land et cetera et cetera. So we were in discussions to day and have been for quite some time with Oems on opportunities for offshore specifically on the east coast of the U S. So.
That's happening now we would expect.
Maybe announcements would probably be it's shifted a little bit to the right, but we're thinking early 2022, right now with production likely in 'twenty four.
Timeframe.
So there's quite a long lead time theres a lots of has to happen between now and the time we.
By the time.
Turbines get erected in the water so.
Great. Thank you for the color John.
You bet. Thank you.
Our next question comes from the line of James West with Evercore ISI. Please proceed with your question.
Hey, good afternoon guys.
Good afternoon.
The Bill you laid out.
The the recent policy changes.
Washington, and other places around the world that are kind of accelerating the energy transition and you guys have a number of lines that are also in the transition and just talk to them on a go about preparing for offshore but has this.
Acceleration, that's probably the driven.
<unk> has it caused you to sort of think about even incremental line from what you already have plan.
Yes, no good question.
<unk> and <unk>.
Absolutely I mean, I mentioned, we're in discussions and having talks with customers and there are customers customers et cetera.
But absolutely that's that's.
Part of what we've been doing through the first quarter and into the second quarter is having.
Long term planning discussions with customers understanding.
Markets, where the growth is where the needs are where capacity is today and where it needs to be tomorrow or over the next five to 10 years.
So that's a dozen active and ongoing exercise right now.
But if you if you look at it.
If the numbers.
That some people are putting out there come to fruition I mean, theres going to be more capacity needed in different parts of the world or in the R&R existing locations as well to certainly meet the demands of the market. I mean, there is talk of three times the number of cars.
The amount of installation is just in the U S market right.
And then it would deem it need even more than that in Europe to hit their targets. So.
Yes. The answer is we will be looking at that footprint over the next.
The six to 12 months and.
And then decided and kind of where the next where the next growth location may or may not be.
Okay. Good to hear the trigger a follow up on the resin.
The cost issue I know you expect that to come down in the third quarter is that as the supply already contracted so you have good visibility on that.
So we have we have supply secured pricing is what can move.
So the pricing moves quarterly based on some indices that we have agreed on with the couple of our strategic suppliers.
So the price can move but as youll recall.
As we reset with our customers there is a sharing of that price increase or as price come down the price decrease right. So.
Okay makes sense, yes.
You bet. Thank you.
Yeah.
Sure.
As a reminder to register for a question. Please press the one followed by the four on your telephone.
Our next question comes from the line of Jeff Osborne with Cowen. Please proceed with your question.
Hey, Bill.
Two quick questions on the EV side. So the six of nine customers that you referenced are those of how people youre, making the prototypes are those prototypes or are those contracted volumes what's.
What's the nature of that so it's procurement and the six of nine or no.
Yes, <unk> would be in there and Thats, obviously contracted right.
And then there are the.
From a cash standpoint, it's more development if you will.
Clearly we have discussed the navistar arrangement, we have so that's in there as well.
But most of them are development that would that we anticipate will lead to production down the road and on the components side. There are two of them where the it was that it was the.
Production parts for existing vehicles.
And then we've got a bunch of stuff that's in again development phase with the number of a number of Oems.
Got it and then again holding Inc.
The.
I'm sorry of the plan is is that the development, obviously would lead to production deals.
<unk>.
Got it.
And I know years ago, you had the Doe funded program with GM, if my Memory's right, if something like that for door panels were to take off for say the F 150, making roughly a million vehicles a year.
What's the Capex implications.
For the sort of broader vision, because it seems like you're getting quite of bit of success in moving the ball forward here, but I wasn't sure is Rhode Island, the equipped to do this or do the Iowa.
Or would this be done.
Yes.
We've got the we've got the pilot production line in and Rhode Island right now that we are running production parts off of.
But know that we couldnt do that type of volume out of Rhode Island. Our thought here is that if we were running on components.
That we would likely be co located either in or near our customers plant.
So I can't tell you what the Capex would be today for a per 1 million F 150 doors I'd like to have the opportunity to figure that out and we certainly would but I think that's it.
Yeah, but.
It's too early to tell what that would be but clearly thats. Our plan would be the co located are located near where our customers are for those types of volumes for share.
Makes sense on the last question of its probably been a year since you talked about it but I think you were working on with your customers the segmented blades.
In terms of larger form factors is that something that youre still working on or can you give us an update on blades that would be assembled on site at the location of deployment.
Yes, we are we are producing.
Segmented blades today.
Alright, okay, good to hear yes.
You bet.
Okay.
[noise].
Our next question comes will come from the line of Greg Moszkowski with Weber Research. Please proceed with your question.
Hey, good afternoon, guys. Thanks for taking my question EBIT.
And good afternoon.
I'll start with transportation just a quick one im curious if theres any overlap between those cab Ob Oems and the EV parts Oems or if they're all the individual.
There are some of the.
There is some overlap so we're looking at caps as well as certain components for a couple of them for sure.
Got it Okay, and then how should we think about the.
The timeline for growth in this segment I know, we've talked about longer term plans and targets over the next few years, but as you start to add more relationships and build your backlog how should we think about that kind of.
Conversion period, when we see you add additional Oems in the mix for collaboration agreements of partnerships.
It generally speaking should we automatically be thinking you know 12 or more months before seeing any translation of the P&L or could it be sooner than that.
Yes, I would just say.
The patients and the reason I say that is it.
These development programs do take a little bit longer to get to production then I think maybe.
It was originally anticipated.
So your point that 12 months I'd, probably say in some of it could be 12, it's probably more like 24 months from now as you get through of.
Development process 24 to 36 before you get to production, especially if you are going through.
Testing phases, and what have you with the cap structure specifically.
It is.
It is a long cycle for these development projects.
And so again, it's probably you know that 24 to 36 months before you start seeing meaningful revenue from a production deal.
Out of a development project, we're working on today.
Got it Okay, and then one more if I could.
Just on on Labor I'm curious, if you've seen any labor constraints.
Either at TPI or somewhere within your supply chain or your customer base.
Particularly in the U S. As a result of the stimulus checks and kind of favorable unemployment benefits.
Wondering if you've seen anything there at all.
In the U S. It has.
On.
Early on.
On the early part of the pandemic, we had a few challenges in Iowa, but we.
We've actually been in pretty good shape now.
We're always looking for skilled workers, but the answer the short answer is no we're not seeing significant.
Our impactful labor challenges, whether it would be because of the unemployment checks or just because of the overall market. We're in pretty good shape at this point.
Got it.
Okay. Thanks, a lot guys.
Great. Thank you.
Okay.
The next question comes from the line of William Griffin with UBS. Please proceed with your question.
Great Good afternoon, and thank you.
So I just wanted to dive into the <unk>.
Second half EBITDA ramp of implied on the guidance a little bit more.
I appreciate that you gave a little bit of color earlier.
But just.
I think last quarter, you were talking about second quarter third quarter being strong and then a little bit of a step down in <unk>. This new guidance seems to imply a pretty significant shift out of <unk> and then enter into the second half.
Of EBITDA so.
You quantified the $5 million from higher costs, but as far as like the seven lines transitioning India ramping that stuff I would think you would have known when you gave guidance last quarter.
So just help us understand if you can quantify or just help us any additional color you can give to help us understand what's going on here that would help.
Yes for the most part again Q2 got pushed off into Q3 end of Q4. Some of the demand is also filling up in Q3 and Q4 that we spoke about maybe being a little softer before so that's also helping us out of the back half of the year. Some of the key things that are kind of driving that from a utilization standpoint, we're building the factory that would give us that.
Confidence, but for Q2 on why that's down again part of it's the <unk>.
Raw material input costs, we talked about part of it is.
This demand is slipping so that's part of the two main factors.
The demand push to the right right. So does.
Does that makes sense well so when we on the fourth quarter call, we talked about back half of 2020.
One being.
Being a little still still filling up been a little bit soft.
That's firming up and so that's why Q4 looks better and then some of the volume from Q2 that we anticipated is getting pushed into Q3 customer request.
Right I get that do you think utilization in the second quarter will be lower sequentially.
Not necessarily lower sequentially it'll be higher because you have more of India coming online. So that's why I mean overall adjusted EBITDA goes up a little bit.
You're just trying to give you the kind of thermometer to tell you how it's progressing throughout the year.
Yeah.
Yeah.
Okay. Thank you so much.
You bet Thanks will.
Yeah.
Our next question comes from the line of Philip <unk> with the Roth. Please proceed with your question.
Hey, guys. Thanks for taking my questions.
Hey, Bill.
Okay.
So Brian I think when you were talking about the guidance.
And the sequence of EBITDA.
You said the majority of would be in Q3, and four I know we've talked a bunch of about that but you also did say these numbers could be significantly impacted by COVID-19.
I wanted to explore that a little bit more and specifically with India as the COVID-19 situation.
Can you talk more head on about how are you guys preparing for that or.
What do you think could happen in the case of a.
The possible shutdown on the parts of the country is there a shutdown for comment on our view for example, and contemplated which I believe is where Chennai is the capital. So just maybe talk through India, and what the risk might be to that on our back half guidance as well. Thanks.
Yes, Phil this is bill just.
It's it's a typical caveat risk factor right when you've got a global pandemic. So if something happens you never know so but specific to India.
Right now we are okay.
There is not although there are curfews and there are shutdowns bolt on Tom Amato and throughout India industry has continued to be open.
There is no trials there is no restrictions between district site. There was early in the pandemic. So we're fine there.
And actually the oxygen situation, where were at is actually easing up a bit.
But nonetheless, it's still very serious and we are watching it very closely were monitoring our supply chain there as well.
So the risk is is that we have either an outbreak, which which we're doing everything we can to prevent that.
We have to slow down production, but at this point, we have not had an impact on production or nor do we anticipate it.
Unless something changes significantly here over the next few weeks.
Yes, the only thing I'll add is.
In our prior call, we talked about kind of the $5 million of quarter COVID-19 impact being through Q2 with our run rate, we kind of gave about the $2 4 million in Q1, we believe 10 million will go through the full year and that's because of what we're seeing in India in Turkey. So that's why we're still confident in those numbers. We gave about the 10 million of just we'll go through.
The whole year now instead of just the first half.
Okay I appreciate that Brian Thank you Bill.
I think we've talked through resin earlier can you talk about the logistics outlook do you also see an improvement in Q3, there or is that just resin and if not.
What is the visibility on the improvement for on logistics pricing.
Yes.
I think the further down the road you get past the pandemic net that we're past that we're still in the middle of it but.
<unk>.
That's a tougher one Phil I think I think.
Rely on our supply chain team and they've done a phenomenal job of finding alternative routes and modes and methods to get materials, where they need to go.
I don't have a crystal ball on this one I see it remaining tight through the balance of the year.
But we will continue to manage just the way we have over the last 12 months to 18 months.
Okay, great and I know that impacts the entire economy. So it's not isolated to you guys.
Yeah Bill in terms of the.
Passenger EV that was slated for hospital serial production you guys were looking for and we were looking for some time in Q4 of last year and then Q1. This year can you talk about what the status is of that kind of.
Turning to actual live production.
And what is the roadblock, perhaps you can just talk through some color on that one.
Yes.
Of two two different programs. The one that was the earlier program.
It probably will not go into serial production on this particular part.
We're still working with the OEM and we've got options on on other parts, but that particular part that we had spoke about.
Likely not go to serial production under with TPI the.
Other the other program we're working on.
It's a.
Tens of thousands of parts that we will be delivering between now and kind of the end of Q3 early Q4, and we'll see from there whether that goes to full serial production or whether it's just the pilot as well so the.
The first one again still still dealing with the OEM on other options, but for that particular park, we Didnt go cereal.
Now we're working on another another one that we'll see but it's.
It's a high volume.
Hi.
High profile customer and so we're excited about the opportunity and we're executing on that right now.
Can you explain what the root cause was for the first program.
One of the.
The OEM on a different direction I think the.
Part of <unk> turned out to not.
Need to be as structurally significant as the originally anticipated to be.
And so as a result.
Our cost.
On our cost was fine if the part of it would've remained as is and then they needed that structural integrity, but it turns out they didn't need something structurally significant as what they originally believed so they went with the different technology that was cheaper.
Got it got it okay, well thanks for all of the detail I'll pass it on Bill.
You bet. Thanks Bill.
There are no further questions actually on the time I will now turn the call back over to Darcy.
Yes.
Thank you.
Again appreciate your interest in TPI composites, and we look forward to our next discussion thanks again <unk>.
That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your line.
Right.
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