Q4 2021 TPI Composites Inc Earnings Call

February 24, 2022

Good afternoon, and welcome to TPI composites fourth quarter and full year 2021 earnings conference call. Today's call is being recorded we have allocated one hour for prepared remarks and Q&A at this time I'd like to turn the conference over to Christian Edin Investor.

Relations for TPI composites. Thank you you may begin.

Thank you operator, I'd like to welcome everyone to TPI composites fourth quarter and full year 2021 earnings call, we will be making forward looking statements. During this call that are subject to risks and uncertainties, which could cause actual results to differ materially a detailed discussion of applicable risk is included in our latest reports and filings with the <unk>.

<unk> and exchange Commission, which can be found on our website TPI composites dotcom.

Today's presentation will include references to non-GAAP financial measures you should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of historical non-GAAP measures.

The comparable GAAP financial matters with that let me turn the call over to Bill Siwek, TPI composites, President and CEO .

Thanks, Christian and good afternoon, everyone and thank you for joining our call. In addition to Christian I'm joined by Don <unk>, Our interim CFO and Chief Accounting Officer, I will briefly review, our fourth quarter and full year results cover our global operations, including our supply chain and the wind industry market more broadly that Don and I will then review our.

Financial results before we discuss the 2022 outlook and open the call for Q&A.

Please turn to slide five for the full year 2021, we delivered net sales of $1 7 billion, a three 7% increase over 2020, and adjusted EBITDA of $2 3 million, while delivering approximately 13 gigawatts of wind blades.

Our results of operations for 2021, and the fourth quarter were adversely impacted by approximately $52 million and $40 million, respectively, primarily due to the deferral of revenue relating to extensions of customer contracts and estimates of cost to complete our contracts under ASC 606. However, these factors did not have an <unk>.

Impact on our 2021, billings, which exceeded expectations for 2021 and the fourth quarter.

We manage our business on a billings basis as it reflects our actual cash flow and working capital requirements now for a summary of 2021 highlights during the year. We started wind blade production on two lines in our Chennai, India facility for Nordics and added four lines for them in Matamoros, Mexico.

We also added four new lines investors and young Joe China with production planned to start in the first half of 2022 and extended three lines with them in Turkey with these new lines and extensions. We now have a potential contract value of up to $3 $5 billion through 2024, with a minimum contract value under our supply agreements of $2 two.

Billion.

We grew our global service organization to almost 400 technicians and delivered revenue growth of more than two times compared to 2020 during the fourth quarter to accelerate growth in Europe . We opened a training center in Spain, We expect further growth in our service business in 2022.

We continue to experience strong traction in the transportation side of our business our customers several of whom are new to TPI are seeing the benefit of our capabilities and ability to collaborate to develop innovative composite solutions at an accelerated pace in the fourth quarter. We won our first program commitment of meaningful size per passenger.

AB platform a major milestone for TPI. We have also entered into several new development agreements with multiple customers, which we expect will turn into longer term production agreements in the future.

During 2021, we successfully launched our automated compression molding lines and delivered nearly 30000 parts to an electric vehicle manufacturer and anticipate manufacturing an additional 25000 parts in the first half of 2022, we.

We continue to expand our manufacturing capabilities and have been awarded programs to deliver approximately 450000 parts this year and $1 million plus parts in 2023 for the same customer or innovative composite solutions enable our customers to achieve faster time to market require lower upfront investment and provide enhance.

Thermal protection and weight reductions.

We closed a $400 million financing with Oaktree and have $200 million potential follow on investment committed.

The financing enabled us to show up our balance sheet and position ourselves for additional growth when market demand recovers.

Turning to slide seven and I'll give you a quick update of our global operations supply chain as well as a market update during the fourth quarter, we turned around the performance in our Nordics Matamoros operation I'm happy to report that we are delivering blades on plan and meeting the expectations of our customer for safety quality and delivery.

However, we still have work to do on cost and pricing to realize the returns we expect from this facility.

With respect to the challenges we experienced during the transition to a new innovative multi piece blade, we made significant progress during the quarter met our delivery requirements and are on track to drive productivity in 2022 to levels, we and our customer expect we currently plan to have transitions or startups in four locations during 2000.

22, Turkey, Mexico, and India will go through a total of five line transitions and we will start up for new lines in China. The Turkey transition of one line is already complete and is a great example of a well planned transition with minimal interruption and no impact to our annual output.

Moving on to the supply chain. The after effects of the pandemic continue to evolve and affect our supply chain and the underlying cost assumptions in unpredictable ways, specifically with unprecedented volatility in commodity and logistics sector. During 2021, they were both significant price increases and supply constraints with respect to our park.

Resident carbon fiber key raw materials that we use to manufacture our products as well as increases in inbound logistics costs, we expect carbon fiber and related products supply to remain constrained as demand for carbon we use continues to outpace capacity additions production of carbon products is also very energy intensive.

And continued rising energy costs could adversely impact the cost of carbon materials after already seen price increases of up to 50% for certain carbon feedstocks during 2021.

Our policy resin prices were approximately 150% higher than the fourth quarter of 2021 as compared to the fourth quarter of 2020 and higher resin prices in Europe , and North America continue to be supported by bullish demand from industries like automotive infrastructure construction and new container ship builds.

Competitive resin suppliers are available in Asia, the current unreliable logistics environment and associated costs, often offset any potential savings on price.

We expect that the price of carbon fiber and resin will remain at elevated levels in 2022.

More than 50% of the resin and resin systems and more than 90% of the carbon fiber. We use is purchased under contracts either controlled or borne by our customers and therefore, these customers receive or bear 100% of any decrease or increase in price with respect to our other customer supply agreements our customers too.

Typically receive or bear 70% of any raw material price decrease or increase notwithstanding the challenging cost environment, we still expect to be able to hold the average bill of material cost for our customers for which we control the supply chain relatively flat compared to 2021 levels.

We remain focused on localizing and regionalized, our supply chain to reduce the impact of pilot <unk> cost provide security of supply and build long term strategic partnerships with key suppliers to ensure the best price in the short medium and long term.

As you've heard from some of our customers in recent weeks there continue to be headwinds in the U S related to the stall build back better plan. The exploration of the PTC at the end of 2021. In addition to supply chain costs and constraints, which decreased demand for our wind blades in 2021 compared to 2020 and is causing uncertainty in <unk>.

<unk> in the near term.

While we continue to monitor legislative and regulatory policy proposals to extend <unk> expand tax credits in the United States and in other parts of the world.

We believe that notwithstanding current challenges demand for wind energy will strengthen over the next few years, given the necessity to decarbonize and electrify to meet the aggressive goals set by states regions and countries to combat climate change and we believe that we are uniquely positioned with our global footprint located in key.

<unk> geographies to grow our market share with industry, leading Oems as the demand for wind begins to accelerate again and we see the growth that has been forecast during the decade and beyond.

Our relationships with our customers remained strong and we continue to jointly develop strategic plans to address the current environment competitiveness and future opportunities.

For 2022 execution is our primary focus we have also identified multiple strategic initiatives to enable TPI to capitalize on the expected long term growth in the wind market, including expanding our global service offerings and leveraging our expertise in blade design, while expanding our capabilities around logistics and recycling. These.

Initiatives are underway and will be advanced in 2022.

I would also like to confirm that we remain focused on the health and safety of our associates, while executing our operating initiatives and ESG goals, which include safety diversity inclusion and driving to become carbon neutral by 2030 from a COVID-19 standpoint, we continue to operate all our facilities at normal levels and we remain focused on operating.

Our business safely and ensuring that we are prepared to deal with any resurgence of the virus with that let me turn the call over to Don to review our financial results.

Thanks, Bill please turn to slide nine.

All comparisons made today will be on a year over year.

Year basis compared to the same period in 2020.

For the fourth quarter ended December 31, 2021 net sales.

<unk> $8 $9 5 million, while net sales of wind blades were $362 3 million.

The decrease in wind blade sales was primarily driven by a decline in the number of wind blades produced and David to net transition in Juarez, Mexico the impact on our production due to shortages of raw material supplied by our customers and foreign currency fluctuations offset by an increase.

And the average sales price per blade.

Our general and administrative expense expenses for the quarter decreased by $2 4 million to $5 4 million.

Foreign currency loss was $117 4 million in Q4, 2021 as compared to $1 9 million in Q4 2020.

This change was primarily due to net euro liability exposure against Turkish lira.

The euro exposure continues to be naturally hedged on a cash flow basis due to our euro denominated revenue contracts.

Net loss attributable to common stockholders for the quarter.

Was $93 three as compared to net income of $5 2 million in the same period in 2020. This.

This decrease in net income was primarily due to the impact of that transition in who are is the ramp in matamoros shortages of customer supplied raw materials noncash foreign exchange losses, and restructuring costs and the deferral of revenue related to contract.

Extension and contract cost estimates.

606.

Moving onto slide 10 for the full year 2021, net sales increased to 173 billion and net sales of wind blades totaled 161 billion.

The increase in wind blades sales was driven by an increase in the average sales price of ablate offset by a reduction in wind blade sets produced.

Net loss attributable to common stockholders for the year was $165 6 million.

As compared to 19.0 million in 2020.

The increase in our <unk>.

Net loss was primarily due to raw material and logistics inflation the impact of transition in Juarez, they ramp in Matamoros shortages of customer supplied raw materials noncash foreign exchange losses.

Structuring costs and the deferral of revenue related to contract extensions and contract cost estimates.

606 Bill.

Adjusted EBITDA for Q4 was a loss of $28 3 million and for the full year. Our adjusted EBITDA was $2 4 million in Q4, 'twenty, one our revenue and adjusted EBITDA was adversely impacted by approximately $40 million, primarily due to extensions of customer contracts and estimates of cost to complete our customer call.

Contracts because of the impact under ASC 606 was to defer certain revenue over the extended terms of these amended customer contracts and not recognize revenue as it is billed per contractual agreements by the way contract extensions and modifications in the third and fourth quarter resulted in us, adding almost 300 million.

Dollars of additional contract value over the extended terms, we enter into these extensions even though they may impact current period results under ASC 606, because they improve our long term revenue and earnings potential and do not negatively impact cash flow moving.

Moving to slide 11 for the full year, we exceeded profitability expectations by $3 6 million through improved operational execution. During the fourth quarter. However, the deferral of revenue and changes in estimates of cost to complete contracts under ASC 606 reduced our reported adjusted EBITDA by approximately $52 million.

To $2 4 million, but had no impact on our cash flow as a reminder, we manage our business on a billings basis as it reflects the actual cash flow and working capital requirements of our business.

Onto slide 12, finally, we ended the year with a strong balance sheet, including $242 2 million of unrestricted cash and cash equivalents and no net debt.

Turning to slide 13 for 2022, we are not providing revenue or adjusted EBITDA guidance, given current market volatility potential impacts under ASC 606 related to future contract modifications or extensions and corresponding changes to our long term volume, which we cannot forecast with certainty in this environment.

We will however provide guidance on some key operational metrics as follows.

43 dedicated manufacturing lines total wind blades set capacity of 3710 or the lines, we have under contract.

Realization of between 80, and 85% average sales price per blade of between 170, and $180000 and capex of between 25% and $30 million.

I'll now turn the call back to the operator for questions.

Thank you as he would like to ask a question. Please press star one on your telephone keypad.

Formation tone will indicate your line is in the question queue.

Press Star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. Our first question is from Joseph <unk> with Roth Capital Partners. Please proceed.

Everyone. Thanks for taking our questions.

Just first off on the guidance that you provided.

You provided utilization dedicated lines in Asps.

So just based on those metrics it looks like net sales could be flat to slightly down which I think is what you had alluded to on the Q3 call. So is that still.

A reasonable expectation for this year can you just talk through that in the the level of uncertainty there with what the sales going forward.

Yes, just a nice to talk to you I would say again, a lot of market volatility here and uncertainty, especially in the U S market.

Given what we know today I think that statement that we made in Q3 is still is still accurate.

Okay. It.

Sounds good and then.

Turning to margins you indicated that you could hold the bill of materials flat year over year in 2022 or at least that's the that's the goal here and then if I look at your ASP.

It looks like they could increase 4% or so for the year based on your guide.

So that would that would indicate that you could expand margins here, but just wanted to see what visibility do you have to expanding margins and if you could talk through the cadence as to.

How do you expect margins to trend that'd be helpful.

Yes, I think margins will continue to be a bit compressed Justin in 2022.

I think you've heard heard that from a number of our customers over the last several weeks the margin pressure on the hardware side.

No different for US, we'll continue to see compressed margins, we have made significant progress in many areas, but we still have some some challenging areas to focus on so I would say.

Expect still to see some compressed margin through 2022.

Okay, and then maybe just one one more for me and so given this environment just wanted to check in on how Youre thinking about the balance sheet. Here. Obviously, you raised the 400 million from Oaktree, but you'll have the option to do.

Another $200 million here.

What are your thoughts on on I'm.

Looking at that $200 million of capital.

What would lead you to make that decision to move forward with that.

Yes, so of the 400, if you remember we only drew $3 50 a bet.

And we feel very confident and comfortable with that level at this point in time.

The 200 in addition to the 400 was really.

Mark for future growth opportunities so we wouldn't.

Don't expect or anticipate having to tap that for anything but growth opportunities as we move forward.

Okay, Great that does it for me I'll pass it on.

Great. Thanks.

Our next question is from James West with Evercore ISI. Please proceed.

Hey, good afternoon Bill.

Hi, James how are you.

I'm doing well yourself.

Doing great. Thanks.

Good well congratulations on the Big Transportation Award for you guys are seeing good progress there.

How should we think about that I mean, you gave the units that you expect to ship next year in 'twenty three but what should we think about that in terms of kind of dollar amount or size of award. If you can provide some maybe it could be a bumpy big round number, but I'm trying to kind of scale that with besides your wind business.

Yes, I would tell you there.

The price per part is relatively low just based on the nature of the part right.

However, the margins on them are very good.

And can't disclose exactly what that price per part is at this point in time.

But.

We're pleased with it and it will be margin positive for us.

Both in 2022 and in 2023.

Okay, Okay fair enough.

Turn it back into it.

The other question I had on <unk>.

For wind in the U S. I mean, you made some positive comments about it but we've got the.

Build back better has been installed here, but we're going forward with the New York auction right now so kind of.

How do you guys see this playing out if we start awarding.

The acreage.

Do you start to then get awarded.

The blades and you start to I mean, I'm sure you're already sourcing youre talking to states.

On your manufacturing capacity near the acreage I mean, how does this all kind of play out in your mind.

Yes, so again, we have to work through our customers for that and you can be you can be sure that the conversations are ongoing with customers for opportunities on the both on the east coast or on the east coast as well as in other regions of the world.

So we've been we've talked about this for quite some time.

And those discussions are robust and continue.

Okay. That's it for me Thanks Bill.

Great. Thanks, James Good talking to you.

Our next question is from Joseph Osha with Guggenheim. Please proceed.

Hello, This is actually Hilary on for Joe.

First question, you already kind of touched.

On the supply chain.

What's their cut localize it just kind of wondering if you could provide any context.

Or yes, how much progress has been made so far very say further room for improvement there.

Sure.

Yeah, Hey, Larry good to talk to you.

We've actually made quite a bit of progress we started first in Mexico.

And we've done a pretty nice job of localizing bolt in Juarez and in Matamoros some of the key suppliers.

And we're working on some additional opportunities there.

India, where our relative recent entrants to their entrance into the India market.

And a lot of the wind.

Suppliers, if you will were up in the northeast, whereas sorry, the northwest and we're down in the southeast.

But making progress on that as well Thats a focus for us and I think suffice it to say our team there as well as our global team has done a nice job of of inter.

Introducing some of our suppliers to that area and I look.

I expect that we'll make significant progress in 2022 on that.

Okay, and then I believe you said it was not a mark in your prepared remarks.

Things are kind of up and running more smoothly, but still a little bit around for cost improvement. If you could just kind of provide timeline.

But we've seen that.

Come in a bit and kind of what has to happen to get to that.

Yes.

Yeah, you bet. So that was the one that we were challenged with last year, we talked a bit about it and as I said in our prepared remarks, we've made a significant amount of progress, but not without throwing some additional resources at it so.

Today as I mentioned, we are delivering product on time high quality product to our customer.

And now it's time to as we drive cycle time down and throughput down it's to work on the cost side of that as well so through the balance of this quarter and into the second quarter. We are very focused on driving that cost side of it. So I would expect by the end of Q2 will be in a much better position down there.

Great. Thank you that's all for me.

Thanks Hillary.

Our next question is from Laura Sanchez with Morgan Stanley . Please proceed.

Hi, Bill. Thank you for your climate can you hear me okay.

I hear you loud and clear Laura I'll talk to you.

Alright, thank you likewise.

On the volume side.

Well our volumes today relative to the minimum volume commitments I am wondering if Oems.

Those M D C.

Do you have areas to provide some stability if I'm wondering if Oems can continue to push volumes further out.

Doing so would incur costs on that.

Yes, so it varies a little bit by region and by customer, but we are above what the <unk>.

It would require in the contract for sure.

Yeah.

Yes, so I guess im not sure what else to say other than yes, we are at or above the <unk> and then some.

In some cases, where.

Over 100% capacity in other places were lower but overall over the npls the NPL amounts and to your question. If they did go below the mbo, yes, if there would be a cost to the customer.

Okay, Okay and in terms of.

On the EBITDA despite the incremental.

Fixed charge relative to the guidance provided last year.

You were talking about that being related to a delay in revenue given the expansion on some of the contract.

The revenues for the year were in line. The guided range. So were there any revenue offsets or maybe could you just talk about the moving pieces there.

The extended term of the contract like how farther out does that take you.

Yes, so we extended a number of lines by a year.

<unk>.

All year right, yes, so I think all of them were extended by a year.

And yes, there was there was a corresponding revenue impact as well so we had to defer a certain amount of revenue and that's what impacted EBITDA.

Yeah.

And where there is some revenue opex on the revenue side that even with that change to allow you to remain within the guided range.

There were puts and takes.

From a volume standpoint, but I don't think.

Nothing that I can recall significant significantly different we had a fairly wide range on the revenue side.

Okay understood. Thank you.

Yep.

Thanks, Laura.

Our next question is from Eric Stine with Craig Hallum Capital Group. Please proceed.

Hi, its aaron's bahama on for Eric Thanks for taking the questions.

Hey, Aaron.

Maybe first on China can you just give us an update there on kind of emerging the facilities and replacing those lines I know, we have four with fast et cetera.

But maybe talk about the timeline there and then just thoughts on potentially entering that market going forward.

Yes so.

It's never easy when you have to consolidate factories and there's the human side of it our team in China.

Phenomenal job of managing that and we've effectively now.

Merged our both of our blade operations into one into young Joe So we have <unk>.

Seven lines operating there now so we have three lines that were already there.

And then we're starting four new lines. This year, we'll have those up and operating by the end of Q2.

So seven lines total.

The integration went very smooth.

We will continue to look at opportunities to continue to expand our production.

And young Joe with our existing customers.

Breaking into the China market for China with the Chinese Oems.

<unk> always been a very difficult task from a from a cost standpoint.

We've had a number of discussions there are a number of opportunities but.

We're going to make sure if we do that we can do that profitably and at this point, we havent, we havent found that right opportunity yet. So we will continue to work with our existing customer base on on filling the balance of the capacity that we have in young Chung.

Understood and then any more color you can share on you kind of mentioned recycling just.

What that might entail any kind of capex or any contribution just anything else there would be helpful.

Yes, a little bit early.

There is a lot of discussion in the industry about it we're working on.

Two or three different solutions.

And actually the Capex is not as expensive as you might think now if you get to once you increase the volume of blades that are coming down tower that need to be recycled obviously, you've got a scale but.

Capex is not crazy at this point.

Could you could.

For about.

About $1 million you can handle a lot of blades.

A pure Capex standpoint, now the challenges transport and everything else because that becomes expensive but.

Capex intensive.

But we are working on a couple of.

Interesting solutions for that that we hope to be able to talk about more as we get to the back half of 2022.

Alright, we'll stay tuned there I'll hop back in the queue. Thanks.

Great. Thanks Darren.

Our next question is from Mark Strouse with Jpmorgan. Please proceed.

Yes, good afternoon, thanks for taking our questions.

Bill you gave some.

Some color on the blade business kind of Directionally speaking, how we should be thinking about that in 'twenty. Two I'm. Just curious if you can give us any directional color on the non blade business revenue this year.

Yeah.

Yes.

I think.

Again transportation.

We're going to we're going to grow that over over where we were this year I think youll see.

Pretty good growth quite frankly.

It's still it's still be a very small part of our overall business, but we're building up.

We're winning some winning some production contracts that will add to that.

So it will be it'll be more than we did this year.

A factor of probably one five times I would say on the on the service business, we're going to continue to aggressively grow that.

We grew up by two times top line this year.

Go up by another 50% on top of that for this year.

Conservatively, but that's kind of Directionally, where we're headed.

Okay. That's helpful and then just lastly.

I think in the past you've you've targeted a kind of a low double digit EBITDA margin.

Has there been anything over the last year or so in the industry that has led to a structural change that you think that that number is no longer appropriate.

Yeah.

I would tell you mark given the uncertainty as we sit here today with everything thats going on whether it would be.

Build back better stalled.

What's happening from a geopolitical standpoint in Europe .

I think if you listen to our customers there needs to be a fundamental change in how and how windows priced.

I do think there are some structural changes that need to happen I think we're starting to see that with some of the so the price per megawatt turbines over the last couple of quarter starting to go back up and that's not just because of input costs, but.

So the answer is.

Yes long answer to your question is yes, I think they do need to be some structural changes.

And we're working on that with our customers as we speak.

Okay. Thank you Bill.

You bet. Thanks Mark.

Our next question is from Pavel.

Channels with Raymond James Please proceed.

Thanks for taking the question.

A minute ago you referenced.

The geopolitical context, and specifically in Europe .

Remind please how much of your revenue.

Hum.

Out of the European market, and I guess, specifically from the Turkey facility.

Yes so.

Good to talk to you about.

<unk>.

Turkey, probably it's less than 10% stay.

Stays in Turkey of what we build most of it does leave leave Turkey and go around the world a lot of that to EMEA.

In Europe , it's about 30% of our of our blades and up in Europe that are built.

So it's in that neighborhood.

Okay.

When when we think about the European wind market, obviously offshore gas maybe.

Maybe disproportionate attention most of the new builds are in fact still on land.

Do you envision at seemed logical for $25, an mcf natural gas most expensive natural gas in the history of the world to drive adoption of more wind in the in the electricity mix, both on land and offshore.

Yes.

I would hope so I mean, when do Europe , just put out a report today that between now and 2030.

Of the of the new installs are anticipating 76% of them are going to be onshore. So youre right offshore. It gets a lot of the press, but theres still a significant amount of onshore activity in Europe .

I do the challenge in Europe remains permitting and siting.

And so if the governments can can work with the industry and figure out how to speed up that process than the pace of installs in Europe should and could increase significantly right now they estimate estimate like 17, Gigawatts a year between now and 2030 it needs to be twice that much to hit there.

40% renewable target by 2030.

So long answer to your question, but the answer is absolutely yes.

And then lastly, maybe just clarify the light duty vehicle contract that you reference that will be <unk>.

We have a smaller version of the bus bodies that you're supplying to pro Tara correct.

No.

Didn't mention a light body vehicle it was structural components for at EV passenger platform. So it's not a body in white or.

Our body, it's a structural component that is under body for the most part.

Okay. Okay. That's clear thank you very much yeah. Thanks Pavel.

Our next question is from Jeff Osborne with Cowen and company. Please proceed.

Yes, good afternoon, Bill a couple of questions on my side I was wondering on the EV piece. If there's any notable capex that would be needed to produce 1 million units.

And in 2023 and then.

Secondary question about it is could you disclose if it's a start up or maybe those goals are ambitious versus an established OEM.

First of all no incremental Capex, Jeff and secondly, it's.

It's an established platform.

And will that be produced in Rhode island or somewhere else.

Portion of it is produced in Rhode Island, and a portion of it is produced with in another location that we partner with.

Our supplier.

Got it.

I had a question on the transitions that you guided for for the year are any of those associated with the segmented played or multi piece blade that you had challenges within Mexico I'm. Just curious if they are what level of learnings you experienced there and how quickly you could port that knowledge to other locations.

Yes, no a fair question, but no the answer is theyre not related to the to the multi piece played their single single piece blade as we would call them.

The good news is is that.

Two of the transitions, one in Mexico, and one in Turkey.

We're transitioning to the same blade.

And so that that's helpful and where we're.

Ahead of schedule on both of those as we speak right now so very optimistic that we'll complete those.

And very efficient fashion as we did the first one in Turkey at the beginning of the year.

Got it. Thank you that's all I had.

Great. Thanks, Jeff.

Our next question is from Tom Curran with Seaport. Please proceed.

Hello.

Hey, Tom how are you just a follow up.

Good good.

A follow up on the topic of transitions I know you've had.

Initiatives underway.

To try to improve.

The efficiency of transition when you do them.

From what I understand both.

Moving from one customer to another and then interim old transitions with the same customer.

Could you update us on where you think those initiations there's initiatives are at.

And how much more improvement we might see.

Well I'll give you. An example, so in Turkey. It was for an existing customer and we did transition align.

We've already upped our production estimate for 2022 to north of what our contractual amount is.

That will that will just give you. An example of how efficient that transition was so transitioning align and not losing any volume for the year is about is and in fact getting more volume is about as efficient as you can do it.

I would say, we've made I'm going to I'm going to pull the COVID-19 card for a second so.

In 2020 and in 2021.

Our transitions.

We're a little bit challenged because of COVID-19 , whether it was the ability of people to get to a certain country.

Getting some of the experts on the equipment and country et cetera created some challenges.

But what was really under our control, we executed pretty well.

So again.

Impressing the guys every day to continue to get better R. R.

Schedules are much more aggressive I think our collaboration with our customers has gotten better.

We are holding them more accountable for what Theyre part of the transition is with.

With consequences, if those deliverables arent met.

So the answer is I feel very confident in the transitions this year.

We've made significant progress and I expect to continue to make progress as we go through the balance of the year.

That all sounds encouraging.

And then.

In terms of.

The remaining.

Cost savings you might be able to wring out of facility consolidation.

Perhaps wine idling.

Just wondering what more we might see you do with Iowa over the course of this year.

And then whether or not.

There was additional.

Shut down or mothballing steps you could take with the four lines in Juarez that had been relinquished by STR.

Yes so.

I think as we've talked about before.

Extended at least through 2022.

The reason, we did that was to number one if build back better came in what would there be provisions in there to possibly provide for the reopening of that plant where it made economic sense.

With build back better stalled debt.

At least from a from a regulatory or legislative standpoint, it's less likely at this point.

But we've we've minimized costs there too.

Two really.

Lease as well as just kind of the normal maintenance that we need to do there. So there's not much more we can do from a cost savings from a from a mock ball there this year, but if.

If nothing happens there then we'll obviously eliminate that cost for 2023.

And whereas.

There is there is interest in that facility.

We're utilizing it for some some other work right now as well so it's not going unutilized completely.

But again I think when we get a little bit more certainty about the U S market.

Whether we have build back better weather, we have tax extenders at the end of the year or a new clean energy bipartisan plan early next year.

I think we'll have a better feel for exactly what the long term play is there, but I remain optimistic that once we have certainty from a policy standpoint in the U S that that space will get scooped up pretty quickly.

Thanks for taking my questions.

You bet. Thank you.

As a reminder to star one on your telephone keypad, if he would like to ask a question. Our next question is from Stephen <unk> with Stifel. Please proceed.

Okay.

Thanks, Good afternoon gentlemen.

Good afternoon.

I apologize I got disconnected earlier, so hopeful.

This was not asked.

Can you talk a little bit more about what you're hearing from your wind blade customers. I mean, obviously, you've kind of talked about this in the press release a bit about the near term.

Uncertainty, but are you are you can you do you have a sense for kind of what's going to kind of restart things and kind of what they're looking for to kind of be.

Be more aggressive on the order front.

Again.

Yeah, and again just from what from what they are saying publicly.

It's not about chasing market share, it's about chasing profitable business. So I think.

And we may have seen some of that in Q4 with some of the order volumes.

I think with with with them, having the discipline to two price.

So that they can be profitable certainly will help us as well.

So what I'm hearing from our customers is just more discipline on the pricing side not chasing share just to chase share.

Being diligent in how they are contracting.

And again, just just not chasing business to chase business, but really chasing profitable business.

Okay, great. Thank you and then.

The second one I have just some sort of a bigger picture perspective.

And I know you're you're your Crystal ball is cloudy as we speak is as all of ours are but when you when you think about the sort of the.

EBITDA.

In 2022, and Theyre kind of win.

When you get when you turn positive and sort of how that Scott.

Are you sort of thinking about that or is it over the next several quarters.

No I think from a sequencing standpoint, Steve and I would say Q1 will be.

We will be a down quarter for us just because all of our transitions and our startup couple of our startups will happen in the quarter.

And so that'll be a down quarter and then you'll see a build in Q2 Q3 will likely be our best quarter.

Which is fairly typical and then Q4 will see it dip a little bit and thats, primarily because of holidays and what have you.

But that's how I would kind of sequence.

The EBITDA over the quarter or over the year sorry.

Okay, great. Thanks for the color.

You bet. Thank you.

Our next question is from Cassie.

With Piper Sandler please.

Good afternoon, and thank you for taking the question.

You bet.

Just one quick one for me and <unk>.

Apologies. If this was answered in some form or fashion, a little bit earlier, but just simplistically, how should we think directionally about the the.

Startup and transition costs line in 2022 for the full year are you thinking flattish slightly down slightly up just some directional indicate indicator would be would be great. Thank you.

Yes, I would given the number of transitions and startups.

And recognizing that for the startups are in China, and our team in China does.

Really really good job of either transitions or startups and the fact that I think 2021 was probably.

Impacted a bit more by the challenges we had in juarez as well as Matamoros, I would say directionally it will be down year over year.

Got it that's all I needed. Thank you.

You bet thanks, guys.

And our next question is from at all.

Carr with Bank of America. Please proceed.

Thank you so much good evening. Thank you for taking my question I guess the first question I had was at the high level discussion.

A discussion of some of the Chinese linked up by an OEM is looking to expand outside of China.

Europe maintained for example, so as we think about.

Expanding beyond your current customer base.

Does that does that looks like an interesting opportunity to your partnership with EPA to pursue and they can get the accretion.

Thanks for the question as I mentioned earlier it is.

We've had discussions.

For years with the Chinese Oems.

The terms that they require or request and the pricing is extremely aggressive from our perspective, So I mean.

<unk> is the.

The largest wind market in the world and they are making some headway outside of China.

So I will never say never.

Certainly an opportunity.

It's.

A bit of a long putt for US right now from that perspective as I look at it today.

Just from a pure cost standpoint.

Understood. That's helpful. And then for <unk> is going to get your commentary around epoxy carbon fiber was extremely helpful. I was wondering if you could help us complete the puzzle in terms of understanding how that's worked fiberglass.

They're drinking but if there is.

Status quo versus 2021 how should we think about it.

Yes, so I would.

I would tell you that.

For some of the reasons that we're seeing increasing.

Increasing costs from carbon.

We're seeing some challenges with <unk>.

Yes.

As capacity issue to some extent.

As well as our COO.

Nitrile as a feedstock for both PETN carbon and we're seeing some some capacity constraints there as well so that's a bit of a challenge but.

We see that capacity to a challenged a little bit but from a pricing standpoint, we're in pretty good shape based on our contracts for next year.

This year.

Glass fiber I think we expect probably a 2% to 3% increase year over year from 'twenty one to 'twenty two.

And that does there remain a few supply constraints, there, but nothing that we can't manage through.

Understood. Thank you and then just the last one would be I know you have touched upon the new edr it from multiple angles I guess, the only question I had was.

That's the current backlog number that you have shared $2 5 billion does that capture the $450000. This year and then 1 billion parts of what currency and then whats it going to expand it in these contracts from basically all of that right now in terms. So just linking it to the filing given long term target that you have.

Yes. So those contracts today are not included in the backlog number or the contract value number.

And the ability to expand I mean, the first production.

The first part we made for the customer we did very successfully which is which led to this opportunity I think there is the opportunity to expand the relationship geographically.

So that is certainly an option but.

If we continue to demonstrate our ability to be nimble innovative work fast and reduce upfront tooling costs for these customers I think our opportunity to expand that is right in front of us.

Got it yes, we have taken so much.

Thank you.

We have reached the end of our question and answer session I would like to hand the conference.

Back over to Bill for closing comments.

Thank you and thanks, everybody for your questions just to reiterate we remain focused on managing our business through the near term challenges in the industry and our efforts to position TPI as the preferred global solution provider to our customers to enable profitable execution and growth in the future and then finally I want to thank our TPI associates once again.

For their commitment and dedication to TPI and our mission to Decarbonize and electrify. Thank you again for your time today.

Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

[music].

Okay.

Yeah.

[music].

Thank you you may begin.

And exchange Commission, which can be found on our website TPI composites dot com.

To the comparable GAAP financial matters with that let me turn the call over to Bill Siwek, TPI composites, President and CEO .

Thanks, Christian and good afternoon, everyone and thank you for joining our call. In addition to Christian I'm joined by Don <unk>, Our interim CFO and Chief Accounting Officer.

I'll briefly review, our fourth quarter and full year results cover our global operations, including our supply chain and the wind industry market more broadly.

And I will then review our financial results before we discuss the 2022 outlook and open the call for Q&A. Please.

Impacted by approximately $52 million and $40 million, respectively, primarily due to the deferral of revenue relating to extensions of customer contracts and estimates of cost to complete our contracts under ASC 606. However, these factors did not have an impact on our 2021 billings, which exceeded expectations for 'twenty.

21, and the fourth quarter.

We manage our business on a billings basis as it reflects our actual cash flow and working capital requirements.

Now for a summary of 2021 highlights during the year, we started wind blade production on two lines in our Chennai, India facility for Nordics and added four lines for them in Matamoros, Mexico.

We also added four new lines invested in Yanzhou, China with production plan to start in the first half of 2022 and extended three lines with them in Turkey with these new lines and extensions. We now have a potential contract value of up to $3 $5 billion through 2024, with a minimum contract value under our supply agreements of $2 two.

$1 billion.

We grew our global service organization to almost 400 technicians and delivered revenue growth of more than two times compared to 2020.

During the fourth quarter to accelerate growth in Europe , We opened a training center in Spain, We expect further growth in our service business in 2022.

We continue to expand our manufacturing capabilities and have been awarded programs to deliver approximately 450000 parts of this year and $1 million plus parts in 2023 for the same customer or innovative composite solutions enable our customers to achieve faster time to market require lower upfront investment and provide enhance.

Thermal protection and weight reductions.

We closed a $400 million financing with Oaktree and have $200 million potential follow on investment committed.

The financing enabled us to show up our balance sheet and position ourselves for additional growth when market demand recovers.

Turning to slide seven and I'll give you a quick update of our global operations supply chain as well as a market update during the fourth quarter, we turned around the performance in our Nordics Matamoros operation I am happy to report that we are delivering blades on plan and meeting the expectations of our customer for safety quality and delivery. However, we still have work to do on <unk>.

Cost and pricing to realize the returns we expect from this facility.

With respect to the challenges we experienced during the transition to a new innovative multi piece blade, we made significant progress during the quarter met our delivery requirements and are on track to drive productivity in 2022 to levels, we and our customers expect we currently plan to have transitions or startups in four locations during 2002.

To Turkey, Mexico, and India will go through a total of five line transitions and we will startup for new lines in China. The Turkey transition of one line is already complete and is a great example of a well planned transition with minimal interruption and no impact to our annual output.

The resident carbon fiber key raw materials that we use to manufacture our products as well as increases in inbound logistics costs, we expect carbon fiber and related product supply to remain constrained as demand for carbon we use continues to outpace capacity additions production of carbon products is also very energy intensive.

And continued rising energy costs could adversely impact the cost of carbon materials after already seen price increases of up to 50% for certain carbon feedstocks during 2021.

Our policy of resin prices were approximately 150% higher than the fourth quarter of 2021 as compared to the fourth quarter of 2020 and higher resin prices in Europe , and North America continue to be supported by bullish demand from industries like automotive infrastructure construction and new container ship builds.

Competitive resin suppliers are available in Asia, the current unreliable logistics environment and associated costs, often offset any potential savings on price.

We expect that the price of carbon fiber and resin will remain at elevated levels in 2022.

More than 50% of the RASM and resin systems and more than 90% of the carbon fiber, we use as purchased under contracts either controlled or borne by our customers and therefore, these customers receive or bear 100% of any decrease or increase in price with respect to our other customer supply agreements our customers too.

We receive or bear 70% of any raw material price decrease or increase notwithstanding the challenging cost environment, we still expect to be able to hold the average bill of material cost for our customers for which we control the supply chain relatively flat compared to 2021 levels.

As you've heard from some of our customers in recent weeks there continue to be headwinds in the U S related to the stall build back better plan for the exploration of the PTC at the end of 2021. In addition to supply chain cost and constraints, which decreased demand for our wind blades in 2021 compared to 2020 and is causing uncertainty in <unk>.

<unk> in the near term.

While we continue to monitor legislative and regulatory policy proposals to extend <unk> expand tax credits in the United States and in other parts of the world.

T J geographies to grow our market share with industry, leading Oems as the demand for wind begins to accelerate again and we see the growth that has been forecast during the decade and beyond.

Our relationships with our customers remains strong and we continue to jointly develop strategic plans to address the current environment competitiveness and future opportunities.

Initiatives are underway and will be advanced in 2022.

Our business safely and ensuring that we are prepared to deal with any resurgence of the virus with that let me turn the call over to Don to review our financial results.

Thanks, Bill please turn to slide nine.

All comparisons made today will be on a year over year.

Year basis compared to the same period in 2020.

For the fourth quarter ended December 31, 2021 net sales.

Three eight to $9 5 million, while net sales of wind blades, while $362 3 million.

The decrease in wind blade sales was primarily driven by a decline in the number of wind blades produced and due to the transition in Juarez, Mexico the impact on our production due to shortages of raw material supplied by our customers and foreign currency fluctuations offset by an increase.

And the average sales price per blade.

Our general and administrative expense expenses for the quarter decreased by $2 4 million to $5 4 million.

Foreign currency loss was $117 4 million in Q4, 2021 as compared to $1 9 million in Q4 2020.

This change was primarily due to net euro liability exposure against the Turkish lira.

The euro exposure continues to be naturally hedged on a cash flow basis due to our euro denominated revenue contracts.

Net loss attributable to common stockholders for the quarter.

Was $93 three as compared to net income of $5 2 million in the same period in 2020. This.

This decrease in net income was primarily due to the impact of that transition in Juarez.

In Matamoros shortages of customer supplied raw materials noncash foreign exchange losses, and restructuring costs and the deferral of revenue related to a contract extension and contract cost estimates.

606.

Moving onto slide 10 for the full year 2021, net sales increased to $1 73 billion and net sales of wind blades total $1 61 billion.

The increase in wind blades sales was driven by an increase in the average sales price of ablate offset by a reduction in wind blade sets produced.

Net loss attributable to common stockholders for the year was $165 6 million.

As compared to 19.0 million in 2020 the.

The increase in our net loss was primarily due to raw material and logistics inflation the impact of transition in Juarez.

Rob in Matamoros shortages of customer supplied raw materials noncash foreign exchange losses.

Selling costs and the deferral of revenue related to contract extensions and contract cost estimates.

<unk> 606, Bill Alright.

Our adjusted EBITDA for Q4 was a loss of $28 3 million and for the full year. Our adjusted EBITDA was $2 4 million in Q4, 'twenty, one our revenue and adjusted EBITDA was adversely impacted by approximately $40 million, primarily due to extensions of customer contracts and estimates of cost to complete our customer.

<unk> contract extension some modifications in the third and fourth quarter resulted in us, adding almost $300 million of additional contract value over the extended terms, we enter into these extensions even though they may impact current period results under ASC 606, because they improve our long term revenue and earnings potential and do not.

<unk> really impact cash flow.

Moving to slide 11 for the full year, we exceeded profitability expectations by $3 $6 million through improved operational execution. During the fourth quarter. However, the deferral of revenue and changes in estimates of cost to complete contracts under ASC 606 reduced our reported adjusted EBITDA by approximately $52 million.

$2 4 million, but had no impact on our cash flow as a reminder, we manage our business on a billings basis as it reflects the actual cash flow and working capital requirements of our business.

Onto slide 12, finally, we ended the year with a strong balance sheet, including $242 2 million of unrestricted cash and cash equivalents and no net debt.

We will however provide guidance on some key operational metrics as follows.

43 dedicated manufacturing lines total wind blade set capacity of 3710 or the lines, we have under contract utilization of between 80% and 85% average sales price per blade of between 170 and $180000 and Capex of between 25 and 30.

Yeah.

I'll now turn the call back to the operator for questions.

Thank you as he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.

You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star. He is our first question is from Justin Clare with Roth Capital Partners. Please proceed.

Everyone. Thanks for taking our questions.

I guess just first off on the guidance that you provided you provided utilization dedicated lines in Asps.

So just based on those metrics it looks like net sales could be flat to slightly down which I think is what you had alluded to on the Q3 call. So is that still.

A reasonable expectation for this year can you just talk through that in the the level of uncertainty there with the sales going forward.

Yes, just a nice to talk to you I would say again, a lot of market volatility here and uncertainty, especially in the U S market.

Given what we know today I think that statement that we made in Q3 is still is still accurate.

Okay.

Sounds good and then.

Turning to margins.

Indicated that you could hold the bill of materials flat year over year in 2022 or at least that's the goal here and then if I look at your ASP.

It looks like they could increase 4% or so for the year based on your guide.

So that would indicate that you could expand margins here, but just wanted to see what visibility do you have to expanding margins.

If you could talk through the cadence as to.

How do you expect margins to trend that'd be helpful.

Yes, I think margins will continue to be a bit compressed suggested in 2022.

I think you've heard that from a number of our customers over the last several weeks the margin pressure on the hardware side.

No different for US, we'll continue to see compressed margins, we have made significant progress in many areas, but we still have some some challenging areas to focus on so I would say.

Expect still to see some compressed margins through 2022.

Okay, and then maybe just one one more for me.

So given this environment just wanted to know.

Second on how Youre thinking about the balance sheet here, obviously, you raised the 400 million from Oaktree, but you have the option to do.

Another $200 million here.

What are your thoughts on on.

Looking to add that $200 million of capital.

What would lead you to make that decision to move forward with that.

Yes, so of the 400, if you remember we only drew $3 50 of that.

And we feel very confident and comfortable with that level at this point in time.

The 200 in addition to the 400 was really.

Mark for future growth opportunities. So we wouldn't we don't expect or anticipate having to tap that for anything but growth opportunities as we move forward.

Okay great.

For me and I'll pass it on.

Great. Thanks.

Our next question is from James West with Evercore ISI. Please proceed.

Hey, good afternoon Bill.

Hi, James how are you.

I'm doing well yourself.

Doing great. Thanks.

Good well congratulations on the big transportation.

Toward what you guys are seeing good progress there.

How should we think about that I mean, you gave the unit that you expect to ship next year in 'twenty three but what should we think about that in terms of kind of a dollar amount or size of award. If you can provide me with some maybe it could be above the big round number but.

I'm trying to kind of scale that with besides your wind business.

Yes.

I would tell you there.

The price per part is relatively low just based on the nature of the part right.

However, the margins on them are very good.

And can't disclose exactly what that price per part is at this point in time.

But.

We're pleased with it and it will be margin positive for us.

Both in 2022 and in 2023.

Okay, Okay fair enough.

You can try to back into it.

The other question I had on.

Offshore wind in the U S. I mean, you made some positive comments about it but we got the build back better than installed here, but we're going forward with the.

New York auctions right now so kind of how do you guys see this playing out if we start awarding.

The acreage.

Do you start to then get awarded.

Blades and you start to I mean, I'm sure you are already sourcing and Youre talking to the states.

On your manufacturing capacity near the near the acreage I mean, how does this all kind of play out in your mind.

Yes, so again, we have to work through our customers for that and you can be you can be sure that the conversations are ongoing with customers for opportunities on the.

Both on the east coast or on the East coast as well as in other regions of the world.

So we've been we've talked about this for quite some time.

And those discussions are robust and continue.

Okay. That's it for me Thanks Bill.

Great. Thanks, James Good talking to you.

Our next question is from Joseph Osha with Guggenheim. Please proceed.

Hello, This is actually Hilary on for Joe.

Sure.

Question, you already kind of touched.

On the supply chain efforts there to localize it just kind of wondering if you could provide any context for how much progress has been made so far versus further room for improvement there.

Yeah, Hey, Larry good to talk to.

We've actually made quite a bit of progress we've started first in Mexico.

We've done a pretty nice job of localizing bolt in Juarez and in Matamoros some of the key suppliers.

And we're working on some additional opportunities there.

India, where our relative recent entrants to their entrance into the India market.

And a lot of the wind.

Suppliers, if you will were up in the northeast, whereas sorry, the northwest and we're down in the southeast.

But making progress on that as well Thats a focus for us and I think suffice it to say our team there as well as our global team has done a nice job of.

Introducing some of our suppliers to that area and I look.

I expect that we'll make significant progress in 2022 on that.

Okay, Great and then I believe you said it was matamoros in your prepared remarks things are kind of up and running more smoothly, but still a little bit around for cost improvement. If you could just kind of provide timeline for rarely seen that.

Come in a bit and kind of what has happened.

Yes.

Yeah, you bet. So that was the one that we were challenged with last year, we talked a bit about it and as I said in our prepared remarks, we have made.

Significant amount of progress, but not without throwing some additional resources at it so.

As of today as I mentioned, we are delivering product on time high quality product to our customer.

And now it's time to as we drive cycle time down and throughput down it's to work on the cost side of that as well so through the balance of this quarter and in the second quarter. We are very focused on driving that cost side of it. So I would expect by the end of Q2 will be in a much better position down there.

Great. Thank you that's all for me.

Thanks Hillary.

Our next question is from Laura Sanchez with Morgan Stanley . Please proceed.

Hi, Bill. Thank you for your time and can you hear me okay.

I hear you loud and clear Laura good to talk to you.

Alright, thank you likewise.

On the volume side.

Our volumes today relative to their minimum volume commitments I am wondering if Oems.

Those M D C.

Do you have areas to provide some stability.

Wondering if Oems can continue to push volume further out.

Doing so would incur costs on their end.

Yeah, So Laura it varies a little bit by region and by customer, but we are above what the <unk>.

It would require in the contract for sure.

Yes, so I guess im not sure what else to say other than we are at or above the <unk> and <unk>.

In some cases, where.

Over 100% capacity in other places were lower but overall over the MBA the mbo amounts and to your to your question. If they did go below the mbo, yes, if there would be a cost to the customer.

Okay, Okay and in terms of the on the EBITDA side the incremental.

Fixed charge relative to the guidance provided last year.

You were talking about that being related to a delay in revenue given the expansion on some of the contract.

The revenues for the year were in line. The guided range. So were there any revenue offsets or maybe could you just go through the moving pieces there.

And the extended terms of the contract like how further out does that take you.

Yes, so we extended a number of lines by a year.

All year right, yes, so I think all of them were extended by a year.

And yes, there was there was a corresponding revenue impact as well so we had to defer a certain amount of revenue and thats what impacted EBITDA.

And where there is some revenue offset on the revenue side that even with that change to allow you to remain within the guided range.

There were puts and takes.

From a volume standpoint, but I don't think.

Nothing that I can recall significant significantly different we had a fairly wide range on the revenue side.

Yes, okay understood. Thank you.

Okay.

Thanks, Laura.

Our next question is from Eric Stine with Craig Hallum Capital Group. Please proceed.

Hi, its Aaron <unk> on for Eric Thanks for taking the questions.

Hey, Eric.

Maybe first on China can you just give us an update there on kind of emerging the facilities and replacing those lines. I know, we have four with versus that are kind of starting up but maybe talk about the timeline. There and then just thoughts on potentially entering that market going forward.

Yes so.

It's never easy when you have to consolidate factories and there's the human side of it our team in China.

Phenomenal job of managing that and we've effectively now.

Emerged our both of our blade operations into one into young Joe So we have <unk>.

Seven lines operating there now so we have three lines that were already there.

And then we're starting four new lines this year.

Have those up and operating by the end of Q2.

So seven lines total.

But the integration went very smooth, we will continue to look at opportunities to continue to expand our production.

And young Joe with our existing customers.

Breaking into the China market for China with the Chinese Oems as.

<unk> always been a very difficult task from a from a cost standpoint.

We've had a number of discussions there are a number of opportunities but.

We're going to make sure if we do that we can do that profitably and at this point, we havent, we havent found that right opportunity yet. So we will continue to work with our existing customer base on filling the balance of the capacity that we have in young Joe.

Understood and then any more color you can share on you kind of mentioned recycling just.

What that might entail any kind of capex or any contribution just anything else there would be helpful.

Yes, it's a little bit early.

There is a lot of discussion in the industry about it we're working on.

Two or three different end solutions.

Capex is not crazy at this point.

Could you could.

Four.

A $1 million you can handle a lot of blades from a from a pure capex standpoint now the challenges.

<unk> port and everything else because that becomes expensive but its.

It is not capex intensive.

But we are working on a couple of.

Interesting solutions for that that we hope to be able to talk about more as we get to the back half of 2022.

Alright, we'll stay tuned there I'll hop back in the queue. Thanks.

Great. Thanks Aaron.

Our next question is from Mark Strouse with Jpmorgan. Please proceed.

Yes, good afternoon, thanks for taking our questions.

Bill you gave some.

Yes.

I think.

Again transportation.

We're going to grow that over over where we were this year I think youll see.

Pretty good growth quite frankly.

It's still it's still be a very small part of our overall business, but we're building up.

We're winning some winning some production contracts that will add to that.

So it will be it'll be more than we did this year.

By a factor of probably one five times I would say.

On the on the service business, we're going to continue to aggressively grow that we grew up by two times top line. This year, probably go up by another 50% on top of that for this year conservatively, but thats kind of a directionally, where we're headed.

Okay. That's helpful and then just lastly.

I think in the past you've you've targeted a kind of a low double digit EBITDA margin.

Has there been anything over the last year or so in the industry that has led to a structural change that you think that that number is no longer appropriate.

I would tell you mark given the uncertainty as we sit here today with everything thats going on whether it would be.

Build back better stalled.

What's happening from a geopolitical standpoint in Europe .

I think if you listen to our customers there needs to be a fundamental change in how and how windows priced.

So I do think there are some structural changes that need to happen I think we're starting to see that with some of the so the price per megawatt turbines over the last couple of quarter starting to go back up and that's not just because of input costs, but.

So the answer is yes.

Long answer to your question is yes, I think they do need to be some structural changes.

And we're working on that with our customers as we speak.

Okay. Thank you Bill.

You bet. Thanks Mark.

Our next question is from Pavel.

Channels with Raymond James Please proceed.

Thanks for taking the question.

A minute ago you referenced.

The geopolitical context, and specifically in Europe .

Remind please how much of your revenue.

Hum.

Comes out of the European market, and I guess, specifically from the Turkey facility.

Yes so.

Good to talk to you <unk>.

<unk>.

Turkey, probably it's less than 10% stay.

Stays in Turkey of what we built most of it does leave leave Turkey and go around the world a lot of that to EMEA.

In Europe , it's about.

<unk>, 30% of our of our blades and up in Europe that are built.

So it's in that neighborhood.

Okay.

When when we think about the European wind market, obviously offshore gas.

Maybe disproportionate attention most of the new builds are in fact still on land.

Do you envision it seemed logical for $25, an mcf natural gas most expensive natural gas in the history of the world too.

Drive adoption of more wind in the in the electricity mix, both on land and offshore.

Yes.

I would hope so I mean, when do Europe , just put out a report today that between now and 2030.

Of the of the new installs are anticipating 76% of them are going to be onshore. So youre right offshore gets a lot of the press, but theres still a significant amount of onshore activity in Europe .

I do the challenge in Europe remains permitting and sighting.

And so if the governments can can work with the industry and figure out how to speed up that process than the pace of installs in Europe should and could increase significantly right now.

We estimate estimate like 17, Gigawatts a year between now and 2030 it needs to be twice that much.

Hit their 40% renewable target by 2030.

So long answer to your question, but the answer is absolutely yes.

And then lastly, maybe just clarify the light duty vehicle contract that you reference that will be.

Basically a smaller version of the bus body <unk>.

Lying to pro Tara correct.

No.

Didn't mention a light body vehicle it was structural components for at EV passenger platform. So it's not a body in white or.

Body, it's a structural.

Component that is.

Under body for the most part.

Okay. Okay. That's clear thank you very much.

Thanks Pat.

Our next question is from Jeff Osborne with Cowen and company. Please proceed.

Yes, good afternoon, Bill a couple of questions on my side I was wondering on the EVP. So if there's any notable capex that would be needed to produce 1 million units.

In 2023 and then.

A secondary question about it is could you disclose if it's a start up or maybe those goals are ambitious versus an established OEM.

First of all no incremental Capex, Jeff and secondly, it's it's an established platform got it will that be produced in Rhode Island or somewhere else.

A portion of its produced in Rhode Island, and a portion of it is produced with in another location that we partner with.

Supplier.

I got it and then I had a question on the transitions that you guided for for the year are any of those associated with the segmented blade or multi piece blade that you had challenges within Mexico I'm. Just curious if they are what level of learnings you experienced there and how quickly you could port that knowledge to other locations.

Yes, no a fair question, but the answer is theyre not related to the to the multi piece played their single single piece blade as we would call them that.

The good news is is that to.

Two of the transitions, one in Mexico, and one in Turkey.

We're transitioning to the same blade.

And so that is helpful and where we're.

Ahead of schedule on both of those as we speak right now so very optimistic that we'll complete those.

And very efficient fashion as we did the first one in Turkey at the beginning of the year.

Got it. Thank you that's all I had.

Great. Thanks, Jeff.

Our next question is from Tom Curran with Seaport. Please proceed.

Hello.

Hey, Tom how are you just a follow up.

Good good.

A follow up on the topic of transitions I know you've had.

Initiatives underway to try to improve.

The efficiency of transition when you do them.

From what I understand both.

Moving from one customer to another and then interim old transitions with the same customer.

Could you update us on where you think those initiations.

<unk> are at and how much more improvement we might see.

Well I'll give you. An example, so in Turkey. It was for an existing customer and we did transition align.

We've already upped our production estimate for 2022 to north of what our contractual amount is.

That will that will just give you. An example of how efficient that transition was so transitioning align and not losing any volume for the year.

And in fact getting more volume is about as efficient as you can do it.

I would say, we've made I'm going to I'm going to pull the COVID-19 card for a second so.

In 2020 and in 2021.

Our transitions.

We're a little bit challenged because of COVID-19 , whether it was the ability of people to get to a certain country.

Getting some of the experts on the equipment in country et cetera created some challenges.

But what was really under our control, we executed pretty well.

So again.

I'm pressing the guys every day to continue to get better R. R.

Schedules are much more aggressive I think our collaboration with our customers has gotten better.

We are holding them more accountable for what they're part of the transition is with.

With consequences, if those deliverables arent met.

So the answer is I feel very confident in the transitions this year.

We've made significant progress and I expect to continue to make progress as we go through the balance of the year.

That all sounds encouraging.

And then.

In terms of.

The remaining.

Cost savings you might be able to wring out of facility consolidation.

Perhaps wine idling.

Just wondering what more we might see you do with Iowa over the course of this year.

And then whether or not.

There is additional.

<unk>.

Shut down or mothballing steps you could take with the four lines in Juarez that had been relinquished by STR.

Yes so.

I think as we talked about before we've extended that lease through 2022.

The reason, we did that was to number one if build back better came in would there be provisions in there to possibly provide for the reopening of that plant where it made economic sense.

With build back better stalled.

At least from a from a regulatory or legislative standpoint, it's less likely at this point.

But we've we've minimized costs there.

Two really the lease as well as just kind of the normal maintenance that we need to do there. So there's not much more we can do from a cost savings from a from a mock ball there this year, but if.

Nothing happens there then we'll obviously eliminate that cost for 2023.

And whereas.

There is there is interest in that facility.

We're utilizing it for some some other work right now as well so it's not going unutilized completely.

But again I think when we get a little bit more certainty about the U S market.

Whether we have build back better weather, we have tax extenders at the end of the year or a new clean energy bipartisan plan early next year.

I think we will have a better feel for exactly what the long term play is there, but I remain optimistic that once we have certainty from a policy standpoint in the U S that that space will get scooped up pretty quickly.

Thanks for taking my questions.

You bet. Thank you.

As a reminder, this star one on your telephone keypad, if he would like to ask your question. Our next question is from Stephen <unk> with Stifel. Please proceed.

Thanks, Good afternoon gentlemen.

Good afternoon.

I apologize I got disconnected earlier, so hopeful.

This was not asked but can you talk a little bit more about what you're hearing from your wind blade customers I mean, obviously you.

You've kind of talked about this in the press release a bit about the near term.

Certainty, but are you are you can you do you have a sense for kind of what's going to kind of restart things and kind of what they're looking for to kind of be maybe more aggressive on the waterfront.

Again.

Yeah, and again just from what from what they are saying publicly.

It's not about chasing market share, it's about chasing profitable business. So I think.

And we may have seen some of that in Q4 with some of the order volumes.

I think with with with them, having the discipline to two price.

So that they can be profitable certainly will help us as well.

So what I'm hearing from our customers is just more discipline on the pricing side not chasing share just to chase share.

Being diligent in how they are contracting.

And again, just just not chasing business to chase business, but really chasing profitable business.

Okay, great. Thank you and then the second one I have just some sort of a bigger picture perspective.

Kent.

And I know your your your Crystal ball is cloudy.

We speak as all of ours are but when you when you think about the.

Sort of the.

EBIT dollars.

In 2022, and Theyre kind of win when you get when you turn positive and sort of how that Scott how are you sort of thinking about that over the next several quarters.

No I think from a sequencing standpoint, Steve and I would say Q1 will be.

It will be a down quarter for us just because all of our transitions and our start up a couple of our startups will happen in the quarter.

So that'll be a down quarter and then you'll see a build in Q2 Q3 will likely be our best quarter.

Which is fairly typical and then Q4, we will see it dip a little bit and that's primarily because of holidays and what have you.

But that's how I would kind of sequence.

The EBITDA over the quarter or over the year sorry.

Okay, great. Thanks for the color.

You bet. Thank you.

Our next question is from Kathy Harrison with Piper Sandler.

Good afternoon, and thank you for taking the question.

You bet.

Just one quick one for me and.

Apologies. If this was answered in some form or fashion, a little bit earlier, but just simplistically, how should we think directionally about the.

Startup and transition costs line.

In 2022 for the full year are you thinking flattish slightly down slightly up just some directional indicate indicator would be would be great. Thank you.

Yes.

Given the number of transitions and startups.

And recognizing that for the startups are in China, and our team in China does a really really good job of either transitions or startups.

And the fact that I think 2021 was probably.

Impacted a bit more by the challenges we had in <unk> and more as as well as Matamoros I would say directionally it will be down year over year.

Got it that's all I needed. Thank you.

You bet thanks, guys.

And our next question is from at all.

Carr with Bank of America. Please proceed.

Thank you so much good evening. Thank you for taking my question I guess, the first question I had was at the high level.

A discussion of some of the Chinese linked turbine Oems looking to expand outside of China.

Europe for.

For example, so as we think about.

Expanding beyond your current customer base.

Does that looks like an interesting opportunity to your partnership with EPA to foresee and get that accretion.

Yes.

Thanks for the question as I mentioned earlier it is.

We've had discussions.

For years with the Chinese Oems.

The terms that they require or request and the pricing is extremely aggressive from our perspective, So I mean.

China is the.

It is the largest wind market in the world and they are making some headway outside of China.

So I will never say never.

Certainly an opportunity.

But it's.

It's a bit of a long putt for US right now from that perspective as I look at it today.

Just from a pure cost standpoint.

<unk>.

Understood. That's helpful and then predominantly in common.

Common key around the box you guys any carbon fiber was extremely helpful. I was wondering if you could help us complete the puzzle in terms of understanding how that worked fiberglass.

They are trading, but if there is a status quo versus 2021 how should we think about it.

Yes, so I would I would.

I'd tell you that.

For some of the reasons that we're seeing increasing.

Increasing costs from carbon.

We're seeing some challenges with <unk>.

It's a capacity issue to some extent.

As well as.

Aquila nitrile as a feedstock for both PETN carbon and we're seeing some some capacity constraints there as well so that's a bit of a challenge but.

We see that capacity to a challenged a little bit but from a pricing standpoint, we're in pretty good shape based on our contracts for next year.

This year.

Glass fiber I think we expect probably a 2% to 3% increase year over year from 'twenty one to 'twenty two.

And that does there remain a few supply constraints, there, but nothing that we can't manage through.

Understood. Thank you and then I guess the last one would be.

Based upon the new EDI order from multiple angles I guess, the only question I had was.

That's the current backlog number that you have shared $2 5 billion does that capture the $450000. This year and 1 million parts FY 'twenty and then whats the room to expand within these contracts from that right now in terms. So just linking it to the fiber and given the long term target that you have taken.

Yes. So those contracts today are not included in the backlog number or the contract value number.

And the ability to expand I mean, the first production.

The first part we made for the customer we did very successfully which is which led to this opportunity I think there is the opportunity to expand the relationship geographically.

So that is certainly an option but.

If we continue to demonstrate our ability to be nimble innovative work fast and reduce upfront tooling costs for these customers I think our opportunity to expand that is right in front of us.

Got it definitely has taken so much.

Thank you.

We have reached the end of our question and answer session I would like to hand the conference.

Back over to Bill for closing comments.

For their commitment and dedication to TPI and our mission to Decarbonize and electrify. Thank you again for your time today.

Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

Q4 2021 TPI Composites Inc Earnings Call

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