Q3 2022 TPI Composites Inc Earnings Call

November 3, 2022

Good afternoon, and welcome to TPI Composites third quarter 2022 earnings conference call. During the presentation, all participants will be in a listen only mode.

We will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your telephone.

At any time during the conference you need to reach an operator, Please press star zero.

As a reminder, today's conference is being recorded.

Allocated one hour.

Marks and Q&A at this time I'd like to turn the conference over to Christian.

Investor Relations for TPI composites. Thank you you.

You may begin thank you operator, I would like to welcome everyone to TPI composites third quarter 2022 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 the applicable risks is included in our latest reports and filings with the Securities and Exchange Commission, which can be found on our website TPI composites dot com.

Today's presentation will include references to non-GAAP financial measures.

Should refer to the information contained in the slides accompanying today's presentation for definitions of information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measures.

That let me turn the call over to Bill Highway TPI composites, President and CEO .

Thanks, Christian and good afternoon, everyone. Thank you for joining our call. In addition to Christian I'm here with Ryan Miller, our CFO today, I'll discuss our third quarter results, our global operations, including our service and transportation businesses, then cover our supply chain in the wind energy market more broadly Brian will then review our financial results and then we'll open the call for Q&A.

Please turn to slide five.

We believe we are well positioned to address the current energy security and climate change crisis by helping to accelerate the shift towards a renewable powered world.

The recent passage of the inflation reduction act in the U S and the actions under the Eu's proposed Repower you plan or just two catalysts to help drive that acceleration.

However, a tightened energy supply rising inflation elevated logistics costs geopolitical conflicts and permitting and siting delays are jeopardizing the speed of that shift as well as impacting our profitability in demand in the near term.

So while we have seen demand impacted by these challenges the medium to long term outlook for wind energy remains strong. Our mission is to continue to navigate through the near term headwinds and prepare ourselves and our suppliers for the projected long term growth of the wind industry, both domestically and internationally.

Our strategic initiatives have not changed safety of our associates is of course job one and that is followed by continuing to improve our and the industry's quality reduce our cost structure optimize our manufacturing footprint and utilization deeply collaborate with both customers and suppliers drive innovation.

<unk> expand our offerings can be laser focused on liquidity and balance sheet strength. So while the balance of 2022 and 2023, we will continue to be challenging our team is up to the task and we remain committed to improving our operating and financial results.

As it relates to the third quarter of 2022, we delivered sales of $459 $3 million during the quarter, which was down from prior year. However sequentially sales increased over the second quarter by one 5% and our adjusted EBITDA was $16 $4 million, including several nonrecurring <unk> unique events.

Ryan will outline later.

Overall, a solid quarter given the economic environment, we are operating.

We are also pleased that we have executed several contract extensions since the last earnings call.

We extended two lines for Entercom in Turkey through 2025, as well as for lines for Nordics through.

Through 2023 and preparation for the expected growth in the U S market. We have signed an agreement with GE renewable energy that enabled us to secure a 10 year lease extension of our manufacturing facility in Newton, Iowa under the agreement GE and TPI will be developing competitive blade manufacturing options to best serve Ge's <unk>.

Fitments in the U S market with production expected to start in 2024.

We have agreed in principle with GE to extend all our lines in Mexico through 2025, and expect to finalize and execute the contract extensions before the end of this year.

With this extension, we now have nine lines under contract with GE plus the five lines of potential capacity in Iowa. We are currently discussing a long term partnering agreements to provide more capacity and flexibility along with higher utilization of our manufacturing capacity more to come on this.

Finally, we have agreed in principle to a seven year global partner framework agreement with Vestas that aims to provide flexibility along with more capacity for them, while enabling better facility utilization for us in the geographies that we serve best as together.

Together, we are investigating market driven opportunities for local blade manufacturing of the <unk> hundred 36 blades in Asia, The U S and Europe and we are collaborating in the design phase of the <unk> 163 blade, while assessing the optimal manufacturing setup for this play.

Given the near term challenges the wind industry is facing we are commencing multiple cost savings initiatives to better position us for 2023, and the long term, including optimizing our global manufacturing footprint, reducing head count primarily in geographies, most impacted by demand and reducing or eliminating loss making operations.

While the plan has not yet been initiated and therefore not finalized we intend to cease production at our young Joe China manufacturing facility in December 2022.

During the fourth quarter, we expect to record material restructuring and impairment charges with respect to closing this facility additional head count reductions and our other manufacturing facilities and corporate functions.

As well as actions related to loss, making operations.

We expect these actions to result in structural cost reductions of approximately $20 million to be realized in 2023 and beyond while continuing to focus on.

On operating efficiencies to drive annual productivity savings of over $20 million per year, which we have consistently achieved over the past three years.

During 2023, we expect 36 lines to be in production with the right sizing and optimization of our global footprint and upon completion of current customer contract and we expect to initially have as many as 14 lines with GE 13 lines with Vestas 12 lines with Nordic and two lines with Entercom for a total of 41 debt.

Decatur line out of a total footprint capacity of 47 lines, which excludes the eight lines of capacity. We currently have in China.

Full capacity annually, we can produce up to 3900 sets or approximately 15 gigawatt with a revenue potential of $2 billion.

Turning to slide six I will now give you a quick update of global operations supply chain as well as the wind market.

Our plants in China, and India performed well ahead of plan in Q3, our Turkey plants are also well ahead of plan for the year notwithstanding the short labor disruption in the quarter as we worked with the union to address the inflationary pressures on wages.

As a result sales for the quarter were impacted by approximately $8 9 million most of which we plan to recover in the fourth quarter.

Moving on to Mexico in early August <unk> was requested by one of our customers to temporarily suspend production of one blade type manufactured.

Manufactured in one of our Mexico sites due to a design change TPI supported our customer with an expedited review and implementation of the new design and production resumed in September .

The suspension of production impacted third quarter sales by about $12 million with minimal impact on earnings.

Operations in our Nordics facility in Matamoros have improved but we are still challenged from a profitability standpoint, although we are working with our customer to determine how to best to reduce the impact of this operation going forward the negative impact on our overall adjusted EBITDA margin from this facility is expected to be approximately $200.

50 basis points for the full year and was approximately 270 basis points in the third quarter.

Bottom line, our blade operations, except for the newest facility in Matamoros and notwithstanding the disruptions this quarter in Turkey, and Mexico, we have performed extremely well.

Excluding the challenges from the Matamoros operations, our adjusted EBITDA margin in the third quarter would have improved from three 6% to six 3%.

And our service business, we are on track to exceed the 40% to 50% top line growth expectations that we shared with you earlier this year during the third quarter of our field service business grew sales, 73% compared to the prior year, our field service business generates higher margins than our blade manufacturing business and we expect.

To improve as the business achieves scale and therefore be more accretive to our overall margins over time.

In our transportation business supply chain issues have continued to impact us due to reduced volume needs by our customers.

We now expect transportation revenue to grow by approximately 10% in 2022 looking ahead into 2023, we believe that volumes and revenue will grow significantly compared to 2022, especially in our non <unk> business, our supply chain constraint Ts.

We are continuing to make progress through adding new development programs and converting programs to production since our last earnings call. We have kicked off production tooling with the class eight truck customer and we plan to start serial production of large cap structure components in the first half of 'twenty three.

We've also kicked off serial production for another automotive program for battery pack components.

This is our third serial production program with this customer.

The award of development programs are growing our customer base with the market segment leaders and commercial delivery and passenger vehicles.

These programs have validated the cost and performance benefits of composites, while allowing us to demonstrate our technical expertise and develop tooling and manufacturing processes that provide higher value added solutions with low investment industrialization we.

We expect the inflation reduction act to be a demand catalyst in the U S for commercial vehicles, given the many provisions, including the commercial planes vehicle credit alternative fuel vehicle refueling property credit and the clean heavy duty vehicle grants and rebates just to name a few.

Moving on to our supply chain the situation continues to be challenging in the third quarter. Although we saw price increases due to the higher energy prices in Europe , we did not have issues securing material to ensure an uninterrupted production.

And we have seen logistics costs start to come down, but still high relative to pre pandemic pricing as we look out into 2023, we expect pricing for raw materials to increase overall by low single digit percentage. However, due to our contract structure and shared pain gain approach, we expect to be able to reduce the impact of tpi's margins to <unk>.

<unk> zero or even have a slight net benefit.

We are continuing to diversify and derisk our supply chain by qualifying sources in the regions in which we manufacture products to reduce the impact of higher logistics costs provide security of supply and build long term strategic partnerships with key suppliers to ensure the best pricing and availability in the short medium and long term.

On to the wind market, a quick update on repo EU, which targets 510 gigawatts of wind energy by 2030.

Up from approximately 190 gigawatts today, when do Europe expects that the negotiations between the European Parliament and the 27 member states on the renewable energy directive to conclude by the start of 2023.

This year over a third of all of our blade shipments have been into Europe . So it remains an important market for us and we expect the implementation of Repower EU and the growing need for energy independence in Europe to accelerate our growth in the region in the future.

In the U S. We are certainly pleased with the passage of the inflation reduction Act of 2022. We believe this will bring long term incentive certainty that is needed to supercharge the investment in clean energy construction and put the U S. On a path to reach its Paris agreement emission reduction pledge and be a critical contributor to energy independence to hit.

<unk> key driver of the U S wind market. The production tax credit has effectively been extended until the later of 2032 are when greenhouse gas emissions have been reduced 75% compared to 2022, which means it is likely that the PTC can last for the next two decades.

One of the unique provisions of the bill that directly impacts TPI.

As the advanced manufacturing production credit that we believe will provide a credit of <unk> <unk> per watt per blade to put this in context. This could be $80000 for a four megawatt blade or $240000 per turbine.

This would be on top of the domestic content adder of 10% that should also increase demand for TPI blades the.

The industry is waiting on guidance from the IRS and the Treasury Department, among others define and clarify the implementation of this complex legislation.

We are in the middle of the strategic planning discussions with our customers on how to best utilize the IRA and expect that we will have more clarity on our customers' needs over the coming quarters and as the guidance around implementation has released so stay tuned for more information to come.

While we recognize the challenges the wind industry faces in the near term we are confident demand for wind energy will strengthen over the mid to long term given the focus on energy security and independence globally, and the necessity to decarbonize and electrify to meet the aggressive goals set to combat climate change.

We believe CPI remains in a unique position with our global footprint in key strategic geographies, along with strong partnerships with our suppliers and our customers to grow as the demand for wind begins to accelerate again.

To repeat what I stated earlier execution cost control right sizing and liquidity are at the forefront of our priorities, while continuing to move forward on multiple strategic initiatives to enable TPI to capitalize on the expected long term growth.

With that let me turn the call over to Ryan to review our financial results.

Phil Please turn to slide eight.

All comparisons made today will be on a year over year basis compared to the same period in 2021.

For the third quarter ended September 32022, net sales were $459 3 million net sales of wind blades were $425 million in the quarter, a decrease of $25 7 million or five 7% compared to the third quarter of last year.

The decrease in wind blade sales was primarily driven by an 11% increase in the number of wind blades produced due to a temporary production stoppage in one of our Mexico plants as the OEM it blend it up late to redesign.

A brief labor disruption in Turkey, as we've worked with beginning to resolve inflationary pressure on wages as well as a reduction in manufacturing line transitions of existing volume in currency fluctuations, which were all partially offset by an increase in average sales price per blade due to the mix of wind blade models produced any impact of inflation on plate prices.

Net loss attributable to common stockholders for the quarter was $16 4 million compared to a net loss of $30 7 million in the same period in 2021.

Our adjusted EBITDA for Q3 was $16 4 million or three 6% of sales compared to a breakeven in the same period in 2021.

The increase was primarily due to favorable foreign currency fluctuation of $9 7 million decrease in startup and transition costs and improved operating cost efficiencies.

Partially offset by approximately $3 million non restructuring related operating costs at.

At our locations, where production has stopped as well as cost challenges at our newest facility in Matamoros.

Moving to slide nine.

We ended the quarter with $129 1 million of unrestricted cash and cash equivalents and $62 $1 million of debt.

Free cash flow for the three months ended September 32022 was a net use of cash of $29 4 million, primarily due to improving the health of our supply chain and timing impacts in the Turkey labor disruption and a temporary production suspension in Mexico.

During the quarter, we continued our focus on tight cost control managing working capital and constraining capital expenditures. The current environment continues to be challenging across the wind market as we balance reduced demand in the near term.

Same time trying to ensure we have a healthy supply chain.

As we move forward, we are focused on our liquidity and ensuring we can capitalize on the recovery of the wind market in the medium to long term.

Bill.

Thanks, Brian turning to slide 10, as we look forward to the rest of the year, we expect Q4 sales and adjusted EBITDA to be down slightly from Q3, reflecting normal seasonality in our business and our formal guidance has not changed since last quarter.

Moving on to slide 12.

We are pleased that we were able to announce today the extended entercom and Nordics agreement a long term lease extension in Iowa, the agreement to extend contracts in Mexico through 2025, and seven year Global framework agreement with Vestas.

Our customers in many wind farm developers are deferring investments into the future until inflationary pressures and global economies stabilize and there is clear regulatory guidance from the IRS and treasury with respect to the IAA and more clarity around the implementation of the provisions of Repower EU.

Therefore, we expect decreased demand for our wind blades from customers and therefore, our total projected sales and results of operations in 2023 to decline compared to 2022.

We're in the process of finalizing our 2023 annual plan and budget and we will provide further information during our next earnings call.

With that we remain focused on managing our business through the near term challenges in the industry and our efforts to position Tpi's preferred global solution provider to our customers to enable profitable execution and adequate liquidity.

Finally, I want to thank all of our TPI associates once again for their commitment dedication and loyalty to TPI and our mission to Decarbonize and electrify.

The accelerated.

And then maybe just not <unk> I mean, clearly you've been a strong relationship for some time, but <unk> got a global framework, you're taking it to to a different level I mean, maybe if you could go a little more in detail about how this new agreement changes that I mean, what are the areas that.

You know then it will be different and and curious I mean, I know off shore is is a focus and it's still off quite some time, but is this something that is potentially contemplated in this framework.

Yeah, I can't get into the specifics of the contract but.

Suffices to stay as mentioned in the prepared remarks, it's around providing flexibility and capacity for for vastus moving forward flexibility with that capacity, but also scenting them too too highly utilize our facilities.

So that we can maximize utilization because at the end of the day, if we're fully utilised, it's better for us and it's better for them and ultimately for their customers in the end consumer. So it's really designed around maximizing productivity in our facilities and reducing overall total landed cost for vestas and.

As far as from an offshore perspective, I'm not sure if he caught it but we did talk specifically about the B 236 that is there.

Their biggest offshore machine.

And so this does contemplate working with them in the future nothing is finalised at this point, but as indicated we're we are jointly investigating opportunities in multiple geographies for for the production of the V 236 blade.

Got it maybe you can just click on one more has done G E.

Iowa, I mean, just curious on challenges, they're obviously, you're being employer in Luton and closed and now you're going to start up but not for a year. How do you manage that I'm trying to get the the workforce filled up again, but knowing that it's still off 12.

12 plus months.

Yeah, It actually works out pretty well for us Eric I mean, we're going to have to rebuild the workforce right but.

We're not anticipating beginning production until some time in 2024.

So it gives us adequate time to plan for that workforce reengagement.

Gives us time to maybe get back some of our core people that.

That were with us rarely since 2007, when we started up Iowa.

And so it actually I think could work in our favor to give us a little bit more time and plan for that ramp up in a very cost effective and efficient manner.

Okay. Thanks.

Yep. Thank you.

Your next question comes from a line of Julianna <unk> Smith with Bank of America. Your line. So.

Hi, This is Morgan read on try Joanne.

And then for a couple of questions I'm, Oregon.

Hi, Thanks for taking the question.

Can you just talk about I got building off of kind of the last commentary it sounds like based on the latest partner.

Lying down on the U S market any opportunities in Europe between the different manuals and it seems like the partial pull out of China that that's sort of a shifting of geographical that'll get to this strategy could you just talk about that a little bit and how you're thinking about that in a physician here for the next several years.

Yeah. So if you think about.

And I'll talk about China in a second but if you think about X China wind market. The U S is the largest individual market Europe is that when you look at Europe combined is a very large market as well.

That's where our customers are asking us to provide capacity to.

And so certainly we're we're going to focus his.

Historically are <unk>.

<unk> to the U S has been in the 50% to 60% range.

Europe traditionally it's been over a third thing the last quarter. It was over 40% of our blades, we're going to Europe . So those are two very key markets for us so.

Getting refocused with our customers on a total landed cost concept not just a pier what's the blade cost X works for them.

Has has resulted in kind of a re prioritization from a footprint standpoint for for all of them and so that's what you see so on.

On the China front.

It's actually it's unfortunate it it's been a very productive location for us we have an outstanding workforce in China and we have for many years, we've been there since 2008.

But again with tariffs with logistics cost shipping costs geopolitical uncertainty.

There's a lot of derisking going on from our customers as well as from us from a supply chain standpoint, and so that's the rationale for the move.

Out of China.

Understand that that's helpful. And then just one more from me if you could talk a little bit about the plans for that transportation pregnant Uhm is there any expert I know you kind of alluded to difficulty with volumes is Claire can you maybe talk about your expectations for this business over the next couple of years, given 10 minutes slow.

Down in some of the auto Oem's that we've seen in the broader market.

Yeah. It it Morgan it certainly challenged us this year, we had much higher volume expect expectations, especially with our passenger.

Programs.

So the supply chain challenges with other components not ours.

Has has has resulted in the in the volume that we.

We do see it beginning to improve moving into 2023 again, it's still early but.

But we do expect or I would say are non bus volume. If you will to go up fairly substantially from where we're at today.

And with quite frankly with some of the other programs that we mentioned the development programs beginning production and twenty-three we see that will certainly help and we have a number of additional development programs right now that we expect to convert to production to cereal production. So we're still very optimistic.

Stick in the long term for that for that business.

Clearly in the U S. The IRL has lots of.

Components that are beneficial for commercial vehicles specifically.

So yeah, we remain very optimistic on where that's gonna go over the next couple of years.

Alright, Thank you I'll I'll think about that one.

Thank you.

Your next question comes from the line of Gray with a caskey with Webber Research. Your line is open.

Hey, Good afternoon, guys can you hear me okay.

Loud and clear Grad good talk to you.

Okay perfect.

<unk>. Your your opening remarks are really really helpful. A lot of good color in there. So thank you and I think he answers most of my questions I'll end up checking the transcript to be sure, but so I'll keep it through a couple of quick modelling ones. The the restructuring costs. If if all goes according to plan their can you give us a little bit more color.

On either the the quantity or.

Sides of restructuring coffin and definitely the decadence on what to expect is it gonna be contained to Q for you think or essentially slipped into the queue wants you to have next year as well.

Yeah. So I can't give you the quantity at this point because the plans are still we're not finalized with the plans.

I would say we are we are trying to complete everything by the end of this year. So hopefully contained the bulk of it in Q4.

As you may or may not be aware under some of the accounting rules.

There will likely be some spillover cost into twenty-three.

That you're not allowed to provide for as a restructuring reserve we would certainly call those out separately next year. So you guys can understand what that is and when we get into our queue for a call I think we'll be in a better position to to talk specifically about those but look for something between now and the end of the year that will give you a little bit better.

<unk> for what the actual quantum as we're still we're still finalising that [laughter].

Understood. Okay. Thank you and then on transitions that.

Papa transition in Q3 seems to make sense. It seems like some of that stuff is out of your control, sometimes but what are you. What are you expecting for startup in transition activity in Q4 verses Q3, and then maybe a little preview as to 2023 versus 2022 would be helpful too.

Yeah, I think for the balance of this year, there's very little activity other than kind of.

I'm not sure of course, we still might have a little bit from amex six the Nord X Matamoros facility.

Into twenty-three quite frankly, we see very few transitions.

And may.

Maybe one or two depending on time, and maybe one or two lines startups.

And also it will depend on Iowa, right. If if we if GE decides to accelerate we could see some startup costs at the back half of next year, otherwise very few transitions next year and very few startups.

Okay that makes sense, if I could squeeze one more in real quick just on <unk> in Iowa. When when you guys start that up in 2024 are they gonna take up 100 per cent of the capacity in that facility or is there technically room to add more lines with them or someone else.

Well they they are arrangement with them is that they have the rights to the full capacity.

If at some point in time, they choose not to use the full capacity then there's an option for us to do something different with it but we fully anticipate that they'll utilize that capacity.

Okay very helpful. Thank you Bill.

Thanks for a good time.

And your next question comes from the line of Elm I'll turn off with the Raymond James Your line is open.

Thank you for taking the question first kind of a high level one you've popped several calls in a row about the.

The fact that in the wind market there is not enough appreciation.

Off the cost of electricity.

And particularly given the European energy crisis. It certainly seems like power prices are escalating pretty sharply just about everywhere.

That being reflected in the economics of the wind value chain in your mind.

I would say it's starting to.

You look at what some of them. If you if you look at the Asp's from our customers.

Over the last year, I know vastus release yesterday, and they are up 30% year over year.

But it's still not fully appreciate it <unk> and I don't think we are seeing it yet.

That's something that we need to we as an industry need to focus on and I think there is a lot of focus on it.

But I still think once you get past the immediate crisis that we see in Europe , specifically it depending on how it looks this winter.

Maybe we'll make more headway as we move through the winter and then into the sprint.

Okay.

For the <unk>.

Chinese facility that you're heading down have you looked at the option of keeping it open.

And supplying the domestic Chinese market, even though.

Everything in China is intensely price competitive.

Yeah, we've we're continuing to evaluate options for what we ultimately do with the facility <unk>. So.

We've talked about the domestic Chinese market for a number of years, we've worked very hard to try to penetrate that market.

But for a whole bunch of reasons, you're probably aware of it's very difficult.

From a cost standpoint and Ah.

Terms of standpoint to come to an arrangement that would make sense.

But again, it's not completely out of the picture, but we are continuing to evaluate our options for that facility. We still we still have a lease term there.

Technically we're still under a free rent period, if you will.

So we will continue to to finalize that plan here over the next couple of months before the end of the year and.

And go from there.

Okay and then.

The point of clarification on what.

What you said about 2023 revenue is down.

Bye.

Gross margin improve from 2022 level.

[laughter].

It.

It it actually could prevail I mean with some of the actions we may take in the fourth quarter of this year. It would it could help with what the results look like next year.

Plus again, we're going to be we're going to we're going to work very hard on the cost side of the equation, we talked about a $20 million structural cost out that we should see the benefit of that next year, along with our normal annual cost out targets. So.

Though we said profitability would be down we're still not complete with our 2023 plans and as we work through the balance of it.

The numbers and the numbers could be better from a gross margin percentage standpoint. Once once all set is all said and done.

Alright, thanks very much.

You bet thanks, but.

And as a brief reminder to all to register for question. It is one four on your telephone keypad. Your next question comes from a line of Justin clear with a Roth capital partners your lines open.

Yeah, Hi, thanks for taking our questions.

You bet age estimates.

Hey, So I guess first off here.

Just related to the I R. A.

Just on the conversations that you're having with customers.

Do you expect wind blades to be a key component in and meeting domestic content requirements.

I was wondering you know based on discussions with customers are they really focused on manufacturing bleeds within the U S. Any any commentary there would be helpful.

Yeah, I'd say, it's a little mixed I again, it depends it's a little bit Oems specific on what else. They do in the U S.

And there is still needs to be clarification around exactly what will.

Count.

Two foundations count.

Et cetera, So I think.

Part of the clarification, everybody is waiting on will tell us better weather blades have to be in the U S or not.

Clearly.

It will it will help and plus the domestic content at or not just the P. C.

As a benefit if you can get both what you would obviously if you've got the MPC, you'll get the domestic content. So.

Again, whether they have a habit or not is one question and whether they wanted us another and I think most would want it clearly from an economic standpoint, but whether they have to have it.

To meet the.

The domestic content credit is a little bit OEM specific.

Right, Okay, and then so I guess.

You had discussions on potentially opening greenfield facilities beyond Iowa.

If so when could've facility be opened if you know your customers wanted to go down that path.

Yeah, we have had discussions I'd say you gotta find he got to identify where the right places with the right rail access et cetera.

Probably a 24 month period from start to finish.

But yeah I mean, those those discussions are ongoing I mentioned in the prepared remarks about strategic planning and and some of that some of that planning is around do we look at greenfield sites or not so.

More to come on that but.

That's certainly an option.

Okay, Great and then just one more we haven't really touched on the facilities you have in India. Yet I was wondering if you could get an update there what kind of demand are you seeing for for that part of your manufacturing base.

And are there lines coming up for extension in India, either at the end of this year or next year. So.

So just kind of a general update on the performance there.

So the performance has been outstanding they've they have.

Really.

Performed our expectations for this year the team there has done a really really nice job.

We do have two lines of capacity available there.

And I don't.

Christian around and do we have anything coming up within the next couple of years. Yeah. We don't have any lines that are due for extension there over the next few years.

Okay, great. Thank you.

Yep Thanks, Justin.

Your next question comes from the line of Kashi Harrison with Piper Sandler Your line is open.

Hey, this is Luke on for Cassie most of our questions have been asked one thing that hasn't really been discussed all.

All that much yet.

T as in kind of how to think about that for for 23 and beyond typically <unk>.

He's had gone up you know kind of a high single digit range. So curious if you have any commentary on what what kind of trend to expect on that.

Asked pays for next year.

Yeah next year.

Yeah, Yeah, <unk> I think we were up I think 5% this quarter.

As we mentioned we aren't complete with our plan for next year.

But if you think about the inflationary impacts that we're seeing and you kind of look at the mixer blades that will be building next year versus this year I would expect them. The asp's to go up again next year.

Can't give you an exact percentage.

But would expect them to be to be rising again, just because of mix as well as the inflationary impact on the blade price.

Okay. That's helpful. And then is there kind of like a rule of thumb like if we have a view on blades continuing to get longer kind of like what's the translation and longer blazes to ESP.

Now that's that's really hard to do it would make it a lot easier for us if it was easy Trust me.

But it's really not just the length because the wait generally increases.

So it's more about weight than length in many cases and the components whether.

Whether it's a ultra high modulus glass or carbon are the different types of restaurants and stuff. So it really varies by.

By OEM quite frankly, and then by the way to the blade. So it's a little hard to just extrapolate based on length.

Gotcha. Thank you and so that that's all we had.

Great. Thanks.

Your next question comes from the line of William Griffin with UBS your lines.

Alright, great. Thank you just a.

A couple of quick ones here. The first you talked about as part of the restructuring some actions related to lossmaking operations could you just detail what specifically what part of the parts of the business you're referencing here.

Just we've got a couple of.

We've got one location, where we're challenged from a blade manufacturing standpoint.

And again, taking actions as it relates to our transportation business, what do we do different to turn that to profitability sooner rather than later, so it's really.

Potential actions around that business as well as.

Some of our more challenging locations from a blade standpoint.

Okay. So I guess on the transportation side of that.

Like.

Not contemplating <unk>.

Potentially shrinking that business, it's more about.

Being more efficient is that fair exactly yep being more efficient.

And a better utilization of available capacity.

Got it and then.

Went through this pretty pretty quickly and your prepared remarks, but I I, just Wanna I guess level set the contract extensions that you've announced relative to kind of what's expiring and I think he had previously said.

14 lines expiring at the end of 2022, and then 20 lines expiring at the end of 2023 so.

What do these agreements that you have the potential agreements and the executed agreements what does that give you a visibility too actually extending relative to those those figures.

So.

I would think that virtually all of the ones from twenty-three with the with the exception of the China blades, the China would be yeah, well, let me.

Let me get back to you on the exact number on what that looks like but obviously we extended.

Lines that was nine of the 14.

We extended Nord X, which was another four so thats 13 of them right.

For this year and then an accountant and then at our time too. So we extended everything for this year effectively and then for next year, it's a little bit different what the what the global framework that we're working on with with fastest.

<unk>, where will go down a number of lines, but will shift some of that volumes of some of our other geographies.

So I just got it we said we'd have 47 lines of capacity.

Excluding the China lines, so we'd be down a eight lines of capacity kind of year over here if you will.

Semi.

Yes, Okay, yes.

I appreciate it.

You bet.

And there are no further questions at this time, please continue with your presentations or closing remarks.

Well. Thank you [noise] excuse me. Thank you again, everybody for your time today and continued interest and support of TPI.

Thank you.

And all of that does conclude the conference call for today. We thank you very much for your participation you may know disconnect your lines.

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Good afternoon, and welcome to TPI Compensates third quarter of 2022 earnings conference call. During the presentation, all participants will be in a listen only mode.

Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the phone and your telephone.

If at any time during the conference we need to reach an operator, Please press started zero.

Reminder, today's conference is being recorded.

Allocated one hour third remarks and Q&A.

This time I'd like to turn the conference over the questions.

Investor Relations for TB iPhone.

Thank you you may begin thank you operator, I would like to welcome everyone to CGI composites third quarter 2022 earnings call, we will be making forward looking statements. During this call that are subject to risks and uncertainties, which could cause actual results the different materials.

A detailed discussion of the applicable risks is included in our latest reports and filing with the Securities and Exchange Commission, which can be found on our website CPI composites dot com.

Today's presentation will include references to non-GAAP financial measures.

Should refer to the information contained in a fight accompanies today's presentation for definitional information and reconciliation for historical non-GAAP measures to the comparable GAAP financial measures.

Let me turn the call over to Bill <unk> keep that composite president and CEO .

Thanks, Christian and good afternoon, everyone. Thank you for joining our call. In addition to Christian I'm here with Ryan Miller are CFO today, I'll discuss our third quarter results start global operations, including our services and transportation businesses then cover are.

By chain and the wind energy market more broadly Ryan will then review our financial results and then we'll open the call for Q&A. Please turn to slide five.

We believe we are well positioned to address the current energy security and climate change crisis by helping to accelerate the shift towards a renewable powered world the.

The recent passage of the inflation reduction act and the U S and the actions under the EU proposed Repower. You plan are just two catalysts to help drive that acceleration.

However, tightened energy supply rising inflation elevated logistics costs geopolitical conflict and permitting inciting delays are jeopardizing the speed of that ship as well as impacting our profitability in demand in the near term.

So while we have seen demand impacted by these challenges the medium to long term outlook for wind energy remains strong. Our mission is to continue to navigate through the near term headwind and prepare ourselves and our suppliers for the projected longterm growth of the wind industry, both domestically and internationally.

Our strategic initiatives have not changed safety of our associates is of course job one and that is followed by continuing to improve our and the industry's quality.

<unk>, our cost structure optimize our manufacturing footprint in utilization deeply collaborate with both customers and suppliers drive innovation expand our offerings can be laser focused on liquidity and balance sheet strength. So while the balance of 2022 in 2023 will continue to be challenging our team is up to the task and remains committed.

To improving our operating and financial results.

As it relates to the third quarter of 2022, we delivered sales of $459.3 million during the quarter, which was down from prior year. However sequentially sales increased over second quarter by 1.5% in our adjusted EBITDA was $16.4 million, including several non-recurring and or unique events.

That Ryan will outline later overall, a solid quarter given the economic environment, we are operating.

We are also pleased that we have executed several contract extension since the last earnings call.

We extended two lines for <unk>, two 2025 as well as four lines for Nordics.

Through 2023 and preparation for the expected growth in the U S market. We have signed an agreement with GE renewable energy that enabled us to secure at 10 year lease extension of our manufacturing facility in Newton, Iowa under the agreement GE TPI will be developing competitive blade manufacturing options.

Best serve ge's commitments in the U S market with production expected to start in 2024.

We have agreed in principle with GE to extend all our lines and Mexico through 2025, and expect to finalize and execute the contract extensions before the end of this year with this extension. We now have nine lines under contract with GE plus the five lines of potential capacity in Iowa. We are currently discussing the longterm.

Partnering agreement to provide more capacity and flexibility along with higher utilization of our manufacturing capacity more to come on this.

Together, we are investigating market driven opportunities for local blade manufacturing of the B 236 blades in Asia, The U S and Europe and we are collaborating in the design phase of the <unk> 163 blades, while assessing the optimal manufacturing setup for displayed.

Given the near term challenges the wind industry is facing we are commencing multiple cost savings initiatives to better position us for 2023 and the longterm.

Including Optimising, our global manufacturing footprint, reducing head count, primarily and geographies, most impacted by demand and reducing or eliminating loss making operations.

While the plan has not yet been initiated and therefore not finalized we intend to cease production at our young Joe China manufacturing facility in December 2022.

During the fourth quarter, we expect to record material restructuring and impairment charges with respect to close this facility additional headcount reductions in our other manufacturing facilities in corporate functions.

As well as actions related to loss, making operations.

We expect these actions to result in structural cost reductions of approximately $20 million to be realized in 2023 and beyond while continuing to focus.

An operating efficiencies to drive annual productivity savings of over $20 million per year, which we have consistently achieved over the past three years.

2023, we expect 36 lines to be in production.

The right sizing and optimization of our global footprint and upon completion of current customer contract and we expect to initially have as many as 14 lines with G. E 13 lines with best is 12 lines with Nordics.

And two lines with Amazon for a total of 41 dedicated lines.

Out of a total footprint capacity of 47 lines, which excludes the outlines of capacity. We currently have in China.

At full capacity annually, we can produce up to 3900 sets or approximately 15 gigawatt with the revenue potential of $2 billion.

Turning to slide six I'll I'll give you a quick update of global operations supply chain as well as the way to market.

Our plants in China, and India performed well ahead of plan in Q3.

Turkey plants are also well ahead of plan for the year, notwithstanding a short labor disruption in the quarter as we work with the union to address the inflationary pressures on wages.

As a result sales for the quarter were impacted by approximately $8.9 million most of which we plan to recover in the fourth quarter.

Moving on to Mexico in early August TPI was requested by one of our customers to temporarily suspend production of one blade type.

Manufactured in one of our Mexico sites due to a design change TPI supported our customer with an expedited review and implementation of the new design and production resumed in September .

Suspension of production impacted third quarter sales by about $12 million with minimal impact on earnings.

Operations in our facility in Matamoros have improved but we are still challenged from a profitability standpoint, although we are working with our customer to determine how the best reduce the impact of this operation going forward the negative impact on our overall adjusted EBITDA margin from this facility is expected to be approximately 200 <unk>.

The basis points for the full year and was approximately 270 basis points in the third quarter.

Bottom line or blade operations, except for the newest facility in Matamoros and notwithstanding the disruptions this quarter in Turkey, and Mexico, we have performed extremely well excluding the challenges from the Matamoros operations are adjusted EBITDA margin in the third quarter would have improved from 3.6% to 6.3 per cent.

And our service business, we are on track to exceed the 40 to 50 per cent top line growth expectations that we shared with you earlier this year during the third quarter of our field service business group sales, 73% compared to the prior year our.

Our field service business generates higher margins than our blade manufacturing business, and we expect them to improve as the business achieve scale and therefore be more accretive to our overall margins overtime.

And our transportation business supply chain issues have continued to impact us due to reduced volume needs by our customer.

We now expect transportation revenue to grow by approximately 10% in 2022.

Looking ahead into 2023, we believe that volumes and revenue will grow significantly compared to 2022, especially in our nonplus business as supply chain constrained fees we.

We are continuing to make progress through adding new development programs and converting programs to production.

Since our last earnings call, we have kicked up production tooling with a class a customer and we plan to start cereal production of large cap structure components in the first half of twenty-three.

We have also kicked off cereal production for another automotive program for battery pack components.

This is our third cereal production program with this customer.

Awarded development programs are growing.

Customer base with the market segment leaders in commercial delivery in passenger vehicles.

These programs have validated the cost and performance benefits of composites, while allowing us to demonstrate our technical expertise and develop tooling in manufacturing processes that provide higher value added solutions with low investment industrialization we.

Moving onto our supply chain the situation continues to be challenging in the third quarter. Although we saw price increases due to the higher energy prices in Europe , we did not have issues securing material to ensure an uninterrupted production.

And we have seen logistics costs start to come down, but still high relative to pre pandemic pricing as.

As we look out into 2023, we expect pricing for raw materials to increase overall by low single digit percentage. However, do our contract structure in shared pain gain approach, we expect to be able to reduce the impact the tpi's margins to close to zero or even have a slight net benefit.

We are continuing to diversify and derisk, our supply chain by qualifying sources in the regions in which we manufacture products to reduce the impact the pilot districts costs provide security of supply and build long term strategic partnerships with key suppliers to ensure the best price and availability in the short medium and long term.

Under the wind market. So quick update on Repowered, you, which targets 510 Gigawatts of wind energy by 2030 up from approximately 190 Gigawatts today, when Europe expects that the negotiations between the European Parliament and the 27 member States.

Renewable energy directed to conclude by the start of 2023.

This year over a third of all of our blade shipments have been into Europe . So remains an important market for us and we expect the implementation of Repower y-you and the growing need for energy independence in Europe to accelerate our growth in the region in the future.

And the U S. We are certainly pleased with the passage of the inflation reduction Act of 2022.

We believe this will bring long term incentive certainty that is needed to supercharge the investment in clean energy construction and put the us on a path to reach its Paris agreement emission reduction pledge and be a critical contributor to energy independence.

The historical key driver of the U S wind market the production tax credit.

Effectively been extended until the later of 2032 or when greenhouse gas emissions have been reduced 75% compared to 2022, which means it is likely that the PTC can last for the next two decades.

One of the unique provisions of the bill that directly impacts TPI.

As he advanced manufacturing production credit that we believe will provide a credit of two cents per watt per blade to put this in context. This could be $80000 for a four megawatt blade or $240000 per turbine. This.

This would be on top of the domestic content adder of 10% that should also increase demand for TPI blades the.

The industry is waiting on guidance from the IRS and the Treasury Department, among others define and clarify the implementation of this complex legislation.

We are in the middle of strategic planning discussions with our customers on how to best utilize the I R. A and expect that we will have more clarity on our customers needs over the coming quarters and as the guidance around implementation is released so stay tuned for more information to come.

While we recognize that challenges the wind industry faces in the near term we are confident demand for wind energy will strengthen over the mid to long term given the focus on energy security and independence globally, and the necessity to Decarbonized and electrify to meet the aggressive bill set to combat climate change.

We believe TPI remains in a unique position with our global footprint in key strategic Geography's, along with strong partnerships with our suppliers and our customers to grow as the demand for wind begins to accelerate again.

But that let me turn the call over to Ryan to review our financial results.

Bill Please turn to slide eight.

All comparisons made today will be out of here over year basis compared to the same period in 2021.

For the third quarter ended September 30th 2022, net sales were $459.3 million <unk>.

Net sales that wind blades were $425 million and a quarter a decrease of $25.7 million five 7% compared to the third quarter of last year.

Kris and wind blades sales is primarily driven by an 11% increase in the number of wouldn't blades produce due to a temporary production stoppage and one of our Mexico plant Owens implanted update the free design.

A brief flavor disruption in Turkey, as we work the beginning to resolve inflationary pressure on wages as.

As well as a reduction in manufacturing lines.

[noise] distance of existing lines in currency fluctuations, which were all partially offset by an increase in the average sales price per blade through to the mixed up wouldn't Blake models produced and.

And the impact of inflation on blade prices.

Net loss attributable common stock holders for the quarter was $16.4 million compared to a net loss of $37 million the same period in 2021.

Our adjusted EBITDA for Q3 was $16.4 million or 3.6% of sales compared to a breakeven the same period in 2021.

The increase was primarily due to favourable foreign currency fluctuations.

Nine 7 million decrease startup in transition costs and improve operating cost efficiencies.

Partially offset by approximately $3 million, a non restructuring related operating costs at.

At our locations where production to stop it.

Well, it's cost challenges that our newest facility in Matamoros.

Moving to slide nine.

We ended the quarter with $129 $1 million unrestricted cash and cash equivalents and 62.1 million of debt.

Free cash flow frequent that is September 30th 2002, with a net use a cast of $29.4 million, primarily due to improving the health of our supply chain and timing impacts and the Turkey labor disruption in the temporary production suspension in Mexico.

During the quarter, we continued our focus on tight cost control managing working capital constrained capital expenditures.

The current environment continues to be challenging across the wind market as we balance reduced demand in the near term while at the same time trying to make sure we have a healthy supply chain as we move forward. We are focused on our liquidity and ensuring we can capitalize on the recovery of the wind market and the medium to long term <unk>.

<unk>.

Thanks, Ryan turning the slide 10, as we look forward to the rest of the year, we expect few for sale and adjusted EBITDA to be down slightly from Q3, reflecting normal seasonality in our business and our formal guidance has not changed since last quarter.

Moving on to slide 12.

We are pleased that we were able to announce today, the extended entercom and nor X agreement longterm lease extension in Iowa, The agreement to extend G E contracts in Mexico through 2025, and the seven year Global framework agreement with Vestas.

Our customers and many wind farm developers are differing investments into the future until inflationary pressures and global economy stabilized and there is clear regulatory guidance from the I R. S and treasury with respect to the I R. A and more clarity around the implementation of the provisions of Repower Y-you.

Therefore, we expect decreased demand for are wind blades from customers and therefore are total projected sales and results of operations in 2023 to decline compared to 2022.

We're in the process of finalizing our 2023 annual plan and budget and we will provide further information during our next earnings call.

With that we remain focused on managing our business through the near term challenges in the industry and our efforts to physician TPI preferred global solution provider to our customers to enable profitable execution and adequate liquidity.

Finally, I want to thank all of our TPI associates once again for their commitment dedication and loyalty to TPI and our mission to Decarbonized electrify.

Now turn it back to the operator to open the call for questions.

Thank you if you would like to register a question. Please press the one followed by the four on your telephone you will hear a three tone <unk> acknowledged that request. If your question has been answered and you would like to withdraw your registration. Please press. The one followed by the three once again to register for a question. It is one four.

On your telephone keypad at our first question comes from the line of Eric Stein with Craig Hallum. Your.

<unk>.

I built my rent.

Hey, Eric how are you.

Okay doing long, but you know.

Just fine thanks.

Good.

So maybe just high level picture here, obviously, it's been challenging in when markets for some time.

Curious if you think longterm that shrinking move the outsourcing unclearly it'll lead your taking another step with boxes.

I'm just curious what you think this means longer term.

Yeah, I think for most of most of the <unk> in the wind Mark and I think that's the case.

We're certainly seeing a lot of activity along those lines, whether it's us or others. So I would say, yes, I think this does.

Continue to not only continue the trend, but potentially accelerated.

And then let me just not <unk> I mean, clearly you've been a strong relationship for some time, but got a global framework, you're taking it to to a <unk>.

Different level I mean, maybe if you could go a little more in detail about how this new agreement changes that I mean, what are the areas the.

You know that it will be different and injurious I mean, I know officers is a focus and it's still off quite some time, but is this something that is potentially contemplated in this framework.

Yeah, I can't get into the specifics of the contract but.

Suffices to stay as mentioned in the prepared remarks, it's around providing flexibility and capacity for for Vestas moving forward flexibility with that capacity, but also scenting them too too highly utilize our facilities.

So that we can maximize utilization because at the end of the day, if we're fully utilised, it's better for us and it's better for them and ultimately for for their customers in the end consumer. So it's really designed around maximizing productivity in our facilities and reducing overall total landed cost four versus.

And as far as from an offshore perspective, I'm not sure if you're caught it but we did talk specifically about the B 236 that is there.

Their biggest offshore machine and.

And so this does contemplate working with them in the future nothing is finalised at this point, but.

As indicated we're we are jointly investigating opportunities in multiple geographies for for the production of the V 236 blade.

Got it maybe just <unk>.

Click on one more just done G E in Iowa, I mean, just curious on challenges, they're obviously, you're being employer in Luton and closed and now you're going to start up but not for a year. How do you manage that I'm trying to get the the work horse filled up again, but knowing that it's still off.

12 plus months.

Yeah, It actually works out pretty well for us Eric I mean, we're going to have to rebuild the workforce right but.

We're not anticipating beginning production until sometime in 2024.

So it gives us adequate time.

To plan for that workforce reengagement.

Gives us time to maybe get back some of our core people that were with US really since 2007, when we started up Iowa.

And so it actually I think could work in our favor to to give us a little bit more time and plan for that ramp up in a very cost effective and efficient manner.

Okay. Thanks.

Yep. Thank you.

Your next question comes from a line of Julianna <unk> Smith with Bank of America, you're lightning so.

Hi, This is Morgan read on Fry Joanne.

Just a couple of questions I'm, Oregon.

Hi, Thanks for taking the question.

Can you just talk about I guess.

Building off of the last commentary it sounds like based on the latest partnerships that you're really doubling down on the last market any opportunities in Europe between the different manuals and it seems like the partial pull out of China that sort of asked shifting a geographical focus on this strategy could you just talk about that a little bit and how you're thinking about that in a physician here for the next.

Several years.

Yeah. So if you think about it.

And I'll talk about China, and the second but if you think about X China wind market. The U S is the largest individual market Europe is it when you look at Europe combined is a very large market as well.

That's where our customers are asking us to provide capacity to.

And so certainly we're going to focus his.

Historically are <unk>.

Blades to the U S has been in the 50% to 60% range.

Europe traditionally it's been over a third finger last quarter. It was over 40 per cent of our blades, we're going to Europe . So those are two very key markets for us so.

Getting refocused with our customers on a total landed cost concept not just a pier what's the blade cost X works for them.

Has has resulted in kind of a reprioritization from a footprint standpoint for for all of them and so that's what you see so.

On the China front.

It's actually it's unfortunate it's been a very productive location for us we have an outstanding workforce in China and we have for many years, we've been there since 2008.

But again with tariffs with logistics cost shipping costs geopolitical uncertainty.

There's a lot of derisking going on from our customers as well as from us from a supply chain standpoint, and so that's the rationale for the move.

Out of China.

Understood that that's helpful. And then just one more from me if you could talk a little bit about the plans for that transportation pregnant Uhm is there any accident I know you kind of alluded to difficulties with volumes is Claire can you maybe talk about your expectations for this business over the next couple of years given.

The slowdown in some of the auto Oems <unk>, we've seen in the broader market.

Yeah. It it Morgan it certainly challenged us this year, we had much higher volume expect expectations, especially with our passenger.

Programs.

So the supply chain challenges with other components not ours.

Has has resulted in the in the volume depth, we do see it beginning to improve moving into 2023 again, it's still early but.

But we do expect or I would say are non bus volume. If you will to go up fairly substantially from where we're at today.

A stick in the long term for that for that business.

Clearly in the U S. The IRL has lots of <unk>.

Components that are beneficial for commercial vehicles specifically.

So yeah, we remain very optimistic on where that's gonna go over the next couple of years.

Great. Thank you I'll take our top line.

Thank you.

Your next question comes from the line of Gray with a koski with Webber Research. Your line is open.

Hey, Good afternoon, guys can you hear me okay.

Loud and clear Grad good to talk to you.

Okay perfect.

Your your opening remarks are really really helpful. A lot of good color in there. So thank you and I think he answers most of my questions I'll end up checking the transcript to be sure, but so I'll keep it through a couple of quick modelling ones. The the restructuring costs. If if all goes according to plan their can you give us a little bit more color on.

Either the the quantity or they're the size of restructuring costs and definitely the cadence on what to expect.

Is it going to be contained into Q for you think or potentially slipped into the queue wants you to have next year as well.

Yeah. So I can't give you the quantity at this point because the plans are still we're not finalized with the plans.

I would say we are we are trying to complete everything by the end of this year. So hopefully contained the bulk of it in queue for.

As you may or may not be aware under some of the accounting rules.

There will likely be some spillover cost into 23.

You're not allowed to provide for as a restructuring reserve we would certainly call those out separately next year. So you guys can understand what that is and when we get into our queue for a call I think we'll be in a better position to to talk specifically about those but look for something between now and the end of the year that will give you a little bit better for you.

L for what the actual quantum as we're still we're still finalising that.

Understood. Okay. Thank you and then on transitions that.

Yeah, I think for the balance of this year, there's very little activity other than kind of.

I'm not sure of course, we still might have a little bit from amex six the Nord X Matamoros facility.

Into twenty-three quite frankly, we see very few transitions.

And maybe one or two depending on timing, maybe one or two lines startups.

Okay that makes sense, if I could squeeze one more in real quick just on <unk> in Iowa. When when you guys start that up in 2024 are they gonna take up 100 per cent of the capacity in that facility, whereas they're technically room to add more lines with them or someone else.

Well they they are arrangement with them is that they have the rights to the full capacity.

If at some point in time, they choose not to use the full capacity then there's an option for us to do something different with it but we fully anticipate that they'll utilize that capacity.

Okay very helpful. Thank you Bill.

Thanks for a good time.

And your next question comes from the line of hotel Mulch and off with the Raymond James Your line is open.

Thank you for taking the question first kind of a high level one you've pop several calls in a row about.

The fact that in the wind market there is not enough appreciation.

Off the cost of electricity.

And particularly given the European energy crisis.

Seems like power prices are escalating pretty sharply just about everywhere.

That being reflected in the economics of the wind value chain in your mind.

I would say it's starting to.

You look at what some of them. If you if you look at the Asp's from our customers.

Over the last year I know best just released yesterday and they are up 30% year over year.

But it's still not fully appreciate it <unk> and I don't think we are seeing it yet.

That's something that we need to we as an industry need to focus on and I think there is a lot of focus on it.

But I still think once you get past the immediate crisis that we see in Europe , specifically it depending on how it looks this winter.

Maybe we'll make more headway as we move through the winter and then into the sprint.

Okay.

For the <unk>.

Chinese facility that you're heading down have you looked at the option of keeping it open.

And supplying the domestic Chinese market, even though.

Everything in China is intensely price competitive.

Yeah, we've we're continuing to evaluate options for what we ultimately do with the facility <unk>. So.

We've talked about the domestic Chinese market for a number of years, we've worked very hard to try to penetrate that market.

But for a whole bunch of reasons that you're probably aware of it's very difficult.

From a cost standpoint and Ah.

Terms of standpoint to come to an arrangement that would make sense.

But again, it's not completely out of the picture, but we're continuing to evaluate our options for that facility. We still we still have a lease term there.

Technically we're still under a free rent period, if you will.

So we will continue to to finalize that plan here over the next couple of months before the end of the year and.

And go from there.

Okay, and then just a point of clarification on what.

You said about 2023, so revenue is down.

Bye.

Gross margin improve.

22 level.

[laughter].

It it it actually could prevail I mean with some of the actions we may take in the fourth quarter of this year. It would it could help with what the results look like next year.

Plus again, we're going to be we're gonna, we're gonna work very hard on the cost side of the equation, we talked about a $20 million structural cost out that we should see the benefit of that next year, along with our normal annual cost out targets. So, although we said profitability would be down.

We're still not complete with our 2023 plans and as we work through the balance of it.

The numbers the numbers could be better from a gross margin percentage standpoint. Once once all set is all said and done.

Alright, thanks very much.

You bet. Thanks Bye.

And as a brief reminder to all to register for question. It is one four on your telephone keypad. Your next question comes from line of just unclear with Roth Capital Partners Your lines open.

Yeah, Hi, thanks for taking our questions.

You bet Hey, Justin.

So I guess first off here on the just related to the I R. A based on the conversations that you're having with customers.

Do you expect wind blades to be a key component in and meeting domestic content requirements.

Wondering you know based on discussions with customers are they really focused on manufacturing bleeds within the U S.

Any any commentary there would be helpful.

Yeah, I'd say, it's a little mixed I again, it depends it's a little bit Oems specific on what else. They do in the U S.

And there is still needs to be clarification around exactly what will.

Count.

Do foundations count.

Et cetera, So I think.

Part of the clarification, everybody is waiting on will tell us better weather blades have to be in the U S or not.

Clearly.

It will it will help and plus the domestic content at or not just the P. C.

As a benefit if he can get both what you would obviously if you've got the MPC, you'll get the domestic content. So.

Again, whether they have to have it or not is one question and whether they wanted us another and I think most would want it clearly from an economic standpoint, but whether they have to have it.

To meet the.

The domestic content credit is a little bit OEM specific.

Right, Okay, and then so I guess, so have you had discussions on potentially opening greenfield facilities beyond.

Iowa.

If so when could've facility P.

Opened if you know your customers wanted to go down that path.

Yeah, we have had discussions I'd say it you gotta find he got to identify where the right places with the right rail access etc. Uhm. It's.

It's probably a 24 month period from start to finish.

More to come on that but.

That's certainly an option.

Okay, Great and then just one more we haven't really touched on the facilities you have in India yet.

If you get an update there.

What kind of demand are you seeing for for that part of your manufacturing base.

Are there lines coming up for extension in India, either at the end of this year or next year. So just kind of a general.

Date on the performance there.

So the performance has been outstanding.

They have.

Really output.

Outperformed our expectations for this year. The team there has done a really really nice job. We do have two lines of capacity available there.

And I don't.

Christian Orion do we have anything coming up within the next couple of years. Yeah. We don't have any lines that are due for extension there over the next few years.

Okay, great. Thank you.

Yep Thanks, Justin.

Your next question comes from the line of Cashing Harrison with Piper Sandler Your line is open.

Hey, this is Luke on for Cassie most of our questions have been asked one thing that hasn't really been discussed.

All that much yet is a S T as in kind of how to think about that for for 23 and beyond typically <unk>.

He's had gone up you know kind of a high single digit range. So curious if you have any commentary on what what kind of trends to expect on that.

Asked pays for next year.

Yeah next year.

Yeah that'll be catchy I think we were up I think 5% this quarter.

As we mentioned we aren't complete with our plan for next year.

Can't give you an exact percentage.

But would expect them to be to be rising again, just because of mix as well as the inflationary impact on the blade price.

Okay. That's helpful. And then is there kind of like a rule of thumb like if we have a view on blades continuing to get longer kind of like what's the translation and longer blazes to ESP.

Now that's that's really hard to do it would make it a lot easier for us if it was easy Trust me.

But it's really not just the length because the wait generally increases.

So it's more about weight than length in many cases and the components whether.

Whether it's a ultra high modulus class or carbon are the different types of restaurants and stuff. So it really varies by.

<unk> quite frankly, and then by the way to the blade. So it's it's a little hard to just extrapolate based on like.

Gotcha. Thank you and so that's that's all we had.

Great. Thanks.

Your next question comes from the line of William Griffin with UBS your lines.

Alright, great. Thank you just a.

A couple of quick ones here. The first you talked about as part of the restructuring some actions related to lossmaking operations could you just detail what specifically what what part of the parts of the business you're referencing here.

Just we've got a couple of <unk>.

We've got one location, where we're challenged from a blade manufacturing standpoint.

And again, taking actions as it relates to our transportation business, what do we do different to turn that to profitability sooner rather than later, so it's really.

Potential actions around that business as well as.

Some of our more challenging locations from a blade standpoint.

Okay. So I guess on the transportation side of that it sounds like.

Not contemplating <unk>.

Potentially shrinking that business, it's more about.

Being more efficient is that fair exactly yep, it being more efficient.

And and better utilization of available capacity.

Got it and then you went through this pretty pretty quickly and your prepared remarks, but I I just want to I guess level set the contract extensions that you've announced relative to kind of what's expiring and I think he had previously said.

14 lines expiring at the end of 2022, and then 20 lines expiring at the end of 2023 so.

What do these agreements that you have the potential agreements and the executed agreements what does that give you a visibility too actually extending relative to those those figures.

So.

I would think that virtually all of the ones from twenty-three with the <unk> with the exception of the China blades, the China would be yeah, well, let me.

Let me get back to you on the exact number on what that looks like but obviously we extended.

G E lines that was nine in the 14.

We extended Nord X, which was another four so that's 13 of them right.

Justice, where it will go down and number of lines, but will shift some of that volumes of some of our other geographies.

So I've just got it we said we'd have 47 lines of capacity.

Excluding the China lines, so we'd be down eight eight lines of capacity kind of year over year, if you will.

Senator.

Yes, Okay Yep.

I appreciate it.

You bet.

And there are no further questions at this time, please continue with your presentations or closing remarks.

Well. Thank you [noise] excuse me. Thank you again, everybody for your time today and continued interest and support of TPI.

Thank you.

And all of that does conclude the conference call for today. We thank you very much for your participation you may know disconnect your lines.

Q3 2022 TPI Composites Inc Earnings Call

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