Q4 2022 TPI Composites Inc Earnings Call
[music].
Good afternoon, and welcome to GPA composites fourth quarter and full year 2020 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 <unk> Investor Relations for TPI composites. Thank you you may begin.
Thank you operator, I would like to welcome everyone to TPI composites fourth quarter and full year 2022 earnings call, we'll be making forward looking statements. During this call. They 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 securities and exchange commit.
<unk>, which can be found on our website TPI composites dot com.
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 to the comparable GAAP financial measures.
In addition, please note that our financial statements now include a discontinued operation in December we committed to a restructuring plan to rebalance our organization and optimize our global manufacturing footprint.
In connection with this plan, we ceased production at our Yang Zhao China manufacturing facility as of December 31, 2022, and plan to shut down our business operations in China.
Our business operations in China are comprised the entirety of our Asia reporting segment. This shutdown will have a meaningful effect on our global manufacturing footprint and consolidated financial results.
Accordingly, the historical results of our Asia reporting segment has been presented as discontinued operations in our consolidated statements of operations and consolidated balance sheets as.
As we can as we discuss year over year comparisons. Please note we will refer to the combination of continuing operations and discontinued operations 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 here with Ryan Miller, our CFO today, I'll discuss our fourth quarter and full year results, our global operations, including our service and automotive businesses, then cover our supply chain in the wind energy market more broadly.
Ryan will then review our financial results and then we'll open the call for Q&A.
So please turn to slide five for.
For the fourth quarter, we delivered total sales of 461 $8 million and adjusted EBITDA of $40 $8 million. We finished the year strong in a very challenging environment and I am extremely proud of our over 13000 dedicated associates that made this possible our fourth quarter adjusted EBITDA margin of eight eight.
Percent demonstrates that a relentless focus on safety quality delivery and cost can deliver strong financial results, even in a difficult operating environment.
For the full year 2022, we delivered net sales of $1 76 billion.
Slight increase over 2021, and adjusted EBITDA of $73 6 million or four 2%, while delivering approximately 12 six gigawatts of blades.
<unk> the challenges the industry faced in 2022, we are pleased with our execution and results while taking many steps to set us up for long term success.
Now a quick summary of some of our successes and key actions in 2022.
We extended two lines with Entercom and Turkey eight through 2025, we extended 10 lines with GE in Mexico through 2025, we also signed an agreement with GE that enabled us to secure a 10 year lease extension of our manufacturing facility in Newton, Iowa.
Under the agreement <unk>, and TPI will be developing competitive blade manufacturing options to best serve ges commitments in the U S market with production expected to start in 2024. We are also in discussions with GE for a long term partnering agreement to provide more capacity and flexibility to GE along with high.
Utilization of our manufacturing capacity.
We announced a long term global partner framework agreement with Vestas that aims to provide flexibility along with more capacity for them, while enabling better facility utilization for us and the geographies that we serve best is.
We have agreed to a deal with nordics to effectively extend four of six lines in Turkey through 2026. The other two lines will be extended through 2024.
In addition will add two new manufacturing lines in India, while limiting the losses from the four lines in Matamoros over the remaining term of that contract with.
With all of the commercial activity during 2022, and thus far in 2023, we now have a total potential net revenue covered by long term contracts for our wind business nearing $10 billion.
We grew our service revenue by 68, 8%, while entering several new international markets. The growth of our services business remains a priority and we expect 20% growth from our continuing operations in 2023, which obviously excludes China.
We grew our automotive business by nearly 18% year over year and now have four serial production programs with an OEM customer.
Seven development programs for our class eight cap structures and last mile delivery vehicles, along with orders for prototypes of delivery vehicle and battery pack components.
Notwithstanding the commercial success, we had in 2022, we expect sales to be flat year over year, given expected lower volumes from our bus customer.
With our recent commercial success and the solid foundation, we built in our automotive business, we are evaluating strategic alternatives to enable us to accelerate the growth of this business.
Finally during the fourth quarter, we announced an recorded material restructuring and impairment charges with respect to close in our China operations and additional head count reductions and our other manufacturing facilities and corporate functions. We expect these actions to result in structural cost savings of approximately $20 million to be realized.
In 2023 and beyond while continuing to focus on operational efficiencies to drive annual productivity savings of over $20 million per year, which we have consistently achieved over the past three years.
Moving on to slide six.
We see 2023 is a transition year, while the industry awaits formal implementation guidance related to key components of the IRI and the U S and clarity around more robust policies in the EU such as the recently proposed green deal industrial plan aimed at speeding up the expansion of renewable energy and Green technology.
<unk>, while building on previous initiatives, such as the European Green deal and Repower EU in 2020 to nearly 45% of all our blade shipments were into the Europe . So it is an important market for us and we expect the implementation of the Green deal industrial plan and the growing need for energy security and independence in the EU.
To accelerate our growth in the region.
Now for a quick global operations update.
Our plants in Juarez, Mexico, Turkey.
India and China performed ahead of plan in the fourth quarter and for the full year.
Operations in our newest facility in Matamoros are still challenged from a cost and profitability standpoint.
As we discussed last quarter, we were working with our customer to reduce the impact and we have come to an agreement that will limit our losses in this facility through the end of the contract.
Overall, however, our blade operations have performed extremely well.
As it relates to our supply chain the situation continues to be challenging but significantly better than the last two years as we look out into 2023, we expect overall pricing for raw materials that we source to be down compared to 2022.
With our contract structure and shared paying gain approach, we expect to have a net benefit in 2023 over 2022.
Turning to slide seven.
Given a bit more stability in the industry, especially as it relates to supply chain and contractual arrangements with our customers. We're issuing formal guidance in 2023.
We expect net sales of between $1 6 billion to $1 7 billion with sales from continuing operations to be up high single to low double digit percentage compared with 2022 as blade sales are increasing primarily due to increased demand in the U S as well as the asps being up approximately two.
<unk> thousand dollars per blade.
We expect our adjusted EBITDA margin from continuing operations to be about flat with 2022 as structural cost savings and margin flow on higher sales volume and improved utilization in the range of 85% to 90% will be offset by wage adjustments and inflation that cannot entirely be passed on to our <unk>.
Customers.
This guidance includes the negative impact of approximately 250 to 300 basis points of adjusted EBITDA margin for contract related costs in excess of revenue related to our Nordics Matamoros, Mexico facility.
Please note that this guidance is for continuing operations for discontinued operations, we expect no sales and expect an adjusted EBITDA loss of approximately $2 million.
Lastly, we expect capital expenditures of about $25 million in 2023, which is an increase over 2022 as we expect to start investing in infrastructure for the U S market in the second half of 2023.
While we recognize the challenges the wind industry continues to face in the near term we remain confident that demand for wind energy will strengthen as we move closer to 2024, given that we will likely final IRS guidance more clarity around the implementation of the Eu's Green deal industrial plan as well as the continued focus on energy.
Security and independence globally, we believe TPI remains in a unique position with our global footprint in key strategic geographies, along with strong partnerships with our customers and suppliers to grow profitably as the demand for wind begins to accelerate again.
Turning to slide eight.
With that said over the next couple of years, we expect our wind revenue two eclipsed $2 billion, yielding a high single digit adjusted EBITDA margin and free cash flow as a percent of sales in the mid single digits. This without expanding our existing footprint of approximately 44 lines globally, which excludes the four nordics lines.
Matamoros, we expect to have these 44 lines fully dedicated by the end of 2023, which will give us about 3600 sets per year or 14 gigawatts of capacity.
With that said, let me turn the call over to Ryan to review our financial results.
Thanks, Bill Please turn to slide 10, as Christian mentioned earlier in December 2022, we committed to a restructuring plan to rebalance our organization and optimize our global manufacturing footprint.
In connection with this plan we ceased production at our Yanzhou for China manufacturing facility as of December 31, 2022, and we are in the process of shutting down all our business operations in China. So as a result, the historical results of our Asia reporting segment have been presented as discontinued operations in our financial statements.
All comparisons discussed today will be on a year over year basis for total continuing and discontinued operations compared to the same period. In 2021, we are making these comparisons in total as we operated the China business for the entirety of 2022 and believe investors' expectations are aligned with total results, including continuing and discontinued operations.
For the three months ended December 31, 2022, net sales from continuing and discontinued operations totaled 461 $8 million as compared to $389 $5 million for the same period in 2021, an increase of 18, 6%.
Net sales from continuing operations for the three months ended December 31, 2022 increased 15, 2% to $402 $3 million as compared to $349 2 million in the same period in 2021, primarily driven by higher average sales prices due to the mix of wind blade models produced any impact of inflation on plate plate prices.
An increase in volume at two of our Turkey, a manufacturing facilities and an increase in volume at our Nordics manufacturing facility in Matamoros, Mexico.
Note also that sales in 2021 were negatively impacted by an adverse cumulative catch up adjustment.
These increases were partially offset by a decrease in volume at our facilities are shut down at the end of the fourth quarter of 2021 and foreign currency fluctuations.
Yeah.
Net sales from discontinued operations for the three months ended December 31, 2022 increased 47, 8%.
$59 $5 million as compared to $43 million in the same period in 2021, primarily driven by an increase in volume prior to ceasing production at the end of 2022.
Net loss attributed to common stockholders was $57 8 million for the three months ended December 31, 2022, compared to a loss of $93 3 million in the same period in 2021.
For the three months ended December 31, 2022, our net loss attributed to common stockholders includes $15 $2 million of preferred stock dividends in accretion compared to $6 million in the same period in 2021.
Adjusted EBITDA from continuing op continued and discontinued operations totaled $40 8 million for the three months ended December 31 2022.
To a loss of $28 $3 million in the same period in 2021, our adjusted EBITDA margin from continuing and discontinued operations increased to a total of eight 8% in the three months ended December 31, 2022, as compared to a loss of seven 3% in the same period in 2021, primarily due to an adverse cumulative catch up.
<unk> recorded in 2021, a favorable cumulative catch up adjustment recorded in 2022.
Favorable foreign currency fluctuations reduced startup and transition costs and improved cost operating cost efficiencies compared to the prior period.
These benefits were partially offset by cost challenges at our Nordics facility in Matamoros.
Turning to slide 11.
For the full year 2022, net sales from continuing and discontinued operations totaled $1 $76 billion.
As compared to $1 $73 billion in 2021, an increase of one 5%.
Net sales from continuing operations for the year ended December 31, 2022 increased three 4% to 152 billion as compared to $1 47 billion in the same period in 2021, primarily due to higher average sales prices due to the mix of wind blade models produced and the impact of inflation in dairy prices.
An increase in volume at two of our Turkey manufacturing facilities and an increase in volume at our <unk> facility in Matamoros.
Note also that sales in 2021 were negatively impacted by an adverse cumulative catch up adjustment recorded in 2021.
These increases were partially offset by a decrease in volume at our facilities that shut down at the end of the fourth quarter of 2021 and foreign currency fluctuations.
Net sales from discontinued operations for the year ended December 31, 2022 decreased nine 5% to $235 $6 million from $262 million in the same period in 2021, primarily due to a decrease in volume due to the timing of transition lines in early 2022 at our Yanzhou facility prior to ceasing production at the end of <unk>.
2022.
Net loss attributed common stockholders was $124 2 million in 2022 compared to a net loss of $165 $6 million in 2021.
Our net loss attributed to common stockholders includes $58 $9 million of preferred stock dividends in accretion in 2022 compared to $6 million in 2021.
Adjusted EBITDA from continuing and discontinued operations totaled $73 $6 million as compared to $2 $4 million in 2021, and our adjusted EBITDA margin from continuing and discontinued operations increased to four 2% as compared to 0.1% in 2021.
Primarily due to an adverse cumulative catch up adjustment recorded in 2021, a favorable cumulative catch up adjustment recorded in 2022.
Favorable foreign currency fluctuations reduced startup and transition costs and improved cost operating cost efficiencies.
These benefits were partially offset by the non restructuring related operating costs that were associated with the manufacturing locations, where production has stopped and cost challenges at our nordics facility in Matamoros.
Moving to slide 12.
We ended the quarter with $143 2 million of unrestricted cash and cash equivalents and $61 $2 million of debt, including both continuing and discontinued operations our free cash flow for the three months ended December 31, 2022 was $15 5 million our free cash flow for the year ended December 31 2020.
<unk> was a use of cash of $81 8 million.
Primarily due to increases in working capital driven by higher accounts receivable and a settlement of legacy warranty claims.
Cost in excess of revenue at our Nordics facility in Matamoros income tax payments and capital expenditures and these were partially offset by earnings from our core <unk> business.
As Bill mentioned earlier as our industry awaits formal implementation guidance related to the IRI in the U S and more robust policies in the EU. We are focused on what we can control specifically this means managing the safety of our employees delivering a quality product on time to our customers and maintaining an efficient inefficient cost structure as we look to 2023.
We are committed to delivering structural cost savings of at least $20 million to be realized in 2023 and beyond.
While continuing to focus on operational efficiencies to drive annual productivity savings of over $20 million per year.
With that back to you Bill.
Thanks, Ryan Please turn to slide 14, we.
We remain very bullish on the energy transition and believe we will continue to play a vital role in the pace and ultimate success of the transition.
We remain focused on managing our business through the short term challenges in the industry and are excited about our position as a preferred global solution provider. Our mid term goal is to build a $2 billion plus revenue win business with our existing footprint, while achieving high single digit adjusted EBITDA margins and mid single digit free cash flow as it.
I sent a sales while maximizing our opportunities to scale, our automotive business and I want to thank all of our TPI associates once again for their commitment dedication and loyalty to TPI I'll now turn it back to the operator to open the call for questions.
Thank you.
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One moment, please while we poll for questions.
Our first question is from the line of Justin Clare.
With Roth and Kim Please go ahead.
Yes, hi, guys. Thanks for taking our questions.
You bet good to talk to you Justin.
Yeah, you as well so I guess first off here.
If you could just help us understand your expectations for.
The operational lines that youre going to have at the start of 2023 and then at the beginning of 2024 I think you are starting year at 37, and then are starting 2024. It with 44 lines is that like five lines in Iowa that are expected and I think maybe two in India.
With with Nordics, if you could just help us.
I walked through that would be helpful.
Yes, so the additional two in India related to Nord X. Then we have we obviously we have lines and.
Mexico as well as an iOS. So what we said was we would have all 44 of dedicated.
Which doesn't necessarily mean, they will be operational.
We're still working with GE on the timing of the Io Alliance.
How many and when we would to operationalize those.
So my point was we would have all 44 lines that we have dedicated.
But operational still remains to be seen.
Okay got it that's helpful and then just on Iowa.
Can you help us understand where you are in the process of getting.
Contracts signed there and do you need to wait for guidance from the Treasury.
On the manufacturing credits or domestic content.
Before you would move forward with getting kind of firm contracts signed.
Well, that's really up to our customer right. So.
Clearly, we're working with the customer and it's Jay.
<unk>, obviously, but.
Working having.
Having clarity on domestic content, having clarity on the advanced manufacturing production credit certainly will be helpful.
And so there is there is nothing.
Preventing us from from anything at this point, it's just a matter of finalizing ges needs and demands and then determining when we start.
Yeah.
Okay got it and then just one more we've heard that Mexican steel suppliers are lobbying to get Mexican steel qualified as domestic content under the IRA. So I'm just wondering if it's possible that believes manufactured in Mexico might qualify.
As domestic content.
Essentially is that a possibility that that you're aware.
I mean, I guess anything is possible Justin.
Not not aware there were some early discussion about that possibility not sure where that said at this point.
So I'll leave it at that.
Yeah.
Okay I appreciate it I'll pass it on.
You bet.
Thank you.
Our next question is from the line of James West with Evercore ISI. Please go ahead.
Hey, good afternoon guys.
Hi, James how are you.
Hey, good to do so.
I'm curious you mentioned some incremental capex towards the end of this year.
That part of the year.
Contractor people contract and the facility with GE or is that Capex.
Capex for additional facility expenses, principally on the East coast, where we have already seen some big awards.
Big Awards come through.
Yes, it's primarily.
Mexico, and a little bit in Iowa doesn't have anything specific to the it doesn't have anything specific to the east coast in that number.
And when would you I guess the follow up then is when would you I know you kind of move along with your customers or up to them, but when would you expect.
Something on the east coast to be it's probably already in discussion but to be.
<unk> store.
Start breaking ground.
Yes, that's a good question James.
Hello.
We expected we've been saying next quarter next quarter for awhile. So the next one.
Tell you we're still obviously in discussions you see what happens on the east coast things stop and start a little bit they moved to the right. So.
Phil active with our customer in discussions with.
Options there but.
As far as a date certain it's hard to say at this point.
Okay got it thanks Bill.
Yes, Thanks James.
Yes.
Thank you.
Our next question is from the line of Julien Dumoulin Smith with Bank of America. Please go ahead.
Hi afternoon team well done so.
So just a couple of things here real quickly when you talk about timeline here forgetting that clarity by year end 'twenty three.
A little bit of a rehash.
Ask now, but really with respect to IRS I mean is this going to be down to the wire in the back half of the year that you're going to get that clarity given needing to get the clarity from IRS and translate that forward et cetera, or do you think you expect this more on the front end and then a related here just trying to think ahead, a little bit to what that implies for 24. Obviously you have this long term view.
On there you've got.
Some some mid year presuming ongoing cost reductions what does that imply for 24, both in terms of the cost savings annualized 'twenty three 'twenty four as well as just coming back to that.
The commentary here on the contracting timeline and needing IRS.
Yes, I think Julian thanks for the questions.
<unk>.
I guess, the best guess that I have is probably by mid year, we have.
Better guidance from from <unk>.
Treasury on the IRS I know they are releasing pieces of it as we go.
But the last I've heard from some of the.
People that are a little bit closer to a back in DC is probably middle of the year.
And as far as the 24 question, we talked about $20 million structural savings that we anticipate that we plan on carrying that forward year over year.
And we have been pretty successful of identifying productivity savings each year at each of our facilities that number has been in the $20 million range over the last three years. So.
I would expect that you'll see.
The bulk of that carried forward into 2004 and again.
We're already seeing some signs early signs of good volumes in 'twenty four from our customers and we're seeing some pick up at the back half of 'twenty three as it relates to the U S market. So I'm optimistic that as we get through.
The guidance by the middle of the year, hopefully that back half of 'twenty three more likely though beginning in 'twenty four and we'll start to see the impact of that.
And again put to put those savings.
In our pockets as well.
Got it and could you just describe quickly here in terms of the.
The margin improvement here to the bottom line, obviously, you have got potentially some retooling dynamics playing out just how do you think that cascading forward here to realizing the walks away from the 23 adjusted EBITDA margin expectation forward here considering yes.
Thanks.
Yes.
Think stability.
A.
Footprint that is more fully utilized than we've had in the past and.
And when I say stability stability stability and policy.
If you look at what we've been able to do from a from a productivity and cost savings year over year.
That's a lot of hard work, but it shows that you can even in a difficult market. You can you can drive margin in the right direction and doing the right type of thing so.
It's really we've demonstrated we could be at that level or higher in the past Julien and I think with again policy clarity.
<unk>.
Paucity constraint and better utilization, we can get there.
That 'twenty four time frame.
Okay fair enough.
I'll leave it there.
Great. Thanks Julien.
Yeah.
Thank you. Our next question is from the line of Eric Stine with Craig Hallum. Please go ahead.
And Bill Hi, Ryan.
There.
Hey.
So obviously market is still tough but.
More more optimism or it seems that on 2023.
Curious.
I mean versus last call was that outlook.
Improved incrementally or is it basically the same as it was that.
Its back half into 2024 is really in the year and then just curious if that changes the read through to minimal startups and transitions in 'twenty three.
Yes, So I think I think it's actually improved Eric since since the third quarter call.
Volumes have improved for us a bit, especially in the U S market.
So again, we're seeing a little bit of.
Precursor I think for what we could see in 'twenty four so thats good news.
<unk>.
Yes, so I mean.
I remain optimistic I do think 'twenty four.
We're more likely to see.
Another pickup in volume still.
Still a little bit concerned about the European market about how fast that picks back up just with some of the challenges there that.
And that is an important part of our of our market.
The sales side as well.
But yes, I feel it has improved since our third quarter call.
So I remain bullish on 24 and beyond but I feel better about obviously better about 'twenty three we provided guidance.
This year, we didn't last year and that certainly indicates the stability in.
The confidence we have in our operations and where our customers are headed.
Yes, that's helpful.
And one thing I mean, correct me, if I'm wrong, but the two lines in India with known attacks I think that is.
New items, so maybe just confirm that but im just curious I mean can you remind me of.
The operations in India, and obviously, Youre closing, China Oems kind of rationalize there.
What are their suppliers are where supplies are coming from.
What you see is the overall opportunity in India to add more Oems there.
Yes.
It is nowhere at X and that well.
I'll now have four lines for fastest in four lines for Nordics and that ate line facilities. So that facility will be completely full.
Okay.
Which is great.
India is an interesting market.
I think with logistics costs, starting to come back down.
And with some of the cost inflation, we've seen in other markets I think that.
That will that will bring India back into a more competitive position than maybe it's been over the last year or two with with shipping costs.
So we still see it as a as a very good manufacturing hub for.
For the rest of the World I think the India market is a tough market to crack for our customers just just because of the the.
Pricing that they're seeing in that market, but it will remain a good manufacturing hub for us.
Actually as shipping rates.
<unk> costs continue.
Continue to come down a bit from from the last couple of years.
Got it.
Maybe last one for me just switching gears to transportation I mean can you just talk a little bit about what strategic alternatives might look like some of the some of the avenues that you might look at to accelerate that growth there.
Yes, I mean, it could be strategic partnerships it could be.
Strategic alliances.
We've been a bit capital constrained there given the.
The wind market challenges.
So looking for alternatives.
<unk>.
Potentially capitalize that in a different way than we have in the past, but our team has done a really an outstanding job of turning that business around if you will.
And really developing from a commercial standpoint.
A lot of opportunity there much of it's been converted already and will continue to convert so we see an opportunity here to start to actually get rewarded for the value we're creating.
And.
Try to accelerate that opportunity that we see in the EV space.
And just to confirm the flat revenues year over year that that really is due to.
A number of positives being offset by lower volumes, but I mean, I would assume for care.
Yes, I think it's that and.
We were there are still some supply chain challenges in the automotive space.
Sure you are aware of.
So we're being relatively conservative on the volumes for 2023, given what happened in 2022. So it's a combination of just conservative volume on the automotive side as well as a reduction in the bus side.
Okay. Thanks.
Yes.
<unk>.
Thank you.
A reminder to all participants to ask a question press star one on your telephone keypad.
Our next question is from the line of Greg with Suski with Leblon.
Our research. Please go ahead.
Hey, guys. Thanks for taking the questions how are you doing.
You bet, how are you doing Greg.
Okay got it thanks.
So.
Talking about the the high single digit adjusted EBITDA target.
Eventually I imagine, that's mostly driven by wins, obviously, but thinking about.
Automotive and field services and how they contribute.
Generally speaking would you classify those as being more of a lift to that margin target or potentially a drag on that on that target.
Both should actually be a lift.
Quite frankly, I mean, the margins we're looking at in automotive are pretty attractive.
And in service they are not as high as you might see with some of our.
Our Oems because today, it's primarily displayed service so it's a little bit different from a margin perspective, but both of them would be a lift on that quite frankly.
Okay great.
Same thing on services.
And the momentum into 2023, so is it.
Is it ultimately less dependent on as that business less dependent on the policy clarification or any sort of macro uncertainty that maybe it's giving pause on the wind side of the business or does have you seen maybe some some services end up getting pumped as well either from capex or opex.
Reductions what have you.
Or is that kind of just.
Its own its own beast and momentum heading into 2023.
Yes, that's it from our perspective, its really its own base now.
Clarity around some of the in the U S around repowering could have impacted some but thats really not what we're doing.
So its really its own based it's more impacted by overall economic.
Conditions than it would be.
Or the.
The legislation that's out there.
And then really are the governor for us is being able to hire and train qualified technicians, that's the challenge for us and for the industry.
Yes.
Okay. It makes sense.
The mine has been covered so thanks guys.
Alright, Thanks, Greg.
Okay.
Thank you.
Our next question is from the line of Paul Walsh enough with Raymond James. Please go ahead.
Thanks for taking the question let me.
Follow up on what you mentioned about manufacturing in Europe .
If the green deal industrial plan ends.
Ends up moving forward.
Would you consider establishing a direct manufacturing presence.
In the EU versus.
Turkey as it is today.
Yes.
Preval.
We've talked before about.
Evaluating other geographies, we've looked at other locations in Europe for onshore before.
There are offshore opportunities there too so I think I think the short answer to that is yes, we would consider that.
Understood.
<unk> and <unk>.
When you talk about also on the European perspective, but more from the demand side of the equation when you talk about headwinds and <unk>.
Given that we just went through a period of record high gas prices energy shortages.
It would seem like demand ought to be as strong as ever in the European market or am I missing something.
No youre not I think the demand is there <unk> I think yes.
There has been some temporary market reform and gas caps and things that had been put in place that have that have created uncertainty for investors as to what what whats going to happen. The next time, we have a spike in prices or there is another issue. So I think you've got the uncertainty created by some of the.
<unk>.
Maybe.
Less than perfect market reforms that they put in place temporarily and then you've got the continuous issue of the permitting and sighting.
Which has been an issue in Europe for quite some time and remains that way. So it's not that there's not demand at some of the permitting and siting challenges as well as some of the the market reforms that they have put in place that have created some I would say short term uncertainty with the investment community.
Okay I appreciate the color on that thank you you bet. Thank you.
Our next question is from the line of Jeff Osborne with Cowen and company. Please go ahead.
Good evening Bill two quick questions on my hand, I was wondering on the IRA credit.
Less around the clarity that you are waiting for it but just how youre entering.
Philosophical discussions youre, having with your customers around sharing that.
So potentially to share more of it and protect margins and have fewer changes throughout the duration of the contract can you just talk about the puts and takes on how you're approaching that the payments.
Yes.
It varies a little bit with by customer.
To be Frank with you, but.
We go into the conversation that.
The advanced manufacturing credit as ours, we're making the investment.
And then that will factor into the overall pricing of the blade. So the blade price should be better should be more competitive to our customer. So you could argue that a portion of it goes to a customer and a portion of it goes to us and Thats really how we see it but it's not like we go into the conversation I'd say, it's 50 50 now there are other conversations.
Where.
Customers May may want more of the credit, but again that becomes more of a discussion on.
Percentage of credit and then how we would price the blade if that in fact is the case, so it's a little bit little bit combination of a couple of different.
<unk>.
Discussions we've been having.
Got it and I think if that makes sense.
I appreciate it.
I had a question on the sort of mid term guidance that you gave of the high single digits EBITDA I think sort of pre COVID-19. The narrative was more 11% 12%.
EBITDA margins at the factory level, and maybe 10 11 at the corporate level and so I just wanted to understand the high single digit narrative is that.
Really just due to China's slowing down or is it the Mexico wage inflation I was hoping maybe you could quantify.
The inflationary environment has been on labor in particular and.
Your area I think closer to the borders a bit more acute than sort of centralized.
Can you just walk us through like what has maybe changed in the past three years, because I think you would've answered that question differently a few years ago.
Yes, I think.
I think where we're being a little bit more conservative just in general.
We are in an inflationary environment.
Understanding the pressure our OEM customers are under to deliver as well.
And so it's a combination of those things but to your direct question.
Mexico, we have seen 20 was it I guess it was about a 15%.
Minimum wage 20, 20% minimum wage increase.
This year.
For effective on January one.
And then in Turkey.
50, 555% increase against some of that gets offset by currency.
But we are seeing some pressure there not all of that gets passed onto our customers. So that does have a little bit of a margin drag on us as well. So we've got to continue that that's why we have such an.
And emphasis on productivity.
And it's about how do we drive productivity. So that we can offset some of those inflationary charges that we can't pass onto our customers and maintain our continuing to expand margin.
Got it that makes sense and just a quick follow up remind me labor with a 30 40 ish percent.
Of course <unk> in Mexico.
Nikko and Mexico, it's like 10% ish, maybe a little less dependent so it's a relatively small piece of the overall pie, but like we saw we don't want to see it continue like that like we saw in China, right, China that labor costs got to the point, where they were less competitive.
They had been in the past so.
Makes sense. Thanks, so much.
Thanks, Jeff.
Thank you. Our next question is from the line of Julien Dumoulin Smith.
With Bank of America. Please go ahead.
Okay.
Scott here.
I appreciate it guys.
Super quick here on the liquidity and just cash burn this year and you don't get.
Obviously, we got you've given your comments on EBITDA and Capex, but just.
As a few other moving pieces. How are you how are you thinking about that through the course of this year, specifically here I mean, how much of a deceleration in burn are we going to see as you look at those items and especially as you think about that continuing EBITDA comment for dedicated lines versus utilization.
What could that <unk>.
That cash outlook for like like like next year sorry.
Hey, Julien this is Ryan Hey, just kind of walking through the sequence of cash for the year I think youll see us burned some cash in the first quarter that's.
That's primarily going to be some of our shutdown activities in China that will be driving that and then it'll be kind of flat lined out from there. We will have we guided kind of low single digits EBITDA I expect that to be partially offset with our capex then but over the year, we are growing too.
Our continuing operations actually grow that'll put a little working capital strain on us so kind of think.
A bit of a burn of cash in the first quarter earlier age of those China activities throughout the remainder of the year, we will have earnings that'll be offset by a little bit of working capital pressure in capex.
Got it okay. So no nothing sizable I hear from you guys.
The largest item on EBITDA and Capex.
Right now we feel like we're in pretty good position ending the year, where we did at $143 million of cash.
And then where it will be as Ryan suggested a little bit of burn in Q1, and then level it out.
Pretty good shape from a liquidity standpoint.
Got it alright.
Greg if I can the other dynamic I know you talked about dedicated line utilization.
The dynamic here of when we get this recovery how are you expecting that to play itself out here I mean, even with IRS and hand et cetera.
It still feels as if and if you look at next year's outlook for instance, clearly biased towards 'twenty five and 'twenty six.
Do you think about 2004 year, very specifically year I know a lot of folks coming out of from a different perspective, but.
I'm not sure the orders are really taking off in that year versus the subsequent couple of years.
Yes.
It's a fair question I would say if you think about it we've got we've got a factory in Mexico, Thats that sitting idle right now we've got the factory in iOS. So IC 24, as a fairly heavy startup year. If you will as it relates to those two factories. So I think what youll see really good utilization.
And our other factories, but we will have.
We get effectively had nine lines of startup.
Just in those two factories in 'twenty four.
So to your point I think with what we have under contract today are kind of dedicated today, you'll see.
High utilization next year and then.
Then we will have to fold in those factories that will be restarting next year.
Got it.
No no.
No no absolutely that's what I was trying to understand how that dynamic blows here, but wish you guys best of luck here.
Thank you I appreciate it.
Thank you.
As there are no further questions at this time I would like to turn the floor back over to Bill <unk> for closing comments.
Thank you operator, and thank you again for your time today and continued interest in TPI look forward to our next call. Thank you.
This concludes today's teleconference. You may disconnect your lines at this time.
Thank you for your participation.
Okay.
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