Q1 2025 TPI Composites Inc Earnings Call
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Speaker Change: Greetings and welcome to the TPI composites first quarter 2025 earnings call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
Speaker Change: Anyone should require operator assistance. Please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded it is now my pleasure to introduce Jason Weideman, Vice President Investor Relations and sustainability. Please go ahead.
Speaker Change: Thank you operator, I would like to welcome everyone to TPI composites first quarter 2025 earnings call.
Speaker Change: We will be making forward looking statements. During this call that are subject to risks and uncertainties, which could cause actual results to differ materially a detailed discussion of applicable risk is included in our latest reports and filings with the Securities and Exchange Commission.
Speaker Change: Each can be found on our website TPI composites dotcom.
Speaker Change: 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.
Bill: With that let me turn the call over to Bill <unk>, TPI composites, President and CEO.
Speaker Change: Yeah.
Speaker Change: Thanks, Jason Good afternoon, everyone and thank you for joining our call. In addition to Jason I am here with Ryan Miller, Our CFO, Please turn to slide five.
Speaker Change: I'm pleased to report a solid start to the year with Q1 revenue up 14% year over year positive cash flows of $4 6 million provided by operating activities and we ended the quarter with $172 million of cash.
Speaker Change: 'twenty 'twenty four included a significant number of line startups and transitions with 10 lines, reaching serial production in several facilities in Mexico moving to 24 seven operations as we exit the first quarter all the line startups and transitions that began in 2024 completed we have substantially completed four lines that transitioned in the firm.
Speaker Change: First quarter of this year and are well into the hiring at our Newton, Iowa plant, where we are starting production. This week. Our focus now is on leveraging the investments made over the last year by utilizing lean tools to foster a culture of operational excellence disk drive aims to deliver repeatable world class quality and delivery performance, while achieving cod.
Speaker Change: Savings throughout the organization as mentioned in previous quarters customer demand continues to be strong for our Mexico operations capacity for 2025, and we are acutely focused on delivering on the commitments made to our customers.
Speaker Change: Sales for the quarter were $336 2 million and were in line with our expectations. The increase in sales of 14% over the prior year is primarily related to strong demand in the U S and the fact that we worked through a number of line transitions from 'twenty 'twenty four that are now in serial production adjusted EBITA was a loss of $10.
Speaker Change: 3 million, but included a $12 $7 million warranty charge $8 4 million of startup and transition costs from six lines in startup and transition and 4 million and costs to transition certain of our Mexico factories to the 24 seven shift structure, our adjusted EBITDA margin benefited from strong sales into the U S in the quarter.
Speaker Change: <unk>, partially offset by weaker sales coming out of our Turkey eight factories.
Speaker Change: As previously disclosed in December 'twenty 'twenty, four we committed to a restructuring plan in Turkey, a to rationalize our workforce in response to lower forecasted demand amid intense Chinese competition and the continued hyperinflationary environment. This restructuring plan impacted approximately 20% of our Turkish workforce.
Speaker Change: Looking forward, we expect we will further rationalize our workforce during the second half of 'twenty 'twenty five as we have extensions for just two manufacturing lines beyond 2025 at this time and although there continues to be interest in our manufacturing capacity.
Speaker Change: It is unclear when or if that interest will ultimately result in firm contracts. Please.
Speaker Change: Please turn to slide six.
Speaker Change: With respect to the wind market. The world is experiencing unprecedented energy demand by factors like the re shoring of manufacturing industrial electrification and a focus on national security. This demand is being further intensified by the rapid growth of data centers in the United States demand is expected to surpass 450 gigawatts by.
Speaker Change: <unk> 2030, requiring a balanced and practical energy strategy.
Speaker Change: We believe this strategy should embrace all available energy solutions, recognizing the immediate and accelerating need for power and must also be acknowledged that different energy technologies have varying levels of current readiness and cost implications.
Speaker Change: Today renewable energy and battery storage are the most affordable power sources and can be deployed rapidly. Unlike technologies like new natural gas plants in nuclear energy, which face increasing costs and likely cannot be deployed in time to address energy demands that are here today. Consequently, we believe a comprehensive energy policy.
Speaker Change: Casino on an all of the above approach is crucial to effectively meet the substantial demand well, considering the timely availability and affordability of each energy option.
As a trusted and key supplier of wind blades for the leading western turbine Oems, we remain a critical cog of the wind industry supply chain.
Speaker Change: The relationships, we have developed with these Oems and our strategic footprints in low cost locations have positioned us well for their blade needs. While our supported markets are currently complex their long term prospects remain positive. It is crucial however to discuss the potential impacts on our business stemming from uncertainty around tariffs permitting.
Speaker Change: And possible changes to the I R. A in the U S.
Speaker Change: Concerning tariffs as you know we operate eight plants across four countries.
Speaker Change: Well completed late sales from all plants into the U S or potentially subject to U S tariffs assessing the impact requires a country by country analysis, our Mexico plants almost exclusively support the U S market as will our Iowa facility importantly, under current regulations all blades produced in our Mexico plants are U S. M C. A compliant.
Speaker Change: And therefore exempt from tariffs in Europe, our Turkey, a plants, primarily serve the EU and Turkey, a with a small fraction of blades destined for the U S. Our India plant supplies blades to the U S Asia, South America, and Africa with approximately 40% of its production shipped to the U S. During the first quarter.
Speaker Change: [laughter] blades sold into the U S out of our plants in India and tricky a are subject to the existing tariff structures for those countries. However, our current contractual agreements with Oems, we serve stipulate that the Oems bear the responsibility for these tariffs.
Speaker Change: Our supply chain is also experiencing the effects of U S tariffs years of developing strong strategic partnerships and redundancy within our supply base provide us with some flexibility to mitigate long term cost impacts.
Speaker Change: The cost of blades produced at our Newton facility will likely be affected the final impact is still being assessed as we continue to develop mitigation strategies. It's important to remember that Newton is in the startup phase with minimal production expected in 2025.
Speaker Change: As for the I R. A the final content of a budget reconciliation bill and timing remain uncertain, while reassuring manufacturing and creating associated U S. Jobs are critical priorities for this U S administration, given the significant impact on jobs and investment in the U S. We currently believe a full repeal seems unlikely.
Speaker Change: However, we expect concessions will likely have to be made to align with the administration's spending priorities.
Speaker Change: The reopening of T. P. S. Newton, Iowa facility is evidence of an I R. A driven job creation and collaboration with GE or Nova we plan to have two production lines operation of this year, providing approximately 400, good paying jobs at full capacity of this facility can operate five lines and employ around a thousand people.
Speaker Change: The EU market presents a significant long term growth opportunity they'll considerable challenges persist in the current environment, including strong competition from Chinese manufacturers and the ongoing impact of hyperinflation in Turkey, a which pose continued risks for TPI positively the eu's permitting reforms, notably.
Speaker Change: The renewable energy directive have provided for streamline processes and prioritize renewables leading to faster project approvals as demonstrated by the wind energy market in Germany, we're supportive legal frameworks recognize wind energies overwriting public interest, while the eu's permitting reforms and initiatives like the net zero industrial acts auction risk.
Speaker Change: Williams guidelines are encouraging steps, they're slow adoption and inconsistent implementation across member countries remain impediments to the broader wind industry, creating uncertainty about the short term impact on TPI.
Speaker Change: Overall, the various economic challenges presented in the markets, where we operate as discussed above continue to create uncertainty in the industry's near term outlook and continue to challenge our operations in the near term we are continuing to focus on maximizing value and ensuring we have sufficient liquidity to operate.
Speaker Change: On May eight 2025, our board of directors formed a committee to among other things sit with assists with conducting a strategic review of our business and evaluation of potential strategic alternatives focused on optimizing our capital structure for the current environment.
Speaker Change: To assist in leading the strategic review, we appointed two new independent directors to our board, Tim Pole and Neal Goldman both Tim and Neil have significant experience as strategic advisers and representing companies in strategic planning negotiating complex transactions M&A capital raising valuation corporate governance and liability management.
With their assistance, we are in the process of assessing approaches to enhance our capital structure, while maintaining sufficient liquidity.
Speaker Change: No timetable has been established for the conclusion of this review and no decisions related to any further actions or proton potential strategic alternatives have been made at this time and.
Speaker Change: In addition, as reported in a form 8-K on May eight on May 2nd 2025. The company received a notification letter from NASDAQ notifying the company that it is not in compliance with the minimum bid price requirement for continued listing on Nasdaq.
Speaker Change: The notification letter does not impact the company's listing on NASDAQ at this time as we have 180 calendar days or until October 29th 2025 to regain compliance with nasdaq's listing rules to regain compliance the bid price of the company's common stock must have a closing bid price of at least a dollar per share for a minimum of 10 consecutive business days.
Speaker Change: We intend to consider all available options to regain compliance with the minimum bid price requirement, including in connection with the ongoing review of strategic alternatives. They played previously mentioned.
Speaker Change: With that I'll turn the call over to Ryan to review our financial results.
Speaker Change: Thanks, Bill Please turn to slide eight in the first quarter of 2025, net sales were $336 $2 million compared to $294 million for the same period in 2024, an increase of 14, 3% net.
Speaker Change: Net sales of wind blades to lean and other wind related sales increased by $41 million or 13, 9% to $329 million for the three months ended March 31, 2025, as compared to $288 $9 million in the same period. In 2024. This increase was primarily due to higher average sales prices due to changes in the mix of wind blew.
Speaker Change: Models produced in a 4% increase the number of wind blades produced.
Speaker Change: The increase in volume was primarily due to the restart of production at one of our previously idled facilities in Juarez, Mexico and higher utilization as several of our manufacturing lines in Mexico, and Turkey. A are in serial production in the current period that were either in startup for transition during the prior comparative period.
The increase in wind sales was partially offset by volume declines based on market activity levels impacting our Turkey, eight facilities and volume declines related to the Nordics Matamoros facility that shut down at the conclusion of the contract on June 30, 'twenty 'twenty four.
Speaker Change: Field service inspection and repair services sales increased $2 million or 34% to $7.1 million for the three months ended March 31, 2025, as compared to $5 $1 million in the same period in 2024. The increase was primarily due to the increase in technicians deployed to revenue generating projects due to the decrease in time spent on non revenue generating inspection.
Speaker Change: And repair activities.
Speaker Change: Adjusted EBITDA was a loss of $10 $3 million for the three months ended March 31, 2025, as compared to adjusted EBITDA loss of $23 million. During the same period in 2024, adjusted EBITDA margin was a loss of three 1% as compared to an adjusted EBITDA margin loss of seven 8% during the same period in 2024.
Speaker Change: The improvement was primarily due to the absence of losses from the Nordics Matamoros facility, which was shut down at the end of the second quarter in 2020 for increased volume in our other Mexico locations, lower startup and transition costs and cost savings initiatives.
Speaker Change: These improvements were partially offset by higher pre existing warranty charges higher labor costs in Turkey, Mexico, and 24, seven ship ramp up costs and number of our Mexico factories.
Speaker Change: Moving to slide nine we ended the quarter with $172 million of unrestricted cash and cash equivalents and $616 million of total debt.
Speaker Change: Free cash flow was negative $1 $9 million in the first quarter of 2025 compared to negative free cash flow of $47 3 million in the same period in 2024, the net use of cash in the first quarter of 2025 was primarily due to interest payments tax payments and capital expenditures slightly outpacing cash earnings and working capital improvements.
Speaker Change: We had positive cash flow Friday by operating activities in the quarter of $4 $6 million.
Speaker Change: A summary of our financial guidance for 2025 can be found on slide 10, we continue to anticipate sales from continuing operations in the range of 1.4 billion to $1 $5 billion, representing high single digit year over year growth at the midpoint of the guidance.
This projected growth is primarily driven by increased blade shipments for our Mexico facilities to support the U S market and the planned reopening of our Iowa site, partially offset by projected reduced sales from our Turkey, and India facilities, driven primarily by anticipated lower demand from our Nordics lines.
Speaker Change: We have six lines in startup and transition in 2025, including the two new lines reopening at our island plant.
Speaker Change: We expect average selling prices to remain relatively flat year over year.
Speaker Change: Services revenue is expected to increase more than 50% driven by a shift of technicians back to historical levels of revenue generating activity.
Speaker Change: We expect adjusted EBITDA margin from continuing operations to be in the range of zero percent to 2%, which has been revised from our previous guidance of 2% to 4%.
Speaker Change: The downward revision is primarily due to the warranty charge, we recorded in the first quarter and the impact of a production suspension, we experienced during April because of the safety stand down put in place following an accident in one of our factories.
Speaker Change: 2025 utilization expect is expected to be in the range of 80% to 85% on 34 lines in production and finally, we expect capital expenditures of about $25 million to $30 million in 2025.
Speaker Change: With that I'll turn the call back over to Bill. Thanks, Ryan. Please turn to slide 12, before we close our prepared remarks I'm pleased to announce the publication of our 'twenty 'twenty four sustainability report in March of this year, we remain committed to our publicly stated goals of fostering a zero harm culture and achieving carbon neutrality by 2030 through 100% renewable energy.
Speaker Change: German wind blades produced by Us in 'twenty 'twenty four are estimated to prevent approximately 264 million metric tons of C. O two emissions over their 20 year lifespan.
We are progressing towards our 2030 carbon neutrality go having achieved a 17% reduction in overall market based scope, one and two C. O two emissions in Turkey, a one third of our site's electricity was generated from a new renewable energy and in India, one quarter for our sites in Mexico, We signed power purchase agreement to ensure.
Speaker Change: All of our sites are powered by a 100% renewable energy by the end of 2025, and we achieved a 5% reduction goal and production waste and continue to foster a culture of safety, we continue to partner with our Oems to share best practices aimed at scope on reductions. Furthermore, we are working to expand our PPA in India and exploring clean energy.
Speaker Change: Options for our Newton, Iowa facility.
Speaker Change: These investments not only provide environmental benefits, but also make strong economic sense directly contributing to improved financial performance.
Speaker Change: Please turn to slide 14.
Speaker Change: In closing, it's been a challenging environment and we have a lot in front of us as we evaluate our strategic alternatives I am proud of how our team has managed through some challenging startups and transitions and driven operational improvements across the company, while we acknowledged the complexities and uncertainties within the global wind market, including policy considerations in the U S.
Speaker Change: And macroeconomic factors in Europe, and in Turkey, a our underlying fundamentals remain strong we believe our focus on operational excellence and strategic partnerships positions us well to navigate these challenges and capitalize on the long term opportunities within the renewable energy sector. We look forward to providing further updates on our progress.
Speaker Change: Throughout the year.
Speaker Change: Before we open the call for Q&A, I Wonder, who once again extend my gratitude to all our TPI associates for their continued commitment and dedication to TPI and our mission to safely Decarbonize and electrify the world ill now turn it back to the operator to open the call for questions.
Speaker Change: Okay.
Speaker Change: Thank you we will now be conducting a question and answer session.
Speaker Change: You'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please while we poll for.
Mark Strouse: Our first question is from Mark Strouse with JP Morgan.
Mark Strouse: Yeah. Good afternoon, guys. Thank you very much for taking my questions.
Mark Strouse: I just wanted to clarify first of all on the strategic review.
Speaker Change: Brian I've heard you say that.
Speaker Change: A few times in the past kind of evaluating kind of optimal capital structure. So guy can you just kind of.
Speaker Change: Talk about kind of the nuances of what exactly is different with the strategic review versus what has been going on in the last few quarters.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: Yeah, Hey, Mark it's bill.
Speaker Change: You know, we we've start we we've been evaluating our capital structure and looking at alternatives. It's just turned into a more formal process. That's really the only difference we're looking at how do we restructure our balance sheet, it's really a right side of the balance sheet challenge as you know how do we rightsize our balance sheet for the near.
Speaker Change: German then for the long term health of the entity.
Speaker Change: Okay, Alright that makes sense, thanks, Bill and then alright.
Speaker Change: I fully appreciate that it's probably too early for you guys to give a fully robust view on this but I did want to get kind of your initial views anyway on the house reconciliation language that just came out.
Speaker Change: Hour and a half or so before before your press release. Thank you.
Speaker Change: So it's still a little bit fresh I think.
Speaker Change: I think on 45, why the phase I think most were expecting some sort of a phase out I think the challenge there is the completion.
Speaker Change: Placed into service versus startup construction, which is a bit different and could pose some challenges there.
Speaker Change: I think I'm forty-five acts a little bit surprised that wind is getting treated differently than other technologies with an end date of 2027, So obviously that's something that.
Speaker Change: We heard rumors of that last week, a little disappointed to see that and I think on transfer ability, which is another key component of the eye are a it's a little unclear still I I didn't get all the way through that section of the of the of the Bell Butler.
Speaker Change: But well be doing a little bit more work on that this evening to see how that might impact.
Speaker Change: Yeah makes sense, Okay very helpful. I'll take the rest offline. Thank you.
Speaker Change: Thanks Mark.
Speaker Change: Our next question is from Eric Stine with Craig Hallum capital.
Speaker Change: Hey, this is Luke on for Eric I. Appreciate you, taking our questions. So first year on the Iowa restart obviously on track here with production. Starting next week have you seen anything out there in the market in terms of demand that would make you consider potentially bringing on more lines there in the near future for 2026.
Speaker Change: You know we've had we've had discussions about we do have capacity for up to five lines. We've had ongoing discussions with our customer there, but again I think that will just depend on how demand develops and how.
Speaker Change: Reconciliation turns out quite frankly and tariff situations, but.
Speaker Change: Little little bit early to tell but we do have we have had discussions and we would certainly like to.
Speaker Change: To tell the light up more lines there if we can.
Speaker Change: Of course, it makes a ton of sense. So secondly, here you talked a few quarters back about identifying some potential supply chain cost reductions I think the number you threw around was maybe 8% year over year in 2025, I mean, given we've had a ton of market uncertainty. Since then with both tariffs and the IRA. How is this view really evolved for you would you consider that to still be roughly a realistic.
Speaker Change: Or should we be thinking about that differently.
Speaker Change: No I think where we're on target for for the most part with all of those cost reductions as it relates to the supply chain specifically, that's primarily just for the bomb the bill of material.
Speaker Change: Depending on where tariffs.
Speaker Change: And up and it's obviously it changed last night.
Speaker Change: From China, there there could be a small impact on our bill of material and Iowa based on where those those it'll be much smaller now given given the change in the tariff rate at least for 90 days, but.
Speaker Change: That number we gave before is we're right on track with that if not a little bit better than the market's been cooperating so where we're still on track.
Speaker Change: Great very helpful I'll turn it over here. Thanks.
Speaker Change: Thanks.
Speaker Change: Yes.
Justin Clare: Our next question is from Justin Clare with Roth Capital Partners.
Justin Clare: Hey, guys. Thanks for the questions here.
Just wanted to follow up on the 45 exercise you mentioned in the in the draft Bill from the house here.
Justin Clare: 48, five X could be phased down earlier than we would've anticipated so by year end 2007.
Justin Clare: That change does actually make it through to the final bill how might that affect your decisions to either add lines in Iowa, or I know, you're potentially considering another sites, where you could expand on manufacturing. So maybe just to I know, it's very early here just came out but speak to how you might think about it.
Justin Clare: Yeah. It could again, it really will depend on demand dynamics over the next couple of years, but that could certainly impact that and.
Justin Clare: And as far as for another site.
Justin Clare: Again, if forty-five ex stays where its at that could impact whether or not it's feasible to open another site as well.
Justin Clare: Right, Okay that makes sense.
Justin Clare: And then just on tariffs.
Justin Clare: I think well I guess first you had previously talked about you know your customers wanting basically everything that you can produce for the U S market in 2025 wondering if the tariffs.
Justin Clare: Have affected that or or permitting issues.
Justin Clare: Or if that's still the case and then maybe if you could just speak to what Youre seeing in terms of things shaping up for 2026.
Justin Clare: Specifically for the U S market.
Justin Clare: Yeah for for 2025, no no change and what the demand profile is for our plants.
Justin Clare: Providing blades for the U S market.
Justin Clare: And for 2026, it's a little bit early still and with some of the uncertainty that we're all very well aware of.
Justin Clare: Right now it looks like I would expect the U S market from or at least demand from our perspective to be.
Justin Clare: To be flat with 2025 at this point, so not not a dip but likely to be flat in 2026, as we see it today.
Speaker Change: Got it Okay, and then just one more.
Speaker Change: You had mentioned I think it was an incident in Q2 that might affect your EBITDA margins. So just wondering if you could speak to how you see the EBITDA margins trending through the year do we get.
Speaker Change: Dip or kind of flat with Q1 and Q2, and then increase in Q3 Q4, and maybe you could just speak to.
Speaker Change: If you can where you think EBITDA margins might be.
Speaker Change: Like what the run rate could be heading into 2026.
Hey, Justin Q1, we did have the warranty charge that impacted our EBITDA margin. So.
Speaker Change: Excluding that I'm expecting or our Q2 to probably be a little bit higher volume that we had but we are dealing with it in an accident that we had with the safety stand down the impact to that is we're expecting right now to be about probably 30 35 ish million dollars of sales for <unk> for the quarter, we will recover some of that.
Speaker Change: Throughout the balance of the year, but some of that will probably be impact our full year still believe our full year sales guidance is at 1.45 billion still.
Speaker Change: We can achieve that from a margin perspective for the second half and a run rate going into 'twenty. Six do you expect more healthy margin volume will be.
Speaker Change: Our third quarter will probably be our highest volume quarter. It will also be a quarter in which.
Speaker Change: Our margins should peak for the year are kind of seasonally the fourth quarter, we tend to come down a little bit, but still have should have a pretty strong second half in comparison to the first again that first quarter impacted by the warranty charge in the second quarter impacted by the safety stand down that we had.
Speaker Change: Okay very helpful. Thank you.
Speaker Change: Yeah.
Speaker Change: Yes.
Bill Stomach: Thank you there are no further questions at this time I'd like to hand, the floor back over to bill stomach for any closing comments.
Bill Stomach: Thank you again for your time today and continued interest and support of T. P. I look forward to keeping you up to date on our progress throughout the quarter. Thank you.
Speaker Change: This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Bill Stomach: Okay.