TPI Composites, Inc.

Good afternoon and welcome to TPI Composites, fourth quarter and full year 2020 earnings conference call. Today's call is being recorded and we have allocated one hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Christian Eden in Investor Relations for TPI Composites. Thank you. You may begin.

Thank you, operator. I'd like to welcome everyone to TPI Composites' fourth quarter and full year 2020 earnings call. We will be making forward-looking statements during this call based on current expectations and assumptions, which are subject to risk and uncertainties. Actual results could differ materially from our forward-looking statements. If any of our key assumptions are incorrect because of other factors discussed in today's earnings news release and the comments made during this conference call or in our annual report on Form 10-K filed with the Securities and Exchange Commission or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our website, tpicomposites.com. We do not undertake any duty to update any forward-looking statements. Today's presentation also includes 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. With that, let me turn the call over to Bill Siwek, TPI Composites President and CEO.

Bill Siwek Thanks, Christian, and good afternoon, everyone. Thank you for joining our call. In addition to Christian, I am joined today by Brian Shoemaker, our CFO. I'll briefly review our full-year results and activities, discuss the current operational status of our manufacturing facilities, including our supply chain, give an update on our global service and transportation businesses, and then a quick update on the wind energy market. Brian will then review our quarterly and full-year financial results in detail, our 2021 guidance, and then we will open up the call for Q&A. Please turn to slide five. We finished 2020 strong with 27 percent growth in adjusted EBITDA in the fourth quarter while expanding this margin by 120 basis points year-over-year to 8.8 percent. For the full year 2020, With the backdrop of a difficult operating environment due to COVID-19, we achieved double-digit revenue and adjusted EBITDA growth. We delivered net sales of $1.67 billion, a 16.3% increase over 2019, and adjusted EBITDA of $94.5 million or 5.7% of net sales, notwithstanding the estimated impact of COVID-19 on adjusted EBITDA during the year of just over $60 million. These results speak to our business model and our team's ability to adapt and stay nimble in a dynamic macro landscape. We delivered approximately 12 gigawatts of wind blades during 2020. We started wind blade production in India for Vestas and added Nordex as a customer in India as well with production starting for them this quarter. We extended contracts with GE and Vestas and in the fourth quarter we extended a contract with Nordex in Turkey. We continue to make progress in transportation, including hitting key milestones under the Super Truck 2 program with Navistar, production of commercial delivery vehicles for Workhorse, and we're now producing components for multiple passenger EV platforms under technology development and pilot production arrangements. We continue to refresh our board of directors by adding global operations and finance experience, independence, and diversity. We published our first ESG report last March, and plan to publish our second annual report this March. We remain committed to operating our business safely while continuing to mitigate the impacts of COVID-19 and ensuring that we are prepared to deal with the resurgence of the virus in any of our global locations. We have and will continue to adapt our operating procedures in order to enable our associates to work safely and continue to meet our customers' demands. We also continue to drive the operational imperatives we outlined in 2020 and recommitted to in 2021 to reduce cost and improve our operations globally. We are making very good progress on these imperatives, notwithstanding the challenges created by COVID-19. Turning to slide six, I'll now give you a quick update of our global operations as well as a market update. During the fourth quarter, we continued to operate all of our facilities at normal levels. In China, we delivered more volume than our original 2020 plan, demonstrating what an outstanding group of associates we have there. However, at the start of 2021, five lines were removed from production, and we expect the remaining lines will run at lower utilization during 2021, and therefore our volumes will be down year over year in China. We will continue to explore opportunities for that capacity, including Chinese OEMs, but the shifting of capacity from geography to geography over time is consistent with our strategy to manage risk and optimize our footprint to enable the highest utilization and competitive advantage for TPI and our customers. In India, we ramped up the first four lines of the facility for Vestas, and we are starting production on two lines for Nordex as we speak. The Vestas ramp went remarkably well, even though we were in the middle of a pandemic. In Turkey, production continued as normal while we started the transition of three lines during the fourth quarter. That transition is continuing into the first quarter of 2021. In Mexico, production also continued at normal levels. We are currently in the midst of a transition of two lines in Matamoros, as well as one line in Juarez, and we plan on having as many as seven more lines in transition in Mexico during 2021. In the U.S., blade and transportation production has continued uninterrupted. On the service side of the business, we made very nice progress in 2020 securing new deals with OEMs as well as asset owners and are working hard to build out our global service team to execute our growth strategy in 2021 and beyond. To accelerate our growth and to deal with the shortage of qualified technicians, we opened a new training center in Santa Teresa, New Mexico to increase our training capabilities and support our rapidly growing need for qualified blade service technicians. We are also continuing to evaluate blade recycling options and look forward to being able to share more on this effort during 2021 as some significant progress was made during 2020. The global transportation industry is working to rapidly increase the electrification of vehicles to reduce the impact on the environment. According to Bloomberg NEF, electric bus sales are anticipated to grow almost threefold in the US from 2021 to 2025, The sales of commercial electric vehicles are expected to grow into the hundreds of thousands by 2030 as e-commerce continues to rapidly rise and consumers are driving demand higher for passenger electric vehicles. We expect there will be an increased demand for composite components and structures for electric vehicles as composite material systems can be the key material building blocks for purpose-built vehicles. Our composite solutions are ideally suited for transportation applications because of the benefits resulting from weight reduction and therefore extended range for EVs, corrosion resistance, strength, durability, the ability to scale production with lower upfront production investment, and lower total cost of ownership for end users. The level of interest in our capabilities continues to grow. We are collaborating with our customers to develop innovative composite solutions for vehicles across passenger automotive, bus, truck, and delivery vehicles. Today, we are building composite bodies for buses and delivery vehicles, collaborating on Class 8 vehicle programs, and manufacturing components for multiple passenger EV platforms. Since 2018, we have invested approximately $50 million in our transportation business, and we expect to invest upwards of $20 million more in 2021 to continue to build our team, technology, and infrastructure to capitalize on the accelerating EV and lightweighting trends. With respect to our supply chain, we did not experience any significant supply issues during the fourth quarter. We continue to monitor the material markets closely. There are still some logistics challenges. For example, there is congestion at Los Angeles area ports that we're working through, but nothing that has materially impacted our production thus far. We will continue to diversify our supply chain geographically to reduce risk, provide for security of key materials, and drive down cost. Turning to slide seven, we expect the long-term trend for wind energy to continue to strengthen based on the current cost of wind energy, continued efforts to drive down cost, and strengthening of political will around the world to decarbonize and reverse climate change. Since our last call, the production tax credit in the US was extended through the end of 2021, and we believe that the tone the Biden administration is setting on climate change bodes very well for renewables over the coming years. In the last month, for example, President Biden committed to rejoin the Paris Climate Agreement, announced up to $100 million in funding for transformative clean energy technology research and development via the Advanced Research Projects Agency, and announced several executive orders to promote renewable energy. A climate task force was created to set in motion a government-wide action plan for reducing emissions, directing all federal agencies to consider climate and their decision-making, driving federal procurement to renewable energy, targeting federal lands and water for clean energy development, and accelerating the permitting of clean energy and transmission projects. As you can see on slide seven, Wood Mackenzie's onshore and offshore forecasts continue to strengthen both globally and in the U.S. In addition, we have layered in two scenarios to illustrate the potential of the accelerating energy transition. On the global chart, Bloomberg NEF's climate scenario shows what global wind installations would collectively need to be to meet a well below two degree scenario. As you can see, it's substantial. On the U.S. chart, These are the wind installations needed to enable the U.S. to reach 50% renewable electricity by 2030. This scenario, created by Wood Mackenzie and the American Clean Power Association, demonstrates how the U.S. wind market can strengthen over time and be a critical factor in reducing U.S. emissions and creating a stronger economy. One of the key findings from the Wood Mack and ACP work is that administrative actions alone can potentially double renewable energy penetration within the next decade with transmission-focused policies to unlock renewables potential. While it is still the early days in the Biden administration, this scenario shows the strong growth potential of the U.S. wind market over the coming years. In Europe, the support for the European Green Deal is strengthening, and European leaders are working to finalize a strengthened plan to cut emissions beyond the original target in the European Green Deal to 55% by 2030 compared to 1990 levels. We believe recent global initiatives to promote wind and renewable energy elsewhere will also fuel long-term renewables growth, including the announcement of net zero targets from China in 2060, Japan, South Korea, and Canada, all 2050, and of course, power to the X, or the creation of synthetic fuels for use in heating, transportation, and power generation, by producing green hydrogen through the electrolysis of water using renewable energy. These are a few examples of the accelerating energy transition we are seeing on a global basis with additional drivers included on slide eight. We believe the future for wind energy will continue to strengthen given the initiatives and goals to promote the acceleration of the energy transition. Our long-term goals that we have discussed publicly, including 18 gigawatts capacity, 20% market share, and $2 billion of wind revenue have not yet been updated to reflect the potential impact of the acceleration of the energy transition. As we discussed on the last call, we are working with our customers, developers, utilities, and asset owners to estimate the magnitude and timing of demand, both on and offshore, to make sure we are aligned geographically with the capacity of each of our customers' needs over the next decade. While we are not ready to present updated numbers today, we believe the long-term opportunity for us in wind is significant. and we will update our targets when we have better clarity. Finally, while the health and safety of our associates remains our primary objective, we remain focused on our operating imperatives and our ESG activities to drive profitable growth and long-term shareholder value. With that, let me turn the call over to Brian.

Thanks, Bill. Please turn to slide 11. All comparisons made today will be on a year-over-year basis compared to the same period in 2019. For the fourth quarter ended December 31, 2020, net sales increased by $43.5 million, or 10.3%, to $465.6 million. Net sales of wind blades increased by 12% to $445.5 million. This was primarily driven by an 8% increase in average selling price per set due to the mix of wind blades produced and a 4% increase in the number of wind blades produced year over year. Startup and transition costs for the quarter increased by $8.2 million to $13.1 million as we continue to ramp up our India facility and transition lines to bigger blades in Turkey and Mexico. Our general and administrative expenses for the quarter decreased by $4.3 million to $7.8 million. G&A as a percentage of net sales decreased 120 basis points to 1.7% of net sales, This decrease was primarily related to the decrease in travel and training costs due to COVID-19 during the quarter. Before share-based compensation, G&A as a percentage of net sales was 1.4% and 2.6% in Q4 2020 and 2019, respectively. During the quarter, we incurred $3.7 million of restructuring charges associated with reduction of five lines under contract in our Defong China facility. Net income for the quarter was $5.2 million as compared to a net loss of $0.9 million in the same period in 2019. This increase was primarily due to the reasons previously described. In addition, we estimate the net income was adversely impacted by approximately $5 million associated with the production volume lost under non-cancellable purchase orders due to the reduced production along with other costs primarily related to the health and safety of our associates and non-productive labor associated with COVID-19. Net income per diluted share was $0.14 for the quarter, compared to a net loss of $0.02 per share for the same period in 2019. Our adjusted EBITDA for Q4 was $40.8 million. Our adjusted EBITDA margin was 8.8%, and our utilization was 92% for lines under contract at quarter end. This compares to adjusted EBITDA of $32 million, an adjusted EBITDA margin of 7.6%, and utilization of 96% in the same period in 2019. We estimate that adjusted EBITDA was negatively impacted by approximately $5 million associated with production volume lost, along with other costs related to COVID-19 that impacted our production facilities. Turning to slide 12. For the year ended December 31, 2020, Net sales increased 16.3% or $233.6 million to nearly $1.7 billion. Net sales of wind blades increased 18.9% to $1.6 billion despite the impact that COVID-19 had on our manufacturing facilities. The increase in wind blade sales was driven by an 11% increase in wind blade sets produced and a 26% increase in estimated megawatts produced. Net sales from transportation increased 25.4% to $36.2 million. We achieved a 10.1% increase in adjusted EBITDA to $94.5 million despite being significantly impacted by COVID-19. Globally, our associates did a great job of pulling together and managing through the pandemic while ensuring their health and safety. Moving on to slide L13. We ended the quarter with $129.9 million in cash and cash equivalents. and total principal amount of debt outstanding of $218 million in a year where we were significantly impacted by COVID-19 and invested $65.7 million in capital expenditures to grow the business. We held our net debt to under $89 million, and we were able to get our net leverage ratio, as calculated under our senior revolving loan facility, back down to under 1.8 times by December 31, 2020. Turning to slide 14. 2021 Full Year Guidance. For 2021, we are guiding to net sales of between $1.7 billion to $1.85 billion, adjusted EBITDA of between $110 million to $135 million. We will discuss this in more detail on the following slide. Dedicated manufacturing lines during the year are expected to be approximately 50, utilization of between 80% to 85%, total wind blade set capacity of 4,090, average selling price per blade of between $160,000 and $165,000, non-blade sales of between $100 million and $125 million, capital expenditures of between $55 million and $65 million, startup costs of between $8 million and $11 million, with most of it occurring in the first half of the year, and we expect restructuring costs of approximately $10 million associated with the optimization of our global footprint. Approximately 50% of those costs is expected to be non-cash. On slide 15, we've provided a walk from our 2020 adjusted EBITDA to the midpoint of our adjusted EBITDA guidance range for 2021. Our adjusted EBITDA guidance includes approximately 10 million of costs related to the health and safety of our associates as we continue to manage through COVID-19. The overall cost of COVID-19 is expected to be substantially less than in 2020. Next, you can see the results of our relentless focus on operational execution to drive down the cost of raw materials, decrease cycle time, decrease waste, and continue to drive other costs out of the system. As Bill previously mentioned, we have taken five lines out of production in China, and we are expecting the other ten lines to be operating at a lower utilization during the back half of the year. We are also forecasting lower utilization in Q4 for several of our lines in other regions. Our forecast of decreased utilization in the back half of the year is due primarily to what we believe is a short-term overcapacity issue with a few of our customers, as well as certain of our customers shifting production away from China to mitigate geopolitical risks and increasing costs associated with doing business in China. With the continued momentum in the EV space, we are forecasting that we will invest approximately $15 to $20 million in the transportation business during 2021 as we continue to hire and develop our team, technology, and infrastructure. Finally, we continue to make progress with the speed of our startups and transitions. Although we are forecasting our total startups cost to be down year over year, we do expect to have more transitions this year than we did in 2020. This bar represents both the startup and transition costs in our P&L and the margin impact associated with transitioning to a bigger blade. Although we are not providing quarterly guidance, we believe that our Q1 adjusted EBITDA will be less than $10 million due to seasonality and the number of lines that we have in transition and startup. With that, I will turn it back over to Bill to wrap up, and then we will take your questions. Bill?

Thanks, Brian. Turning to slide 17, the health and safety of our associates and their families, as well as the communities in which they live, remain our number one priority. We continue to take the necessary steps on the COVID-19 front to ensure the safety of our associates and safe working conditions in our facilities. We continue to aggressively work our wind pipeline and we remain very encouraged by the progress we continue to make in the service space. We are continuing to build on our momentum in the transportation space and will continue to refine our long-term strategy to capitalize on the increased interest, investment, and activity in the electric vehicle space. We continue to remain focused on managing our liquidity to provide financial security and flexibility as we drive through the current environment and execute our strategy to capitalize on the acceleration of the energy transition. Our overall mission to decarbonize and electrify remains unchanged. We will continue to optimize our global footprint while using the leverage our global scale provides for operating and supply chain efficiencies to continue to drive down costs, all while maintaining a strong balance sheet. We will continue to evaluate the global demand and update our long-term targets accordingly to better reflect the long-term opportunity we expect to see in wind and EVs under this accelerated energy transition. I want to thank all of our dedicated TPI associates for their commitment and dedication. and for their extraordinary efforts during 2020 to deliver on our commitments to our customers in the middle of a global pandemic. Thank you again for your time today. And with that, operator, please open the line for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star and two. At this time, we will pause momentarily to assemble our roster. And the first question comes from Philip Shen with Roth Capital Partners. Please go ahead.

Hi, guys. This is Donovan Schaefer on for Philip. I have a couple questions for you. The first one is, I was impressed with the guidance to see that there's a pretty big uptick in the ASPs. And I'm sort of trying to think about how to think about that or how to model that as a trade-off with volumes. Because, you know, you're moving to larger blades, but then as you guys show on slide 15, there's going to be a negative impact from volumes. You know, that's a great bridge that you guys are providing. like the increase, you know, you have the increase in transition costs, startup costs, but some of the result of that is those higher ASPs, that pretty significant jump that we're seeing. And is that what is, is that kind of, like if you held revenue and decreased volume but perfectly offset it by the ASP uptick, is that generally going to be pushing the margins up and should we be seeing that kind of phenomenon? going forward?

Yeah, thanks Donovan for the question, by the way. You know, ASPs increase and we've seen that year over year and that's really all about bigger blades, right? So longer blades, heavier blades generally equates to higher ASPs. So that's why you're seeing that ASP growth. And we've talked a bit about this before where over time That's kind of why we went away a little bit from talking strictly about lines and talking more about gigawatts or megawatts of capacity. Because over time, the number of lines may stay steady or actually reduce, but our megawatts of production may actually go up. As long as we continue to maintain the throughput the way we do and drive cycle time, if we're driving the same number of large blades through the same CapEx investments, you know, that we were doing on the smaller blades, then you're going to see a revenue uptick for sure. And over time, you know, as those blades mature, you should see a margin uptick as well. But it takes a little time to get through the transition and get to serial production. But once you do, you should see an uptick in margins as well.

Okay, great. And then my second question is, you know, Vestas has been having some, there have been some headline blade issues. And, you know, there were some lightning strikes, and then they had the issue with the inserts and so forth. And so I'm just curious, because I think in the last, in Q3, in your filing, it showed Vestas was something like 50%, approximately 50% of revenues for the trailing nine months. Have you... or seen anything from them or kind of any indications on the horizon of any type of slowdown coming from Vestas?

Yeah, so on the blade issue, I think they were pretty clear that that was a sub-supplier. It was a component that we clearly use in the blade, but it's not a TPI issue as it relates to that. We're still, you know, Vestas will continue to be our largest customer. We will see a little bit of variation in their utilization at the back half of this year initially, although initial indications are showing that 22 looks very strong starting right out of the gate at the beginning of the year. So as we said, it looks like it's a temporary utilization challenge in the back half of the year, primarily the fourth quarter. Some of it was a little bit of pull ahead, I think, of build from 2020. But overall, still going to be producing a whole bunch of blades for Vestas. They'll remain our largest customer. And we're continuing to work with them on optimizing our footprint for not only our success, but theirs as well. Okay, great. Well, congratulations on the quarter, you guys.

Thank you very much. I'll pass it on.

Thanks, Donovan.

Appreciate it.

And the next question will be from Paul Koster with JP Morgan. Please go ahead.

Yeah, thanks for taking my question. So China, perhaps you can tell us what happens to the facility and operations in China as the utilization rate falls. Do you idle it, or what's the process there?

Hey, Paul. This is Bill. Thanks for the question. We're working on a number of options there, Paul. We have two blade facilities and a tooling facility. And the blade facility we built in Yongzhou is state-of-the-art. Our other facility, although still performing extremely well, is kind of getting to its functional end of life just because the blade sizes have gotten so large. And so we will look at consolidating in China a little bit more than we have. We are looking at some other options for our older facility, but likely it's a consolidation of the operations to reduce the footprint a bit and become a little bit more efficient and cost effective out of China.

And the business that shifted from China elsewhere, there was capacity available to absorb that? You didn't need to build any new facilities or capacity?

Yeah, I mean, if you think about it, it's possible that some of the capacity we built in India will supplement or will replace what was in China. Again, if that volume is going to the US, the tariff doesn't exist between India and the US, but it does between China. the cost of manufacturing in India is significantly less than in China as well. So we've talked about looking at globalizing and localizing and de-risking supply chain. That's part of what we've done, and that's part of what our customers are doing too. So we did add capacity in India, clearly, and that could be some of the capacity coming out of China.

When I look at the EBITDA walk on page 15, which I agree is very helpful, by the way, And I look at the demand impacts, orange bar. Is that all China? Is it the combination of China and the second half sort of lower utilization rate? How do I think about that 50 plus million, $60 million decrement?

Yeah, it's not just China, Paul. There are clearly, there's some of that in China, but we've got in a couple of other regions, some fourth quarter utilization reductions. Some of those will be used for transitions, quite frankly. We're still in the planning phase with some of our customers on what exactly they want going into 22 in a couple of different locations. So it's not strictly China. There's a little bit of volume degradation in a couple of other regions as well.

Okay, final question. As you start up the transportation business, Is it going to be more decentralized and co-located or closer located to the end customer and smaller scale, or is it likely to follow the same pattern as wind, very centralized facilities?

No, I think it'll depend a little bit, Paul, but our plan would be depending on what we're actually doing, whether we're doing, you know, a full body or if we're doing subcomponents, quite frankly, and even in the case of CABS, we've taught both models where we could be centrally located for certain things and then co-located for others. So I think it'll be a little bit of a mixed model. It will be different than the blade model. There will be much more co-location, you know, as it relates to the different OEMs that we're working with. I think, you know, Eliminating the transportation between a central location and another location is clearly part of the goal, and so co-location is more likely. Thank you. Yep. Thanks, Paul.

The next question comes from Chris Sung with Weber Research. Please go ahead.

Hey, good afternoon, Bill and Brian. How are you? Good. Great. So I'm on for Greg, and we just have a couple of questions. I wanted to just touch on the transportation pipeline. I think we noted two of your customers recently announced a cooperation on hydrogen vehicles, and could TPIC eventually be a part of that project? And just trying to see how we should think about that pipeline developing.

So, you know, we are working on a number of projects, as we said in our prepared remarks. A couple of development projects in the Class 8 space, whether those are ultimately fuel cell or battery, you know, could be either or. So, again, then we're in the delivery vehicle space, as you know, working, you know, collaboratively with Workhorse on their last mile delivery. and then a couple of passenger automotive EV programs that we can't discuss who they're with, but those are more subcomponents. So, yeah, our plan is to, much like we do with the blade OEMs, is to collaborate as deeply with those parties as they would like us to. The more collaboration, generally, the more value you can add and the better the end product. So, That's our mode going in is to collaborate deeply with these guys, figure out what the best solution is for the problem they're trying to solve. And that's what our value proposition is. So collaboration is important for us in this space. We don't want to just be a commodity, you know, a provider of commodity parts. That's not what our model is.

Yeah, great. Thanks. Thanks for the color. And I guess it's a good segue into workhorse. You see the recent news regarding WorkCourse and the USPS deal. How much of the $500 million in transportation revenue that you guys have for the next three to five years is dependent on that deal? I guess to put it another way, how much of the WorkCourse and USPS deal is baked into that $500 and do you see that timeline sliding out a little bit further?

Yeah, so we set our 500 target before Workhorse was even a customer at the time. So there was zero from USPS baked into that number. That would have been an upside opportunity for us. Clearly, in our long-term plans, we do have last-mile delivery in our transportation plans. But as far as the USPS and the 500,000, they were – there was nothing for USPS in the 500s. All right.

Great. That's it for me. I'll turn it over. Thanks, guys. Great. Thanks, Chris.

The next question will come from Eric Stein with Craig Hallam. Please go ahead.

Hi, Bill. Hi, Brian. How are you doing?

Hey, Eric.

How are you? Great. Thanks for taking the question. So can we just connect to China a little bit as I think about Um, you know, on the one hand you've you're, you'll be down to 50 lines from, I believe 53 at the end of the year. But then also your commentary seems quite bullish about 2022. Should we think about that as due to you're kind of in the interim where you're trying to figure out what your OEM partners want to do? Um, and, and maybe just what are some of the discussions happening? around as those OEMs try to get away from China or reduce China exposure, what that's looking like in other locations.

Yeah, again, just to be clear, it's not like they're running for the hills. I mean, they're rebalancing where their capacity is to make sure that it's efficient and to de-risk for any potential issues in the future. So, again, they're not running for the hills by any stretch, but they are de-risking, and we think that's a smart thing to do. So it's a – you know, Eric, I almost equate it a little bit to the calm before the storm. You know, I mean, there's a lot going on in the energy world right now. Everybody's trying to figure out what the EU Green Deal means, what's it going to mean for Western OEMs with China's goals, you know, for decarbonization. We have a new administration in the U.S., Clearly, everything is going to be looked at through the lens of climate change. But what exactly does that mean? So I think 2021, there's a lot of trying to figure out exactly what's going to happen. It's not if, it's when. And so I think that's why there's a little bit of pause throughout stretches of the year. But with all that said, we're still growing our top line 10%. We're still growing EBITDA by 30%. This is in a year where we've got utilization that's down a little bit lower than we would like it to be. So, again, I see it as a year of transition and don't think of transition as the way we think of a transition, but it's a year of transition in the space, right, and people trying to figure out what all of this very positive potential, whether it's legislation, regulation, or just, you know, demands of the consumer and decarbonization mean and how that gets implemented into the bigger picture long term.

Right. So, I mean, I guess to put it another way, you're – some near-term, just some uncertainty as to what that looks like, but clearly constructive conversations and relationships you've got with those OEMs are leading to that pretty bullish outlook for 2022. That's correct.

Absolutely. Okay.

All right. And maybe just the last one, just sticking with China, I know you mentioned that you were looking to maybe work for some Chinese OEMs, and I know historically that's been really not available because they've mostly in-source production. So have you seen any changes in the market or just what are your thoughts about potentially replacing some of that business with some players in China?

You know, we've always been in discussion and it has been a challenge just making sure that we get to the right financial terms that make sense for us. And we're not going to compromise financially to do that, but It is changing. We've had opportunities with them outside of China as well, which doesn't mean you can't build for them inside of China and export. So again, we're going to continue to work those relationships, continue to look at the opportunities. There's significant demand in China for wind over the next several years. The numbers this year were staggering. I'm not quite sure how to take them, but the numbers are staggering. And so You know, is there enough capacity in China to satisfy the demand from the OEMs? And we think there's an opportunity there for us to play. There's also an opportunity for the Western OEMs to gain share there, especially as large as that market is. So, you know, we'll continue to work with them on opportunities there as well. Okay. Thanks a lot. Yep. Thank you, Eric. Thanks.

And the next question will be from Laura Sanchez with Morgan Stanley. Please go ahead.

Hi, Bill. Hi, Brian. How are you?

Good, Laura. How are you?

Doing well. Thank you. I was wondering if you could comment on the impact to margins from moving those lines out of China. Are costs in India and other locations similar so that in net it wouldn't have an impact on margins? Or how should we think about that?

Yeah, I mean, overall, if you look at it, there is an impact right now in the short term, basically due to it going from a mature plant to one of the new plants. But over the long term, we believe to recover those margins as the lines mature in these other regions. So that's why, I mean, as Bill kind of spoke to, as we get the utilization up, hopefully in 2022, as we're seeing, that's where we see some improvement in the margins with that shift from kind of the smaller blades to the bigger blades with additional margins.

Got it. So it's the 12% EBITDA margin goal still on the table?

Yeah. I think if you look kind of at this bridge and kind of do the math, you can see some different areas of where you can get that and figure out how to achieve those 12% margins. So yeah, we're not adjusting that at this time.

Okay. Okay. And one more for me. So going back to the commentary on Vestas, they posted some margin pressure in the fourth quarter. I was wondering if you could comment on your conversations with customers in regards to pricing dynamics. Are you seeing any pressure these days? And how is your ability to negotiate with them in terms of timing of transitions?

Yeah, so, Laura, we've seen pressure on margins for a long time, and I think we always will, right? That's just the nature of it. But with the nature or with the structure of our contract, we're able to be pretty successful in maintaining the margins or even increasing margins over time just based on the structure of our contract. I think if you look for our OEM customers, they have seen stabilized pricing probably over the last, you know, six to eight quarters now. So that has helped quite a bit. But, you know, we're going to continue to try to drive costs and drive LCOE down. We'll continue to have pressure from our customers, and we'll continue to pressure our customers to work with us to drive the costs. So I think it's a healthy – there's healthy – I guess there's healthy stress in that kind of that relationship where we're pushing them, they're pushing us, and together we push costs down, and that benefits both of us. So I don't think that dynamic will change.

Okay. Okay, perfect. Last one. You had said before that for transportation business, you could see double-digit margins. Are you seeing those levels these days based on kind of conversations or looking at the numbers of some auto companies, that seems a bit high for the auto industry. So how should we think about the competitive dynamics there?

Yeah, I think, you know, we're not seeing double digits today, Laura. Obviously, we're investing in that business. We're investing from a development standpoint. Some of the development agreements we have, you know, are not meant to be, you know, significant margin projects. But we do, as we've looked at modeling, as we've looked at volumes, as we've looked at what our costs are and what the ask has been from the customers we've been working with, we think we can get there, quite frankly. So, again, it's not like we're an auto OEM or a supplier or a sub-supplier, a little bit different dynamic. But Based on what we've modeled to date on some of the projects we've looked at, we do believe that that's attainable. But again, it's still early days on that. And again, more as we get further down the path with production contracts.

Understood. Okay. Thank you.

Thanks. Thank you, Laura.

The next question will be from Graham Price with Raymond James. Please go ahead.

Hi, good afternoon. Yeah, this is Graham Price on for Pavel Molchanov. I guess just kind of a broad question on the transportation side. I was wondering if you could speak to the roadmap for reaching your $500 million long-term revenue target. And then also if any recent developments might lead you to believe that that could be conservative at this point.

Yeah, I think the roadmap is, you know, it's going to take time to get there. You know, we've focused, we've kind of, we've spent some time over the last four to six months to refine our strategy. And we're kind of looking, you know, we're looking at the cab space, which is class eight cab structures, as well as, you know, cabs for that last mile delivery and We look at battery enclosure, if you think about that's a key component of any EV, as well as, you know, subcomponents for an EV. So all the way from a full body structure to a subcomponent. And we've got, you know, development agreements in each of those segments that we're working on right now with customers. And so, again, it's a 500 million is over time, over several years. Any one development program could take a significant chunk out of that. So we're continuing to work those programs diligently, educating the market as to what the benefits of composites are and educating them to what the cost of composites can be in volume, that it's not cost prohibitive. And we're looking at a lot of and developing a lot of innovative technology around that. So, again, the roadmap, we haven't. put a public roadmap out there, obviously. Um, but we have an internal roadmap that gets us there, um, over time. Um, and so we're going to continue to focus on executing, keep our heads down and, and, and win some projects. So that's, that's, that's as much as I can give you on the roadmap. Got it. Thank you.

Uh, and then I guess quickly for my followup of the, uh, The 2021 guidance for 100 to 125 million for the non-blade sales next year. I was just wondering if I could get some color on what the breakout is for that portion.

Yeah, I mean, if you look at kind of the ratio we've had historically with the molds and some of those and then the other category with transportation. So it's probably about a third, a third, a third, actually, when you look at it.

Okay.

Again, we're not forecasting a huge jump in transportation this next year. It'll take time to get there, but we still see momentum behind it.

Gotcha.

Okay, thanks. Yep, thanks, Graham. Thanks.

The next question is from Joseph Osha with JMP Securities. Please go ahead.

Hello there, everybody.

Joe, how are you?

Very well. Very well. Thank you. Um, I look, uh, looking at that, uh, backlog chart that you showed on page nine and then going back and looking at the one from, from last quarter, uh, you know, track the revenue. It looks like you basically didn't add any, any bookings in the quarter. I'm a, am I kind of on track with that? And B, um, could we be in an environment now, given the comments you're making about demand dislocations and stuff where, the visibility of the business declines for a while?

I think so. We didn't add any new lines, Joe, but we did extend NordX in Turkey, so we would have had a net add there. But we didn't add anything new to the pipeline, so you're right. It's interesting, Joe, because when we were early on in this process, we were signing five-year deals. So we have really, you know, the visibility was a little bit different. As these deals get to their maturity and we're extending them, so you're extending them for one year or two years at a time. So by definition, you have a little bit less visibility from a longer-term perspective, but you might have better visibility in that two- or three-year window, if you will, as to what we're actually going to do. Yeah, so I would say we still have very good visibility a year or two out. But as you extend contracts versus sign new contracts, it's for a shorter duration. So that's why you kind of you would think you might have less visibility. But from an operational standpoint, we actually have as good or better visibility when we're doing kind of two-year extensions.

Okay. So I shouldn't overly focus on that $4.6 billion number and how that changes over time.

Yeah, I would not. I mean, that's clearly something that we've had out there for a long time. It's, you know, we are, you know, we have a lot of focus, obviously, on making sure we're extending contracts as well as signing new ones. And so we'd clearly like to see that grow. But that's not something that, you know, is driving exactly how we're working the business today.

Yeah, just add to that. I mean, if you look at the overall pipeline and what we're seeing, I mean, it's still

what plus over six gigawatts of kind of pipeline there and so that hasn't changed kind of longer term that that makes sense thank you and then just shifting gears a bit you know obviously some broad comments about demand but i mean there's some very different drivers here in the u.s you've got some of those ptc shifts in china you alluded to just the kind of the crazy numbers um Is this just kind of a bunch of things aligning at the same time, or is there some sort of broader global phenomenon here behind the reduced demand that I'm missing? Behind the reduced demand? Behind the cautious comments.

I'm not sure I understand, Joe. Can you say that again?

Well, just, you know, again, you've talked about an environment where, you know, you were going to take lower utilization in China and then you made some more cautious comments about the U.S. My point was just that, you know, those are very different things driving those two different markets. So I'm just trying to understand if there's some more unifying theme here, whether it's just that we happen to have some things going wrong, you know, in different markets for different reasons at the same time.

Yeah, I think it's more, it's not that demand is down, it's that there's more capacity, right? There's a couple of customers have probably some excess capacity today. And so it's trying to optimize that capacity going forward so that the utilization is much higher. And so it's not necessarily that demand is down, it's that demand for what we're building this next year is down a little bit because of the overcapacity in the industry in key areas, in key regions. Does that make sense? So it's not necessarily that gigawatts installed are going to go down. It's just from there's been enough capacity added that the demand on our capacity is going to be a little bit less next year. We're only going to sell 120 sets less next year than we did this year. So it's not like it's a major drop. It's just, right, so it's less utilization than we would like, and we want to reoptimize our footprint so that we keep that utilization in the high 80s, low 90s, as opposed to the low 80s. And protect the margins. Yeah, that makes sense.

And protect the margins. Exactly right. One final quick comment. I don't know if it's a question. I don't know if you can comment on this or not. you know, we were pretty excited about some of these, you know, city transit bus projects a year or two ago and hearing less about that. Can I assume that, you know, maybe we shouldn't be looking for some of those projects to really ramp at this point or just want to give me a little color about that?

On the transit bus stuff, I will tell you, you should probably talk directly to Proterra about that. Our volumes will actually be up for them in 2021 over 2020 by a fair amount. So, you know, we're seeing good volume from them, and we're working closely with them on continuing to drive cost so they can be even more competitive than they already are.

Okay. Thank you very much.

You bet. Thanks, Joe. Thanks, Joe.

The next question comes from Greg Lewis with VTIG. Please go ahead.

Yes, thank you and good afternoon, everybody. I kind of had a general question. Thank you for the guidance. Super helpful. Is there any way to kind of balance or think through this is what utilization is and this is what our margin is at this utilization, but If we can maybe squeeze, whether it's 100 basis points or 200 basis points of incremental utilization, is there any way to think about, would that be additive to margins? Any way to kind of think about balancing cost absorption maybe in a world where utilization maybe is a little bit better?

Yeah, I think, I mean, if you look at the last couple of quarters and what we've been able to produce, if you think about kind of the 8.8% margins we had this quarter with 92% utilization, and then prior quarter, I mean, we had 93% utilization and fairly robust margins there, too. So I guess that kind of gives you an indication with 10.4% margin on those, and that was with the impact of COVID on those. those quarters. So that kind of gives you an idea of that 80 to 85% and then margin. That's if you don't do any other cost-out initiatives and drive cycle times and other things that we're continuing to work through. But the cost, or if you just look at utilization alone, that's kind of the margins you can expect to see.

Okay, no, that was super helpful. And then just realize we're running a little long here. Just as I think about, and you've touched on it a as the transportation business goes forward. You know, the numbers that we've heard, you know, the CapEx for 2021, does any of that start to point to, you know, co-locations, or is that really all just still for things that we're looking at that are pipeline or kind of pilot projects at this point?

Yeah, at this point, that CapEx number, the 55 to 65, is primarily the transitions and startup that we've already – and then some of the retooling and that combined in some of the factories. I mean, we have some on the transportation side, but not a significant amount that would drive kind of what you're thinking of kind of co-locating and that type of activities at this point in time.

Okay, super helpful. Thanks very much.

Thanks. Thanks, Greg.

Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Bill Sywick for any closing remarks.

Thank you again for your time today and for your interest in TPI, and please watch for our second annual ESG report, which we'll be releasing next month in March. Thanks, and we'll talk soon. Thank you.

And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.