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spk09: Good afternoon and welcome to TPI Composites' first quarter 2021 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, Investor Relations for TPI Composites. Thank you. We may begin.
spk02: Thank you, Operator. I'd like to welcome everyone to TPI Composites' first quarter 2021 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.
spk16: Thanks, Christian, and good afternoon, everyone. Thank you for joining our call. In addition to Christian, I'm joined today by Brian Shoemaker, our CFO. I'll briefly review our first quarter 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 financial results in detail, and then we'll open the call for Q&A. Please turn to slide five. We had a strong first quarter in which we delivered net sales of $404.7 million, a 13.5% increase over Q1 of 2020, and adjusted EBITDA of $13.1 million, or 3.2% of net sales, an 11.8 million increase over Q1 of 2020. We started wind blade production in India for Nordex. We published our second ESG report where we laid out specific goals related to safety, gender and racial ethnicity for our board of directors and leadership teams, as well as a pledge to become carbon neutral by 2030 with 100% of our energy being procured from renewable sources. We remain focused on operating our businesses safely while continuing to mitigate the impacts of COVID-19 and ensuring that we are prepared to deal with continued resurgences 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' demand. Turning to slide seven, I'll now give you a quick update of our global operations as well as a market update. During the first quarter, we continued to operate all of our facilities at normal levels. In China, production continued as normal. We are still working on backfilling the five lines that were taken out of production at the end of last year. Stay tuned. In India, production for Vestas continued uninterrupted and we started production on two lines for Nordex. The country of India is currently experiencing a significant increase in COVID cases, but this is not currently having a material impact on our operations. We will continue to monitor the situation very closely, including the impact on our supply chain and work to protect our associates and their families as we have through the entire pandemic. In Turkey, production continued as normal while we continued the transition of three lines during the first quarter. Turkey also experienced an increase in COVID cases late in Q1 and into Q2, so we are monitoring the situation very closely and continuing our measures to protect our associates and their families. There's been no disruption to our operation as a result of the spike in cases. In Mexico, production also continued at normal levels. We are currently in the midst of a transition of two lines in Matamoros, and we plan to have four lines in transition in Juarez and Q2, with four more lines in transition in Mexico during 2021. In the U.S., blade and transportation production has continued uninterrupted. We have already conducted multiple mass vaccination events for our associates in Newton, Iowa, and are working with state and local authorities in Rhode Island to offer the same to our associates there. On the service side of the business, we are continuing to build out the team in order to support the growing customer opportunities we have and are securing, and now have approximately 250 technicians, an increase of over 30% since the beginning of 2020. Our training facility in Santa Teresa, New Mexico, is up and operating, and we plan to open another training facility in Europe this year to support our European service operations. From a transportation perspective, during the quarter, we continue to deliver parts for multiple passenger electric vehicle manufacturers. We are pleased with the progress and experience that we are gaining with the automated production line in Rhode Island to demonstrate cycle times, quality, repeatability, scalability, and cost for our customers, and to expand our product portfolio with these advanced technology solutions. We are now collaborating with six OEMs on cabin body structures, and with nine OEMs related to electric vehicle component parts. Examples of cab and body structures are buses, Class 8 cabs, and delivery vehicles that enable lightweighting, reduced upfront capital investments, and are highly durable structures. Examples of electric vehicle components include underbody protection, battery enclosures, and body panel parts to enable lighter weight, high durability, and thermal resistance. We are continuing to build our transportation team and plan to continue to add leadership with deep automotive experience to accelerate the execution of our strategy. With respect to our supply chain, no issues materially impacted our production in Q1, but we have seen cost increases, some availability issues, and logistics challenges over the last quarter. In addition to fabrics, which include fiberglass and carbon, and consumables, we experienced both price increases and supply constraints related to epoxy resin feedstocks due to the extreme cold weather in Texas in February, factory fires, plant closures, and unplanned extended maintenance outages in China and Europe. We continue to manage through the congestion in the Los Angeles area ports and a global container shortage causing increases in logistics costs. Brian will speak to the financial impact in a moment, but as they have demonstrated during the pandemic and prior material challenges, our supply chain team has done a phenomenal job of finding alternative sources, securing enough materials, and finding new logistics routes to enable minimal disruptions to our operations and deliveries to our customers. We see early signs of supply constraints easing and expect market pricing to improve beginning in Q3. And finally, we are actively engaged in evaluating multiple opportunities to build out and add to our current technologies and capabilities and are excited about the opportunities we see to accelerate the growth and expand the breadth and strength of our business. As it relates to the wind market, since our last call, the Biden administration has made several significant announcements that could positively impact our business over the long term. First, the proposed infrastructure bill has many components that have the potential to help accelerate the growth of wind installations in the U.S. To highlight a few, first, the energy efficiency and clean electricity standard would aim to achieve 100% carbon-free electricity by 2035. Second, transmission-targeted investment tax credit that incentivizes the build-up of at least 20 gigawatts of high-voltage capacity lines. And third, a 10-year extension of the production tax credit and potential for direct pay option. Separately, Senator Wyden reintroduced a bill with a technology-neutral framework that would allow power producers to qualify for either a production tax credit or an investment tax credit for facilities with zero or negative carbon emissions. Relating to offshore wind, the Biden administration announced a government-wide goal to install 30 gigawatts of offshore by 2030. Finally, as part of the climate summit, the administration announced a new goal for the U.S. to cut its greenhouse gas emissions in half by 2030 as part of the Paris Climate Agreement. Other countries, including Canada, Japan, Brazil, the UK, and South Korea, increased their commitments as well, while the EU Parliament and member states passed legislation requiring a 55% reduction in carbon emissions by 2030, compared with 19 levels, and that's up from 40%. Since our last call, Woodmac has increased its onshore U.S. forecast for 2021 through 2025, by approximately 19%, and that includes a 50% increase for 2022 alone. This forecast suggests that the competitiveness and strength of the wind markets continues to improve, as we've been discussing for some time. While these policy announcements may not cause the short-term installations to increase, and in some cases we may see installations pushed out due to additional potential time for developers and other stakeholders to recognize the benefits of incentives such as the PTC, These are clearly very strong positive signals as we look out over the longer term period. 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, including 18 gigawatts of capacity, 20% market share, and $2 billion of wind revenue do not yet reflect the potential impact of the accelerating energy transition. We believe the long-term opportunity for us in wind is significant. and we will update our targets as we develop better clarity through discussions with our customers, developers, utilities, and asset owners. Finally, we remain focused on the health and safety of our associates while executing on our operating imperatives and ESG activities to drive profitable growth and long-term shareholder value. With that, let me turn the call over to Brian.
spk13: 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 2020. For the first quarter ended March 31st, 2021, net sales increased by 48 million or 13.5% to 404.7 million. Net sales of wind blades increased by 12.7% to $379.2 million. This was primarily driven by an 11% increase in the number of wind blades produced year over year and an increase in the average selling price due to the mix of wind blades produced. Startup and transition costs for the quarter increased by $2.3 million to $14.4 million as we continue to ramp our India facility and transition lines to bigger blades in Mexico and Turkey. Our general and administrative expenses for the quarter decreased by $0.6 million to $8.9 million, and G&A as a percentage of net sales decreased 50 basis points to 2.2% of net sales. This decrease was primarily related to a decrease in travel and training costs due to COVID-19 and our continued focus on reducing costs. Before share-based compensation, G&A as a percentage of net sales was 1.7% and 1.9% in Q1 of 2021 and 2020, respectively. Foreign currency loss was 3.7 million in Q1 2021 as compared to foreign currency income of 1 million in Q1 2020. This increase was primarily due to Euro liability exposure against the Turkish lira. As a reminder, on a cash flow basis, this exposure is naturally hedged due to our Euro denominated revenue contracts. Approximately 22% of our revenue in Q1 2021 was denominated in Euros. Our income tax benefit for the quarter was 7.1 million as compared to 15 million for the prior year period. This decrease was primarily due to our forecasted jurisdictional mix of income. We are forecasting our cash tax liability to be approximately 20 to 23 million for 2021. Net loss for the quarter was 1.8 million as compared to a net loss of 0.5 million in the same period in 2020. This increase was primarily due to the reasons previously described. Net loss per share was 5 cents for the quarter compared to a net loss of 1 cent per share for the same period in 2020. Our adjusted EBITDA for Q1 was 13.1 million or 3.2% of net sales with a utilization rate of 77% for lines installed at quarter end. This compares to adjusted EBITDA of 1.3 million or 0.4% of net sales and utilization of 70% in the same period in 2020. We estimate that adjusted EBITDA was negatively impacted by 2.4 million associated with COVID-19 related costs during Q1 2021. Moving to slide 12, we ended the quarter with $136.2 million of cash and cash equivalents, net debt of $99 million, and have driven down our net debt leverage ratio to less than 1.75 as calculated under our credit agreement. As you may recall, we amended our credit facility last year to provide us with additional liquidity and increased flexibility with regards to our financial covenants to help manage through the COVID-19 pandemic. During the quarter, we terminated the adjustment period a quarter early due to our ability to drive our net leverage ratio down. Following the termination of the adjustment period, the adjustments to our total net leverage ratio covenants were removed, interest rates were decreased, and the minimum liquidity covenants and mandatory repayment triggers were discontinued. During the quarter, we incurred $18.8 million of CapEx as we continue to build out our India plant and transition lines in Mexico and Turkey. Turning to slide 13. For 2021, we are reaffirming full-year guidance that we provided in February. This is despite increased commodity prices, specifically resin, and inbound freight costs that Bill mentioned earlier. The supply constraints and resulting resin price increases are due to a multitude of factors, including the extreme cold weather in Texas in February 2021, fires at resin manufacturing facilities in China, and unplanned extended maintenance outages at resin manufacturing facilities in Europe. Capacity is beginning to come back online, and we expect resin prices will begin to decline in Q3 2021. When we see rapid increases in raw material costs like we did in late Q1 and into Q2, it can have a short-term impact on our margins due to the timing of when we contractually reset prices with our customers. To put this into perspective, prior to any price adjustments with our customers, we saw resin prices increase over 30% from late 2020 to the end of Q1 2021. On average, resin makes up approximately 26% of Blade's bill of material. However, based on our contractual arrangements, we believe that our adjusted EBITDA for 2021 will only be impacted by approximately $5 million with the majority of such raw material cost increases being incurred in Q2. As we look at our adjusted EBITDA forecast for the remainder of 2021, we expect our Q2 adjusted EBITDA will be slightly higher than Q1 and the majority of our adjusted EBITDA will be generated in Q3 and Q4. These numbers could be significantly impacted by COVID-19. With that, I will turn it back over to Bill to wrap up, and then we will take your questions. Bill? Thanks, Brian.
spk16: Turning to slide 15. 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 are pleased with the progress we have made in growing the team and opportunities in the global service space. We continue to build on our momentum in the transportation space with a number of exciting new collaborative development agreements. We 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. We are excited about the multiple opportunities we are evaluating to build out and add to our current technologies and capabilities to support the growth, breadth, and strength of our business. Our overall mission to decarbonize and electrify remains unchanged. We will continue to optimize our global footprint while using leverage of our global scale for operating and supply chain efficiencies to continue to drive down costs, all while maintaining a strong balance sheet. Given the broader wind and electric vehicle industry tailwinds, our position in the market, and our relationships with our customers, we remain excited for the future here at TPI. Finally, I want to thank our dedicated TPI associates for their commitment and dedication and for their continued resilience, enabling us to deliver on our commitments to our customers in these challenging times. Thank you again for your time today, and with that, operator, please open the line for questions.
spk10: Thank you. If you would like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. One moment, please, for the first question. And our first question comes from the line of Eric Stein with Craig Howard. Please proceed with your question.
spk05: Yeah, good afternoon. It's Aaron Bahala for Eric. Thanks for taking the questions. You bet. Good to talk to you. You as well. Maybe first on outsourcing, you know, given some of the things we've seen on the supply chain and just other, you know, industry dynamics, do you think that that's going to strengthen the trend toward outsourcing here as we look over the next year or so?
spk16: Yeah, I don't think we've seen anything that would suggest otherwise. So, you know, we still have a pretty robust pipeline with a lot of activity. So, yeah, we haven't seen anything that would suggest the trend would slow or reverse in any way.
spk05: All right, thanks. And maybe second, on the EV side, thanks for the color on, you know, kind of the number of programs. Can you just maybe give a little more detail on how Those conversations, you know, have trended maybe in recent months. And, you know, how many more programs you might look to add as we kind of progress towards that $500 million goal?
spk16: Yeah, it's hard to tell how many we'll add, you know, going forward clearly. But the conversations have obviously progressed very nicely. We've seen, you know, a lot of activity, a lot of interest, which is why we've added a number of development agreements over the last quarter. So I think, you know, I think it's been extremely active. I think people are starting to understand the true value proposition of a composite structure, whether that be a body or a component with the strength and the lightweight nature of it. We're getting down to a place where, you know, we're working towards a cost parity model. I think once we get there, then you'll see some more traction.
spk05: All right. Sounds good. Thanks for taking the questions. You bet. Thank you.
spk10: Our next question comes from the line of Laura Sanchez with Morgan Stanley. Please proceed with your question.
spk11: Thanks. Hi, Bill and Brian. Thank you for taking my question. You bet. Adjusted EBITDA for the quarter, it came in a little bit above the guided level, and you talked about the impacts from increased raw material costs, And we also hear the OEMs talk about transportation challenges. So are there any factors offsetting these challenges that allow you to keep 2021 guidance unchanged?
spk16: Yeah, I'll jump on that one first, then I'll let Brian speak. But I think, you know, we've got some pretty aggressive cost-out goals in a number of areas that we're executing on. I think when we talk about raw material cost increases, and I think most of you remember, we have shared pain gain in our contract, so there is a bit of a sharing. But I think more importantly is our supply chain team just does an amazing job of locking in pricing on virtually all of our commodities, with the exception of resin, and that kind of adjusts quarterly. But almost everything else we're locking in a year in advance. So you may see market prices increasing on some of these commodities, but that may not actually impact what our pricing is. So although we will see a bit of an impact from resin, as Brian suggested, most of the other commodities we've locked in pricing. So any increase there is impacting us much less than it might otherwise be.
spk11: Perfect. And a follow-up on that, about the 70-30 sharing mechanism, how often does that get reset, or how does the accounting work?
spk16: Well, I'll let Brian handle the accounting, but from a contract standpoint, it varies a bit by customer. So some of our customers, it's two times a year. Some of our customers, it's quarterly. And then... Another customer we have where it's just an annual adjustment. So it does vary across the board. So really you're, you know, on one customer it's one year and everything else is generally quarterly or semi-annual, but most of them are quarterly.
spk13: Yeah, and then from an accounting standpoint, do you think under the 606 that we talked about quite a bit, If you look at that, I mean, it gets smoothed out the margins over the life of the contract. So just keeping that in mind. But again, this piece of it, the $5 million we believe will hit in Q2, which will be the primary portion of it for the year.
spk11: Perfect. Yeah, that's a good reminder. And last one, and this is more longer term. Is there any potential? Do you see any potential in kind of being part of the big organization of the shipping industry? If I remember correctly, before you started manufacturing blades, you manufactured sail and power boats. So I'm wondering if the ocean shipping industry would represent another market for you longer term.
spk16: Interestingly enough, we've been approached on some unique propulsion systems for ocean-going boats. ships as it relates to wind, but as far as the ships themselves, no, that's not something that we're focused on at this point.
spk11: Understood. Thank you for your time.
spk16: You bet. Thank you, Laura.
spk10: And our next question comes from the line of Greg Lewis with BCIG. Please proceed with your question.
spk06: Yeah, hi. Thank you, and good afternoon, everybody. I was hoping to get a little bit more color around the other revenue. You know, you maintain the guidance of that, so it looks like that's going to step up. You know, just looking roughly, you know, it looks like other revenues took more of a leg down, transport was slattish. Any kind of color around that, you know, knowing that you'd have the component parts, that probably – on the transport side, that probably picks up before the chassis body. Any kind of way to think about that through the next few quarters?
spk13: Yeah, I mean, the guidance I gave earlier was about a third, a third, a third of kind of the overall total guidance that I gave. Now, with that number is in there is the field services. So you'll continue to see, I mean, that increases. We have a bigger focus on that. So that's why we're continue to focus and continue to drive that and growing it. So you will see that going up over the period of the year.
spk06: Okay. And so then as I think about transport, realizing that it's still kind of in the incubation phase, when we think, you know, you mentioned the six OEMs for the bodies and then the parts, any kind of way we should be thinking about the growth of either, I mean, are they going to kind of be in parallel or do we think it could be something where one leads the other? And then as we think about that, should there be any differentiation around margin or should that kind of be the same?
spk16: So you're asking whether cab or component will grow faster and then whether there's a differentiation in margin? Is that the question? Yes. Yeah. Exactly. You know, Greg, it really just depends on, you know, which grows faster. I mean, clearly we've got opportunities in both. Some of the cab stuff takes a little bit longer to develop, as you might imagine, compared to the component. But it might be longer run. So I think it's a little hard to say. We're obviously focused on both. So... That's the answer as far as what the split may be or the speed of growth for each. And on the margin side, I think, you know, as I mentioned, you know, we're working the cost side pretty hard to bring it down to not only be a benefit because of the lightweight but also be more to cost parity. But we believe, you know, right now margins should be relatively consistent across both. And part of it will just depend on volumes and what the CapEx requirements are. um from our customers but um at this point it's a little early to tell um which will be a better margin but you know we're working to be consistent kind of with where our wind margins have been in the past okay great thank you very much yep thank you greg next question comes from the line of graham price with raymond james please proceed with your questions
spk04: Hi, good afternoon, and thanks for taking my questions. You spoke a bit last quarter about potentially consolidating your blade facilities in China. Just wanted to check in and see if there were any updates on that front. And I guess if the India COVID situation kind of plays into that in any way.
spk16: Yeah, so we're still looking to optimize our China footprint. We've got three facilities there now. And so we are continuing to look at what the optimal situation for us is in China based on not only demand from our existing customers and other Western OEMs, but also, as I think I mentioned in the last call, discussions we're having with some of the Chinese OEMs. So We're still working on the optimization of the footprint. So that's where I would leave that. And as it relates to COVID, I mean, COVID really no impact on what we're doing in China or as it relates to the footprint there. I mean, we've had a, you know, COVID hit us in China very first, but it's had the least amount of impact on operations there throughout the whole period. And so really no impact from COVID for us there.
spk04: Got it. Thanks. And then for my follow-up, just thinking specifically about sourcing balsa wood, any inflation concerns there, I guess, in addition to the epoxy resin?
spk16: No, actually quite the opposite. We've seen a pretty significant drop in market price for balsa since last year. If you recall last year, we had some challenges at the end of 19 and into 20. exacerbated by COVID. But, you know, we are in very good shape from a balsa standpoint and a balsa market at this point today.
spk04: Great. Great. That's good to hear. That's it. That's it for me. Thanks. Great. Thank you. Appreciate the questions.
spk10: And our next question comes from the line of Stephen Tangaro with People. Please proceed with your question.
spk14: Thanks. Good afternoon, gentlemen.
spk08: Good afternoon.
spk14: So two things for me. The first, can you help us a little bit with sort of the stair steps, sort of the big drivers of the EBITDA ramp in the second half versus first half? What are the major components which move us sharply higher in the back half of the year?
spk13: Yeah, there's a few things going on, right? You have one is the cost that we talked about that will be impacting, which is minimal, but it's about the five cents that we referenced from the raw material increase. The other portion, I mean, you have India ramping up, so they'll continue to ramp up. We have seven lines in transition right now. across Mexico, Turkey, and those will be ramping up that back half of the year also. And we see some, I'll say, revenue shift from Q2 out to the Q3, Q4 timeframe. So that's another big push that we're seeing.
spk16: so we we feel i mean right now i mean it's starting to fill in that back half of the year and kind of where we're coming out to see that utilization going up to achieve those numbers yeah i think that that's the key is the utilization if you look at the utilization numbers going out in q3 and q4 you'll see numbers that are uh much uh much higher than we than we experienced here in the first quarter for sure okay great thank you and this is a follow-up when we think about the the opportunity
spk14: offshore, and I'm thinking probably more U.S. than international with this question. What's sort of the lead time on when you start to set up relationships, contracts, book work with the OEMs for the offshore side? Just give me a sense for the timing.
spk16: Yeah, it's right now. So, I mean, if you think about the time it takes to set up a new facility, you know, secure the land, et cetera, et cetera. So we're in discussions today and have been for quite some time with OEMs on opportunities for, you know, offshore, specifically on the east coast of the U.S. So that's happening now. We would expect You know, maybe announcements would probably be it's shifted a little bit to the right, but we're thinking early 2022 right now with production likely in 24 timeframe. So there's quite a long lead time. There's a lot that has to happen between now and the time we, by the time turbines get erected in the water.
spk14: Great. No, thank you for the call again.
spk16: You bet. Thank you.
spk10: Our next question comes from the line of James West with Evercore ISR. Please proceed with your question.
spk12: Hey, good afternoon, guys. Good afternoon. So, Bill, you laid out, you know, the recent policy changes within Washington and other places around the world that are kind of accelerating the energy transition. And you guys have a number of lines that are also in transition, and you just talked a minute ago about preparing for offshore. But has this acceleration, this policy-driven acceleration, has it caused you to start to think about even incremental lines from what you already have planned?
spk16: Yeah, no, good question. And it Absolutely. I mean, I mentioned we're in discussions and having talks with customers and our customers' customers, et cetera. But absolutely, that's part of what we've been doing through the first quarter and into the second quarter is having long-term planning discussions with customers, understanding markets, where the growth is, where the needs are, where capacity is today and where it needs to be tomorrow or over the next five to ten years. So that's an active and ongoing exercise right now. But if you look at, you know, if the numbers that some people are putting out there come to fruition, I mean, there's going to be more capacity needed in different parts of the world or in our existing locations as well to certainly meet the demands of the market. I mean, there's talk of three times the number of or the amount of installations just in the U.S. market, right? And it would need even more than that in Europe to hit their target. So, yeah, the answer is we will be looking at that footprint over the next, you know, six to 12 months and then deciding kind of where the next growth location may or may not be.
spk12: Okay. Okay. Good to hear. And just maybe a follow-up on the resins. Cost issue, I know you expect that to come down in the third quarter. Is the supply already contracted? Do you have good visibility on that?
spk16: So we have supply secured. Pricing is what can move. So the pricing moves quarterly based on some indices that we've agreed on with a couple of our strategic suppliers. So the price can move, but as you recall, as we reset with our customers, there's a sharing of that price increase or, you know, as prices come down, the price decrease, right?
spk12: Okay. Makes sense.
spk16: Yep. You bet. Thank you.
spk10: As a reminder, to register for a question, please press the 1 followed by the 4 on your telephone. Our next question comes from a line of Jeff Osborne with Cohen. Please proceed with your question.
spk03: Hey, Bill. I just had two quick questions on the EV side. So the six and nine customers that you referenced, are those people you're making prototypes or are those contracted volumes? What's the nature of that? So is Proterra in the six and nine or no?
spk16: Yeah, Protero would be in there, and that's obviously contracted, right? And then there are, from a CAD standpoint, it's more development, if you will. Clearly, we've discussed the Navistar arrangement we have, so that's in there as well. But most of them are development that we anticipate will lead to production down the road. And on the component side, there are Two of them were production parts for existing vehicles. And then we've got a bunch of stuff that's in, again, development phase with a number of OEMs.
spk03: Got it.
spk16: And, again, I'm sorry, the plan is that that development obviously would lead to production deals.
spk03: Got it. And I know years ago you had a DOE-funded program with GM, if my memory's right. If something like that for door panels were to take off for, you know, say the F-150 making roughly a million vehicles a year, what's the CapEx implications, you know, for this sort of broader vision? Because it seems like you're getting quite a bit of success in moving the ball forward here, but I wasn't sure, is Rhode Island equipped to do this or Newton, Iowa? Where would this be done?
spk16: Yeah, so we've got the pilot production line in Rhode Island right now that we are running production parts off of. But no, we couldn't do that type of volume out of Rhode Island. Our thought here is that if we were running components like that, we would likely be co-located either in or near our customers' plants. So I can't tell you what the capex would be today for a million F-150 doors. I'd like to have the opportunity to figure that out, and we certainly would. But, you know, it's too early to tell what that would be. But clearly our plan would be to co-locate or locate near where our customers are for those types of volumes for sure.
spk03: Makes sense. And the last question, it's probably been a year since you talked about it, but I think you were working on with your customers segmented blades. in terms of larger form factors. Is that something that you're still working on, or can you give us an update on blades that would be assembled on site at the location of deployment?
spk16: Yeah, we are producing segmented blades today.
spk03: Are you?
spk16: Okay, good to hear. Yep, you bet.
spk10: Our next question comes from the line of Greg Baskowski with Weber Research. Please proceed with your question.
spk00: Hey, good afternoon, guys. Thanks for taking my question. You bet. Good afternoon. I'll start with transportation, just a quick one. I'm curious if there's any overlap between those cab OEMs and the EV parts OEMs, or if they're all individual.
spk16: There are some. There is some overlap. So we're looking at cabs as well as certain components for a couple of them for sure. Got it. Okay.
spk00: And then how should we think about the timeline for growth in this segment? I know we've talked about, you know, longer term plans and targets over the next few years, but as you start to add more relationships and build your backlog, how should we think about that kind of conversion period? You know, when we see, you add additional OEMs in the mix for collaboration agreements or partnerships. Generally speaking, should we automatically be thinking 12 or more months before seeing any translation to the P&L, or could it be sooner than that?
spk16: I would just say patience. And the reason I say that is these development programs do take a little bit longer to get to production than I think maybe was originally anticipated. So your point that 12 months, I'd probably say in some it could be 12. It's probably more like 24 months from, you know, as you get through a development process, 24 to 36 before you get to production, especially if you're going through, you know, testing phases and what have you with the cap structure specifically. So it is a long cycle for these development projects. And so, again, it's probably that 24 to 36 months before you start seeing meaningful revenue from a production deal out of a development project we're working on today.
spk00: Got it. Okay. And then one more, if I could. Just on labor, I'm curious if you've seen any labor constraints, either at TPI or somewhere within your supply chain or your customer base? thinking particularly in the U.S. just as a result of stimulus checks and kind of favorable unemployment benefits. Just wondering if you've seen anything there at all.
spk16: You know, in the U.S., it's early on, you know, in the early part of the pandemic, we had a few challenges in Iowa, but we've actually been in pretty good shape now. We're always looking for skilled workers, but The short answer is no. We're not seeing significant or impactful labor challenges, whether it be because of the unemployment checks or just because of the overall market. We're in pretty good shape at this point.
spk00: Got it. Okay. Thanks a lot, guys. Great. Thank you.
spk10: Our next question comes from a line of William Gripen with UBS. Please proceed with your question.
spk01: Great. Good afternoon. Thank you. So I just wanted to dive into the second half EBITDA ramp implied in the guidance a little bit more. I appreciate that you gave a little bit of color earlier. But just, you know, I think last quarter you were talking about second quarter, third quarter being strong and then a little bit of a step down in 4Q. This new guidance seems to imply like a pretty significant shift out of 2Q and then into the second half of EBITDA. So You know, you quantified the $5 million from higher costs, but as far as like the seven lines transitioning, India ramping, that stuff I would think you would have known when you gave guidance last quarter. So just help us understand if you can quantify or just help us, you know, any additional color you can give to help us understand what's going on here, that would help.
spk13: Yeah, for the most part, again, Q2, that pushed off into Q3 and to Q4. Some of the demand is also filling up in Q3 and Q4 that we spoke about maybe being a little softer before. So that's also helping us out the back half of the year. So those are the key things that are kind of driving that from a utilization standpoint filling the factories to give us that confidence. But for Q2 and why that's down, again, part of it's the raw material input cost we talked about. Part of it is this demand.
spk16: Well, it's a demand push to the right, right? So, does that make sense, Will? So, when we, on the fourth quarter call, we talked about back half of 2021 being a little, still filling up, being a little bit soft. Well, that's firming up, and so that's why, you know, Q4 looks better, and then some of the volume from Q2 that we anticipated is getting pushed into Q3, customer request.
spk01: Right. I get that. Do you think utilization in the second quarter will be lower sequentially?
spk13: Not necessarily lower sequentially. It'll be higher because you have more of India coming online. So that's why, I mean, overall adjusted EBITDA goes up a little bit. We just try to give you that kind of thermometer to tell you how it's progressing throughout the year.
spk01: Okay. Thank you so much. Thanks, Will.
spk10: Our next question comes from the line of Phil Schein with Roth. Please proceed with your question.
spk15: Hey, guys. Thanks for taking my questions.
spk16: Hey, Bill.
spk15: Hey. So, Brian, I think when you were talking about the guidance and the sequence of EBITDA, you said the majority would be in Q3 and Q4. I know we've talked a bunch about that. But you also did say these numbers could be significantly impacted by COVID. So I wanted to explore that a little bit more, and specifically with India's COVID situation, can you talk more head-on about how are you guys preparing for that, or what do you think could happen in a case of a possible shutdown of parts of the country? Is there a shutdown for Tamil Nadu, for example, being contemplated, which I believe is where Chennai is the capital? So just maybe talk through India and what the risks might be to that back half guidance as well. Thanks.
spk16: Yeah, Phil, this is Bill. It's a typical caveat risk factor, right, when you've got a global pandemic. So if something happens, you never know. But specific to India, right now we're okay. Although there are curfews and there are shutdowns both in Tamil Nadu and throughout India, industry has continued to be open. There's no restrictions between districts like there was early in the pandemic, so we're fine there. And actually the oxygen situation where we're at is actually easing up a bit. But nonetheless, it's still very serious and we're watching it very closely. We're monitoring our supply chain there as well. So the risk is that we have either an outbreak, which we're doing everything we can to prevent that, And we have to slow down production. But at this point, we have not had an impact on production, nor do we anticipate it, unless something changes significantly here over the next few weeks.
spk13: Yeah, the only thing I'll add is in our prior call, we talked about kind of the $5 million a quarter COVID impact being through Q2. With our run rate, we kind of gave about the $2.4 million in Q1. We believe $10 million will go through the full year, and that's because of what we're seeing in India and Turkey. So that's why we're still confident in those numbers we gave about the $10 million. It just will go through the whole year now instead of just the first half.
spk15: Okay. I appreciate that, Brian. Thank you, Bill. You know, I think we talked through resin earlier. Can you talk about the logistics outlook? Do you also see an improvement in Q3 there, or is that just resin now? And if not, what is the visibility on the improvement for logistics pricing?
spk16: Yeah, you know, I think the further down the road you get past the pandemic, not that we're past it, we're still in the middle of it, but that's a tougher one, Phil. I think, you know, I rely on our supply chain team, and they've done a phenomenal job of finding alternative routes and modes and methods. to get materials where they need to go. Um, I, I don't have a crystal ball on this one. I see it remaining tight through the balance of the year. Um, but we'll continue to manage just the way we have, you know, over the last 12 to 18 months.
spk15: Okay, great. And I know that impacts, uh, the entire economy, so it's not isolated to you guys. Um, yeah, Bill, in terms of the, um, Passenger EV that was slated for possible serial production. You guys were looking for it, and we were looking for it sometime in Q4 last year and then Q1 this year. Can you talk about what the status is of that converting to actual live production? And what is the roadblock? Perhaps you can just talk through some color on that one. Thanks.
spk16: Yeah, so we have two different programs. The one that was the earlier program probably will not go to serial production on this particular part. We're still working with the OEM, and we've got options on other parts, but that particular part that we had spoke about will likely not go to serial production with TPI. The other program we're working on, it's a, you know, tens of thousands of parts that we will be delivering between now and kind of the end of Q3, early Q4. And we'll see from there whether that goes to full serial production or whether it's just a pilot as well. So the first one, again, still dealing with the OEM on other options, but for that particular part, we didn't go serial. And now we're working on another one that we'll see. But it's a high-volume It's a high-profile customer, and so we're excited about the opportunity, and we're executing on that right now.
spk15: Can you explain what the root cause was for the first program?
spk16: The OEM went a different direction. I think the part turned out to not need to be as structurally significant as they originally anticipated it to be. And so as a result... Our cost was fine if the part would have remained as is, and then they needed that structural integrity. But it turns out they didn't need something as structurally significant as what they originally believed, so they went with a different technology that was cheaper.
spk15: Got it. Got it. Okay. Well, thanks for all the detail. I'll pass it on, Bill.
spk16: You bet. Thanks, Bill.
spk10: If there are no further questions at this time, I will now turn the call back over to our speaker.
spk16: Thank you, and again, appreciate your interest in TPI composites, and we look forward to our next discussion. Thanks again. Be safe.
spk10: That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.
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