TPI Composites, Inc.

Good afternoon and welcome to TPI Composite second 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 Composite. Thank you. You may begin.

Thank you, operator. I'd like to welcome everyone to TPI Composite second 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 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 Cywick, TPI Composites President and CEO.

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 second quarter results in global operations and then give an update on our global service and transportation businesses, supply chain, and the wind energy market. Brian will then review our financial results in detail, and then we will open up the call for Q&A. Please turn to slide five. We had a solid second quarter in which we delivered net sales of $458.8 million, a 22.7% increase over Q2 of 2020, and and adjusted EBITDA of $17.4 million for 3.8% of net sales, a $14.1 million increase over Q2 of 2020. We hired Jerry Levine as President of Transportation. Jerry brings nearly 30 years of experience working with Tier 1 suppliers and major manufacturers in the automotive industry. Jerry served as Vice President, Product Development of Magna International, and Executive Vice President, Chief Program Officer of Dura Automotive Systems, and also served in senior engineering and technical roles at Ford Motor Company for over 15 years. We announced an expansion of our relationship with Nordex. In July 2021, we took over the production of wind blades for Nordex in Matamoros, Mexico. The wind blades are being produced on four production lines for an initial term of three years. We executed a two-year contract extension through 2024 with Proterra to continue the production of composite bus bodies for their electric bus line. The addition of the Nordex lines and the extension of the Proterra contract added approximately $460 million of potential future revenue under contract. We remain focused on operating our business 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, and I'll give you a quick update of our global operations as well as market update. During the second quarter, we continued to operate all of our facilities at normal levels, and we did not experience any significant production issues from COVID, including any material production stoppages. We continue to evaluate our global footprint to ensure it is optimized for our customers and the market. We are planning to consolidate our Chinese operations to reduce costs, streamline activities, and right-size our operations to profitably serve our customers. Our Yangzhou facility is world-class, and we have the ability to add more lines and handle both onshore and offshore blades. This prime location is the ideal place to consolidate our operations and efficiently serve our customers. As we discussed in our press release from July 22nd, our supply agreements with SGRE expire at the end of 2021, so we are currently planning to end manufacturing wind blades for SGRE on four production lines in Juarez, Mexico. Due to the current financial performance of these lines, we expect the expiration will be accretive to our margins in 2022. We are actively seeking to backfill these production lines with one or more customers over time, as we believe these operations will continue to be one of the best low-cost options for blade supply into the U.S. and Mexico in the future. As for Iowa, we are still in discussions with our customer regarding future production and are therefore evaluating our options for this site. We are also exploring new geographies with our customers for onshore, offshore, and combined. As we have discussed and I'll touch on again in a minute, the global wind market is expected to be significantly larger over time, and we are preparing now so that we can move quickly and be ready for this expected inflection point. On the service side of the business, during the second quarter, we completed our first offshore project in China. We continue to add new associates to facilitate our growth globally, and our business development team has been very successful in securing new work from OEMs as well as asset owners. To accelerate our growth in Europe, we are planning to open a European training center in Spain during the fourth quarter. This will complement our Americas training center located in New Mexico. On the transportation front, we are delivering production parts for a passenger electric vehicle manufacturer while continuing the collaboration with multiple OEMs on cab and body structures, along with other EV components. The addition of Jerry Levine adds the automotive depth and leadership that we believe we need to take our transportation business to the next level. His deep technical operations and commercial experience, along with the contacts and relationships he has developed over his 30-year automotive career, will enable us to refine and refocus our offerings to accelerate our growth in this business. As we shared in our press release a couple of weeks ago, our supply chain, like virtually every other supply chain, has been challenged during COVID. We have seen increased raw material costs, mainly relating to resin and carbon fiber, as well as increased logistics costs. While we are able to pass on a majority, and in some cases 100% of the cost increases to our customers, the portion we are not able to pass on has had a material impact on our margins, and we expect that impact to continue through the balance of 2021. Expectations are that we will begin to see market pricing improving by the end of Q4 of this year as the start of a slow and gradual downward trend as the market returns to balance. An early indicator of that is that the price of liquid epoxy resin stabilized from June to July, and this was after nine consecutive months of increases that drove epoxy resin to record highs. As always, our supply chain team is hard at work with existing suppliers and alternative suppliers, along with identifying alternative logistics solutions to minimize the impact of increased costs as soon as possible. Turning to the wind market. Since our last call, the Internal Revenue Service published guidance that extends the placed-in-service safe harbor to six years for facilities that began construction in 2016 through 2019 and extends the placed-in-service safe harbor to five years for facilities that began construction in 2020 and provides taxpayers more lenient standards to meet the requirements to obtain the production tax credit. President Biden and a bipartisan group announced an agreement on the details of a once-in-a-generation investment in U.S. infrastructure. In total, the deal includes $550 billion in new federal investment in America's infrastructure that will help the U.S. tackle climate change by making the largest investment in clean energy transmission and electric vehicle infrastructure in history, electrifying thousands of school and transit buses across the country, and creating a new grid deployment authority to build a clean 21st century electrical grid. Although the current deal does not include an extension of the production tax credit or any new tax credits for battery storage, conservation or transmission, or any federal investment in clean energy manufacturing or supply chain or a clean energy mandate, many believe those elements will be addressed through reconciliation or a larger spending package later this year. The International Energy Agency has released a roadmap for the global energy sector to reach net zero emissions by 2050. According to IEA, wind energy is expected to be the single largest generator of electricity by 2050, making up 35% of total generation and with over 8,000 gigawatts installed compared to approximately 740 gigawatts in 2020. This more than 10 times increase in installations is a huge opportunity for the wind industry and TPI. On the path to zero, the IEA expects that by 2030, 390 gigawatts of wind will be installed annually, or about four times more than the record set in 2020. The next decade is both critical and a great opportunity for TPI and the wind industry. As we shared with you a couple of weeks ago, we expect decreased demand for our wind blades from our customers during the remainder of 2021, in particular the fourth quarter. We believe this is short-term and due to the continued global renewable energy regulatory and policy uncertainty, as well as raw material cost increases. We believe that general optimism around the potential to extend the USPTC on a long-term basis is causing developers to reevaluate project timelines and and anticipation of being able to build projects at higher PTC levels and lower costs once the expected extensions are in place, and therefore developers are not purchasing blades or turbines to satisfy current PTC safe harbor requirements. Longer term, we believe the future for wind will strengthen significantly given the necessity to decarbonize and electrify to combat climate change. Therefore, we believe the opportunity for us and wind is significant, and we will update our long-term strategy and targets as we develop better clarity once the uncertainties around policy and legislation are resolved. Before I turn it over to Brian, we remain very focused on the health and safety of our associates while executing on our operating imperatives and primary ESG goals, which include safety, increasing the diversity of our associates and board, becoming a more inclusive company, and driving to become carbon neutral by 2030. We are pleased to see the improvements from our ESG efforts, including year-over-year improvements in our ESG scores across the major sustainability raters. Finally, we have been working with local authorities at all of our facilities to help our associates become vaccinated, including setting up vaccination drives directly at the facilities and local clinics. With that, let me turn the call over to Brian.