TPI Composites, Inc.

2021 Earnings Conference Call. Today's call is being recorded. We have allocated one hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Christian Eden, 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 2021 earnings call. We will be making forward-looking statements during this call that are subject to risks and uncertainties, which could cause actual results to differ materially. A detailed discussion of applicable risks is included in our latest report and filings with the Securities and Exchange Commission, which can be found on our website, tpicomposites.com. Today's presentation will include references to non-GAAP financial measures, You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measures. With that, let me turn the call over to Bill Siwek, TPI Composites President and CEO.

Thanks, Christian, and good afternoon, everyone. Thank you for joining our call. In addition to Christian, I am joined by Adan Ghasar, our Interim CFO and Chief Accounting Officer. I will briefly review our fourth quarter and full year results, cover our global operations, including our supply chain, and the wind industry market more broadly. Don and I will then review our financial results before we discuss the 2022 outlook and open the call for Q&A. Please turn to slide five. For the full year 2021, we delivered net sales of $1.7 billion, a 3.7% increase over 2020, and adjusted EBITDA of $2.3 million. while delivering approximately 13 gigawatts of wind blades. Our results of operations for 2021 and the fourth quarter were adversely impacted by approximately $52 million and $40 million, respectively, primarily due to the deferral of revenue relating to extensions of customer contracts and estimates of cost to complete our contracts under ASC 606. However, these factors did not have an impact on our 2021 billings, which exceeded expectations for 2021 and the fourth quarter. We manage our business on a billing basis as it reflects our actual cash flow and working capital requirements. Now for a summary of 2021 highlights. During the year, we started wind blade production on two lines in our Chennai, India facility for Nordex and added four lines for them in Matamoros, Mexico. We also added four new lines in Vestas in Yangzhou, China with production plan to start in the first half of 2022 and extended three lines with them in Turkey. With these new lines and extensions, we now have a potential contract value of up to $3.5 billion through 2024, with a minimum contract value under our supply agreements of $2.2 billion. We grew our global service organization to almost 400 technicians and delivered revenue growth of more than two times compared to 2020. During the fourth quarter, to accelerate growth in Europe, We opened a training center in Spain. We expect further growth in our service business in 2022. We continue to experience strong traction in the transportation side of our business. Our customers, several of whom are new to TPI, are seeing the benefit of our capabilities and ability to collaborate to develop innovative composite solutions at an accelerated pace. In the fourth quarter, we won our first program commitment of meaningful size for passenger EV platform, a major milestone for TPI. We have also entered into several new development agreements with multiple customers, which we expect will turn into longer-term production agreements in the future. During 2021, we successfully launched our automated compression molding line and delivered nearly 30,000 parts to an electric vehicle manufacturer and anticipate manufacturing an additional 25,000 parts in the first half of 2022. We continue to expand our manufacturing capabilities and have been awarded programs to deliver approximately 450,000 parts this year and a million plus parts in 2023 for the same customer. Our innovative composite solutions enable our customers to achieve faster time to market, require lower upfront investment, and provide enhanced thermal protection and weight reductions. We closed a $400 million financing with Oak Tree and have $200 million potential follow-on investment committed. The financing enabled us to shore up our balance sheet and position ourselves for additional growth when market demand recovers. Turning to slide seven, and I'll give you a quick update of our global operations supply chain as well as a market update. During the fourth quarter, we turned around the performance in our Nordex Metamorris operation. I'm happy to report that we are delivering blades on plan and meeting the expectations of our customer for safety, quality, and delivery. However, we still have work to do on cost and pricing to realize the returns we expect from this facility. With respect to the challenges we experienced during the transition to a new innovative multi-piece blade, we made significant progress during the quarter, met our delivery requirements, and are on track to drive productivity in 2022 to levels we and our customer expect. We currently plan to have transitions or startups in four locations during 2022. Turkey, Mexico, and India will go through a total of five line transitions, and we will start up four new lines in China. The Turkey transition of one line is already complete and is a great example of a well-planned transition with minimal interruption and no impact to our annual output. Moving on to the supply chain, the after effects of the pandemic continue to evolve and affect our supply chain and the underlying cost assumptions in unpredictable ways, specifically with unprecedented volatility and commodity and logistics sector. During 2021, there were both significant price increases and supply constraints with respect to epoxy resin and carbon fiber, key raw materials that we use to manufacture our products, as well as increases in inbound logistics costs. We expect carbon fiber and related product supply to remain constrained as demand for carbon we use continues to outpace capacity additions. Production of carbon products is also very energy intensive, and continued rising energy costs could adversely impact the cost of carbon materials after already seeing price increases of up to 50% for certain carbon feedstocks during 2021. Epoxy resin prices were approximately 150% higher in the fourth quarter of 2021 as compared to the fourth quarter of 2020, and high resin prices in Europe and North America continue to be supported by bullish demand from industries like automotive, infrastructure, construction, and new container ship builds. While competitive resin suppliers are available in Asia, the current unreliable logistics environment and associated costs often offset any potential savings on price. We expect that the price of carbon fiber and resin will remain at elevated levels in 2022. More than 50% of the resin and resin systems and more than 90% of the carbon fiber we use is purchased under contracts either controlled or borne by our customers, and therefore these customers receive or bear 100% of any decrease or increase in price. With respect to our other customer supply agreements, our customers typically receive or bear 70% of any raw material price decrease or increase. Notwithstanding the challenging cost environment, we still expect to be able to hold the average bill of material cost for customers for which we control the supply chain relatively flat compared to 2021 levels. We remain focused on localizing and regionalizing our supply chain to reduce the impact of high logistics costs provide security of supply, and build long-term strategic partnerships with key suppliers to ensure the best pricing in the short, medium, and long term. As you've heard from some of our customers in recent weeks, there continue to be headwinds in the U.S. related to the stalled Build Back Better plan, the expiration of the PTC at the end of 2021, in addition to supply chain costs and constraints, which decreased demand for our wind blades in 2021 compared to 2020, and is causing uncertainty in demand in the near term. While we continue to monitor legislative and regulatory policy proposals to extend and or expand tax credits in the United States and in other parts of the world, we believe that notwithstanding current challenges, demand for wind energy will strengthen over the next few years given the necessity to decarbonize and electrify to meet the aggressive goals set by states, regions, and countries to combat climate change. And we believe that we are uniquely positioned with our global footprint, located in key strategic geographies, to grow our market share with industry-leading OEMs as the demand for wind begins to accelerate again and we see the growth that has been forecast during the decade and beyond. Our relationships with our customers remain strong, and we continue to jointly develop strategic plans to address the current environment, competitiveness, and future opportunities. For 2022, execution is our primary focus. We have also identified multiple strategic initiatives to enable TPI to capitalize on the expected long-term growth in the wind market, including expanding our global service offerings and leveraging our expertise in blade design while expanding our capabilities around logistics and recycling. These initiatives are underway and will be advanced in 2022. I would also like to confirm that we remain focused on the health and safety of our associates while executing our operating initiatives and ESG goals, which include safety, diversity, inclusion, and driving to become carbon neutral by 2030. From a COVID-19 standpoint, we continue to operate all our facilities at normal levels, and we remain focused on operating our business safely and ensuring that we are prepared to deal with any resurgences of the virus. With that, let me turn the call over to Adan to review our financial results.