TPI Composites, Inc.

Wondering if you've seen any impact on order volume or customer demand. It sounds like you're maintaining your revenue expectations, so maybe there hasn't been a meaningful impact here, but just wanted to see any impact to customer demand at this point.

At this point, no. We've been very successful in our transitions. We've got the ability to provide some additional volume this year. There's some interest in that in certain geographies. So I would say we haven't seen a decrease. We could see a little bit of a pickup just because of the speed of our transitions and demands in certain of the regions. But at this point, Justin, we haven't seen any decline in demand from a cost standpoint.

Got it. Okay. And then, you know, in Q1, you know, you produced more sets than you had planned. And I know a part of that is the transitions. But is there anything else in Q1 where some plants performing, you know, ahead of expectations or anything else that enabled you to kind of exceed expectations there?

Yeah, actually, from an operational standpoint, all of our plants are operating really nicely this year. No major operational hiccups or issues. We did produce more than expected out of Mexico. That was planned from our standpoint based on what our customers' needs were. They accelerated a little bit. So other than that, just very good execution with a little bit of build ahead in Mexico.

Okay, great. And just one more, if I may. You said you secured all the raw materials for your planned production in 2022. Can you share when you were able to do that? Was this potentially ahead of the most recent increase in costs? And what is typical? Is this proactive action that you had taken given the expectations here for inflation?

Yeah, it really varies by commodity. You know, lead times vary. But in this environment, we were proactive, as we have been through the whole of COVID. You probably remember us talking about building inventory levels in the COVID timeframe as well. So the key here was making sure that where we are reliant on our customer to contract for the material that we worked proactively, more proactively, I would say, this year than in the past with our customer supplier as well to make sure that we had the proper allocation and volumes at the right time. So, I think it was proactivity on the part of our supply chain as well as better collaboration with our customers that control their supply chains. So, it's a combination of things.

Okay, great. Thank you.

Yep. Thanks, Justin.

Our next question comes from the line of Eric Stein with Craig Hallam. Please proceed with your question.

Yeah, hi, good afternoon. It's Aaron Spahalon for Eric. Thanks for taking the questions.

Hey, Aaron.

Maybe first on the service business, you know, good to see the EU expansion and kind of the growth targets that you laid out. Can you just kind of give a little more color on kind of the growth profile, the margin profile there, and how you think about that business over the next couple of years?

Yeah, so we'll grow it. We grew it 50% last year. We'll grow it another 40 to 50% this year. That's assuming it's all organic. Margins are better this year, better utilization of our personnel, a better allocation of talent around the globe, as well as some better pricing on some of the deals that we've cut with our customers. So it's a combination of just, you know, very robust, a robust market in the service business, a need for very high-quality blade technicians, which we have a bunch of them around the globe. Obviously, we build them. We should be able to repair them and service them. And just focusing on higher dollar and higher volume and higher margin work. It's a combination of all those.

All right. And then just maybe on offshore, you know, kind of seeing – folks talking about a reprioritization there. Can you just kind of talk about how that might impact you and just how you are thinking about the opportunity offshore here in the near term?

Yeah, so we're continuing to work a number of different opportunities in the offshore space. It's a complicated space. There's a lot of risk involved. You saw, you might have seen, you know, Vestas talked a little bit about it during their earnings release earlier this week. So we're proceeding, you know, very cautiously and carefully and making sure we dot I's and cross T's. But we do see it as a nice opportunity going forward, and we're continuing to pursue it with vigor.

All right. Sounds good. Thanks for taking the questions, Phil.

You bet.

Thank you. Our next question comes from the line of Julian Demorian Smith with Bank of America. Please proceed with your question.

Thanks, guys. It's Alex for Julian. Thanks for taking our questions here. Wanted to ask specifically a little bit more on the raw material side of things. I know you guys mentioned, you know, carbon fiber as well as epoxy resin earlier in the call. I'm wondering if you can expand a little bit more on some of the other inputs here, whether you know, balsa wood, PET, I mean, particularly as we go into this rather inflationary backdrop on oil and whatnot. What are you seeing there and kind of what's your outlook, I guess, throughout 22 into 2023? Thanks.

Yeah, you bet. So our, you know, obviously carbon and epoxy resins we've talked about. Our other big inputs are glass, you know, fiberglass and core, which would include balsa and PET, as you mentioned. Glass, you know, market trend is up a bit. Our actual trend is pretty flat from 2021. Again, that's just relationships, volumes, et cetera. So we've been able to keep that relatively flat. But the market trend has been up a bit in 22 from 21. From a core perspective, BALTS is actually flatter trending down. There's a lot more demand for PET. Capacity hasn't come online as quickly as most would like. So we do see in the market a bit of a price increase from a PET standpoint. But from a TPI standpoint, we've, again, been able to secure volumes at prices that are flat to last year or down. And then other than that, you've got coatings, which are kind of the paint that we use on the blade. Again, market price is up a bit, but we're flat year over year or down on that as well. So we're tending to trend a little bit better than market, at least the spot prices in the market. But we do see a challenging remainder of 2022 from a commodity standpoint.

Yeah, I appreciate that. And then just a quick follow. I'm wondering if you guys can characterize sort of the cadence you expect on utilization throughout the year versus, you know, where you are in Q1 to your full year 22 guide, which obviously you're maintaining. Thanks. You bet.

So for Q1, we are right around that 65% level. Expect to be in the mid 80s in Q2, mid to low 90s in Q3 and Q4 both. So utilization picks up pretty nicely as we get through transitions. Got it. Thanks, guys. Yeah, thank you.

And our next question comes from the line of Alec Scheibelhofer with Stiefel. Please proceed with your question.

Hi, good afternoon, everyone. Thank you for taking my question here. You bet. Good to talk to you. Likewise. So just looking at the strong increase you've had in a average selling price for blade, I was wondering if you could give some color and what's driving that and maybe some outlook moving forward and how we should be thinking about that.

Yeah, I think as we mentioned a little bit earlier, part of that is as we go through a transition, early blades produced once we start production are generally priced at a higher ASP until we get to a certain number and then it kind of levels off to a normal price So that's part of it. Part of it is just blade mix, the mix of blades produced in Q1. We do expect that to kind of level out and come back down to kind of where our guide range was as we get further into the year. Some of the transition blades that we are doing, especially in China, are smaller blades. So ASP on those is a little bit lower. So as those come on full steam, we'll start to see that ASP come kind of back down into the range that we originally guided to.

Excellent. Thank you for the color. You bet.

Our next question comes from the line of Kashi Harrison with Piper Sandler. Please proceed with your question.

Hi. This is Luke filling in for Kashi. Thanks for taking the questions.

You bet, Luke.

I'd like to talk about the cash flow statement a little bit. Obviously, you guys called out that there was a little bit of a headwind with accounts receivable and timing of payments. But I'm just wondering if you can give some color on the cadence of working capital over the course of the year and your level of comfort with where cash is at right now. Thank you.

Yeah. So, yeah, I think as we mentioned, we expected a pretty big burn in Q1 for a number of reasons as we were getting through some of the cost challenges in Mexico, some buildup of AP at the end of the year, some CapEx carryover and what have you. So we're right on target with where we thought we would be at the end of the quarter for the balance of the year. As we mentioned, we'll have a bit of a burn in Q2 before we turn to free cash flow positive in Q3 and Q4, ending the year in pretty, what we think is very good shape. We've got $107 million of availability under borrowings that are not outstanding today. So we feel very good from a liquidity standpoint through the balance of 2022 for sure.

All right. And the rest of our questions were answered. Thank you.

You bet.

Thank you.

And our next question comes from the line of Tom Curran with Seaport Research Partners. Please proceed with your question.

Good afternoon.

Good afternoon. What do you got for us?

Just two. You've repeatedly emphasized that your primary focus for 2022 is execution, and it sounds as if the company's off to a promising start with that priority when it comes to transitions. Could you elaborate on the transitions that occurred in China and India in 1Q? Were these transitions between customers or inter-customer transitions between molds? And what are some of the tactics that prove successful or lessons learned that you should be able to apply to future transitions wherever they might be?

No, great question. So in India, same customer, just going to a larger blade. And in India, that was in India, sorry, in China, same customer, two new blades. So multiple blade transitions in China. plus a blade transition to a larger blade both in India and in Mexico for the same customer. Just as an example, now this one is a little bit unique because it's a blade we built in another factory in China. But from start of production until we got to our desired cycle time of 24 hours was five weeks. That is blazing speed to anybody in the blade industry. And the reason why, part of it was we had prior experience on the blade, but the main reason is we've known about these transitions for a long enough period of time that we were able to better collaborate and plan with our customer and hold our customer accountable for the portion of the transition that they need to participate in, whether it's approvals of molds being installed or cut-up blades. various things. So it was really the lessons learned are just enough time to do truly detailed planning and do that planning with the participation of our customer and our suppliers for equipment and what have you, and then execute that plan and hold all parties accountable. And I think that's the biggest lesson learned for us. The other thing I will mention is we did You know, we have a dedicated team now that is responsible for the transitions. So we have a dedicated team of unbelievable talented people that travel the globe and assist our local sites with the transitions. And having them involved early, often, on the ground when we need them, that's been a big help as well.

And Bill, how long have you had that team?

You know, we've had, we haven't had, well, really just since last year is when we formed it. And we're able to carve out resources from our teams around the globe and just put this as one cohesive team. And we don't pull from that team for other projects. They are fully dedicated to transitions and startups. And so just having a dedicated team, that that is their focus. And we've had teams that have done transitions in the past, but not to the extent we do now, where they're 100% dedicated to a transition and to the startups. They're a cohesive unit. I like to call them the go team. You know, they pick up, their bags are packed, and they go when we have a transition, and they camp out in the plant until we have it right. But that's just been about over the last year is when we really started utilizing a fully dedicated team. Interesting.

And then in Mexico, you highlighted that production came in, it sounds like a bit better than expected for 1Q. Could you clarify how Juarez and Matamoros performed respectively? And then for Matamoros, where you're at with getting the Nordex facility up to where you want it to be?

Yeah, so war has performed very well. That's where we had the, you know, the kind of the build ahead. So, you know, for both blades that we're building for our customer there, operationally went very well. As you might recall, we had some challenges last year with the multi-piece blade when we started that out, but we've ironed those kinks out. We've worked very collaboratively with our customer, and we are on track to deliver the volumes they need this year. In Matamoros, our plant for Vestas there continues to operate very well. And with respect to Nordex Matamoros, operationally, we're in very good shape today. We produced the volumes that we needed to produce in Q1 after hitting our production in Q4 as well. We are in the middle of a transition there, and that is going as planned. So I would say from a pure operational standpoint, we've turned the corner there. The plant itself is now getting to a place that, you know, to become a world-class blade plant, which is what we like to operate. So we're very close to that. We still have some cost challenges there that we're working on. Some of that is, you know, qualifying new material locally sourced versus from China. to avoid the logistics costs, so we're working through those for the balance of the year. But operationally, from a production standpoint, we're in very good shape.

Great. Thanks for fielding our questions.

You bet. Thank you.

And our next question comes from the line of Pavel Molchanov with Raymond James. Please proceed with your question.

Thanks for taking the question. I dialed in a little late, so sorry if you covered this already. Since the start of the war, I'm curious if specifically from the European onshore market, you've encountered or your blade customers specifically have encountered any increase in incoming appetite from In other words, natural gas, $20 in NCF, tremendous focus on disentangling from Russian supply. Obviously, you're well-positioned with your facility in Turkey. Is there anything like that that you can point to?

I think there's certainly a lot of talk, Pavel, about increasing installs over the foreseeable future. Have we seen an increase in demand for the balance of 22 specifically related to that? I would say no. Now, it's possible that blades that we are producing are now being diverted to Europe that might have been earmarked somewhere else. Don't know that today. I will tell you that about 37% of our blades in Q1 went to Europe compared to 30% last year. So whether that was already planned or there's some correlation, it's probably too early to tell. But we do expect, obviously, for the longer term, for there to be really strong demand in the European market. But whether we're seeing it today just yet, I think it's still a bit early for that.

Okay. And on the non-blade sales, $30 million this quarter, you know, pretty solid growth versus a year ago, and I think you're – second highest quarterly number ever in that category. Is that still all from Proterra?

No. No, we've got Proterra clearly is still in the mix, and then our EV customer that we're building parts for, that's clearly a big part of that as well. Okay.

Any questions? Any sense of when you might be able to disclose some additional detail on who that is?

My guess is we won't be able to disclose it. We'd love to be able to, but at this point, their policy is to not disclose their suppliers.

Understood. Well, good to see the growth anyway.

Appreciate it. Yeah, we're pretty excited about it.

Our next question is a follow-up from Julian Demorian Smith with Bank of America. Please proceed with your question.

Hey, good afternoon, team. Thanks for your time and patience. Appreciate it. I just wanted to follow up here and talk a little bit, Bill. I wanted to follow up and talk a little bigger picture here and step back and certainly considering some of the comments from NextEra out there about sort of the fungibility between solar and wind. What are you seeing out there in terms of early days on the back of ADCVD? Any effective pivots out there? I mean, again, I get that there's a lot of other dynamics here, but would love to hear how this might be fomenting potential demand, when that might materialize, and how much the BBB, yay or nay, might be holding customers back at the same time.

Yeah, I think... I think the uncertainty around long-term policy is probably overriding any impact of the anti-circumvention stuff and maybe some. I know Nextera talked about a pivot or a shift from solar to more wind this year. We haven't seen a meaningful uptick as a result of the challenges in the solar market yet. But again, it's still a bit early to see that demand shift. It's not easy to just, you know, turn on and turn off these deals. So I will tell you that, you know, it is certainly possible that we start to see some of that manifest itself in the back end of the year. But at this point, I would say we haven't seen anything material.

Got it. And when you think about the timeline there for seeing some of that uptake, I mean, Is it, as you say, like by the end of the year we get tax extenders or what have you, I mean, at least it's pencils down. Hopefully you see something of an uptick in U.S. origination just with that quote-unquote certainty at that point?

Either way? You know, Julian, yeah, I think if something happens sooner rather than later and we get certainty, then clearly that helps the market. When we see that manifest in a tick up in demand, I think it's still a little bit hard to tell. You know, there are some that are saying if we get something here, you know, before the midterms, which most don't think that's likely at this point, we still probably don't see any real impact until, best case, back half of 2023 from a major swing. So, again, I think it's a little hard to pin it down. I wish I could. But with the uncertainty there, as well as just the continued challenges from a supply chain and a cost standpoint, I think that's impacting some of the decision making and the wait and see as well. So, you know, my best guess would be, you know, best case, it's a back half of 23, but more likely into 24. Got it.

Yep. I got you there. I appreciate that.

Anyway, good luck. We'll speak soon. All right. Thanks, Julian. Take care.

Thank you, everyone, for your questions. At this time, we have reached the end of the question and answer session, and I would now like to turn the call back over to management for any closing remarks.

Thank you, and I'd just like to thank all of you again for your interest in TPI and your attention today, and look forward to our next discussion. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.