TPI Composites, Inc.

Good afternoon and welcome to TPI Composites' fourth quarter and full year 2022 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 would like to welcome everyone to TPI Composites' fourth quarter and full year 2022 earnings call. We'll 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 risk is included in our latest reports 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. In addition, please note that our financial statements now include a discontinued operation. In December, we committed to a restructuring plan to rebalance our organization and optimize our global manufacturing footprint. In connection with this plan, We seized production at our Yangzhou, China manufacturing facility as of December 31, 2022, and plan to shut down our business operations in China. Our business operations in China comprise the entirety of our Asia reporting segment. This shutdown will have a meaningful effect on a global manufacturing footprint and consolidated financial results. Accordingly, the historical results of our Asia reporting segment has been presented as discontinued operations in our consolidated statements of operations and consolidated balance sheets. As we discuss year-over-year comparisons, please note we will refer to the combination of continuing operations and discontinued operations. 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'm here with Ryan Miller, our CFO. Today I'll discuss our fourth quarter and full year results, our global operations, including our service and automotive businesses, then cover our supply chain and the wind energy market more broadly. Ryan will then review our financial results, and then we'll open the call for Q&A. So please turn to slide five. For the fourth quarter, we delivered total sales of $461.8 million and adjusted EBITDA of $40.8 million. We finished the year strong in a very challenging environment, and I'm extremely proud of our over 13,000 dedicated associates that made this possible. Our fourth quarter adjusted EBITDA margin of 8.8% demonstrates that a relentless focus on safety, quality, delivery, and cost can deliver strong financial results, even in a difficult operating environment. For the full year 2022, we delivered net sales of $1.76 billion, a slight increase over 2021, and adjusted EBITDA of 73.6 million, or 4.2%, while delivering approximately 12.6 gigawatts of blades. Considering the challenges the industry faced in 2022, we are pleased with our execution and results while taking many steps to set us up for long-term success. Now, a quick summary of some of our successes and key actions in 2022. We extended two lines with Enercon and Turkey Egg through 2025. We extended 10 lines with GE in Mexico through 2025. We also signed an agreement with GE that enabled us to secure a 10-year lease extension of our manufacturing facility in Newton, Iowa. Under the agreement, GE and TPI will be developing competitive blade manufacturing options to best serve GE's commitments in the US market with production expected to start in 2024. We are also in discussions with GE for a long-term partnering agreement to provide more capacity and flexibility to GE, along with higher utilization of our manufacturing capacity. We announced a long-term global partner framework agreement with Vestas that aims to provide flexibility along with more capacity for them, while enabling better facility utilization for us in the geographies that we serve Vestas. We have agreed to a deal with Nordex to effectively extend four of six lines in Turkey through 2026. The other two lines will be extended through 2024. And in addition, we'll add two new manufacturing lines in India while limiting the losses from the four lines in Matamoros over the remaining term of that contract. With all the commercial activity during 2022 and thus far in 2023, we now have a total potential net revenue covered by long-term contracts for our wind business nearing $10 billion. We grew our service revenue by 68.8% while entering several new international markets. The growth of our services business remains a priority, and we expect 20-plus percent growth from our continuing operations in 2023, which obviously excludes China. We grew our automotive business by nearly 18% year-over-year, and now have four serial production programs with an OEM customer, seven development programs for Class 8 cab structures and last mile delivery vehicles, along with orders for prototypes of delivery vehicle and battery pack components. Notwithstanding the commercial success we had in 2022, we expect sales to be flat year over year given expected lower volumes from our bus customer. With our recent commercial success and the solid foundation we've built in our automotive business, we are evaluating strategic alternatives to enable us to accelerate the growth of this business. Finally, during the fourth quarter, we announced and recorded material restructuring and impairment charges with respect to closing our China operations and additional headcount reductions in our other manufacturing facilities and corporate functions. We expect these actions to result in structural cost savings of approximately $20 million to be realized in 2023 and beyond, while continuing to focus on operational efficiencies to drive annual productivity savings of over $20 million per year, which we have consistently achieved over the past three years. Moving on to slide six. We see 2023 as a transition year while the industry awaits formal implementation guidance related to key components of the IRA in the U.S. and clarity around more robust policies in the EU such as the recently proposed Green Deal industrial plan aimed at speeding up the expansion of renewable energy and green technologies while building on previous initiatives such as the European Green Deal and Repower EU. In 2022, nearly 45% of all our blade shipments were into the Europe, so it is an important market for us, and we expect the implementation of the Green Deal industrial plan and the growing need for energy security and independence in the EU to accelerate our growth in the region. Now for a quick global operations update. Our plants in Juarez, Mexico, Turkey, India, and China performed ahead of plan in the fourth quarter and for the full year. Operations in our newest facility in Matamoros are still challenged from a cost and profitability standpoint. As we discussed last quarter, we were working with our customer to reduce the impact, and we have come to an agreement that will limit our losses in this facility through the end of the contract. Overall, however, our blade operations have performed extremely well. As it relates to our supply chain, the situation continues to be challenging, but significantly better than in the last two years. As we look out into 2023, we expect overall pricing for raw materials that we source to be down compared to 2022. With our contract structure and shared paying gain approach, we expect to have a net benefit in 2023 over 2022. Turning to slide seven. Given a bit more stability in the industry, especially as it relates to supply chain and contractual arrangements with our customers, we're issuing formal guidance in 2023. We expect net sales of between 1.6 billion to 1.7 billion with sales from continuing operations to be up high single to low double digit percentage compared with 2022 as blade sales are increasing primarily due to increased demand in the US as well as ASPs being up approximately $2,000 per blade. We expect our adjusted EBITDA margin from continuing operations to be about flat with 2022 as structural cost savings and margin flow on higher sales volume and improved utilization in the range of 85% to 90% will be offset by wage adjustments and inflation that cannot entirely be passed on to our customers. This guidance includes the negative impact of approximately 250 to 300 basis points of adjusted EBITDA margin for contract-related costs in excess of revenue related to our Nordex Matamoros Mexico facility. Please know that this guidance is for continuing operations. For discontinued operations, we expect no sales and expect an adjusted EBITDA loss of approximately $2 million. Lastly, we expect capital expenditures of about $25 million in 2023, which is an increase over 2022 as we expect to start investing in infrastructure for the U.S. market in the second half of 2023. While we recognize the challenges the wind industry continues to face in the near term, we remain confident that demand for wind energy will strengthen as we move closer to 2024, given that we will likely have final IRA guidance, more clarity around the implementation of the EU's Green Deal Industrial Plan, as well as to continue to focus on energy security and independence globally. We believe TPI remains in a unique position with our global footprint and key strategic geographies, along with strong partnerships with our customers and suppliers, to grow profitably as the demand for wind begins to accelerate again. Turning to slide eight. With that said, over the next couple of years, we expect our wind revenue to eclipse $2 billion, yielding a high single-digit adjusted EBITDA margin and free cash flow as a percent of sales in the mid-single digits. This without expanding our existing footprint of approximately 44 lines globally, which excludes the four Nordex lines in Matamoros. We expect to have these 44 lines fully dedicated by the end of 2023, which will give us about 3,600 sets per year or 14 gigawatts of capacity. With that said, let me turn the call over to Ryan to review our financial results.