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spk00: Hello and welcome to the TPI Composites 1Q 2023 earnings conference call. All participants will be in a listen-only mode. Should you need any assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Christian Eden, Investor Relations. Please go ahead.
spk07: Thank you, Operator. I would like to welcome everyone to TPI Composites' first quarter 2023 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 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. With that, let me turn the call over to Bill Sywick, TPI Composites President and CEO
spk08: 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 results and highlights from the first quarter, 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. Please turn to slide five. Despite a challenging global wind market and economic climate, during the first quarter, total sales increased by nearly 18% over prior year to $404 million, and adjusted EBITDA was $8.4 million, a 38% year-over-year increase, which was in line with our plan. Now a quick summary of some key events since our last call. We raised approximately $110 million in net proceeds from our green convertible senior notes offering. We plan to use the proceeds from this financing to provide capital to support future growth. fund specific sustainability initiatives, support working capital needs, make sure our suppliers are healthy and ready to expand with us in the coming years, and finally, to pay down some higher interest rate debt. We published our 2022 ESG report during the quarter. Please turn to slide six for highlights from the report. The wind turbine blades we produced during 2022 will help reduce CO2 emissions by approximately 410 million metric tons over their expected 20-year operating lifetime. We made progress towards our 2030 goal of carbon neutrality by reducing overall CO2 intensity by 16%. We achieved our annual waste rate reduction goal of 5%, enhanced our global behavior-based safety program to further reinforce positive safety behaviors at all of our facilities, transitioned our diversity, equity, and inclusion program to IDEA, or Inclusion, Diversity, Equity, and Awareness, because without inclusion, you don't get the benefits of diversity and equity. We increase the diversity of our board and global leadership team, and in furtherance of our efforts to enhance our corporate governance practices, we are asking our shareholders to approve the phase-out of our staggered board and eliminate supermajority voting requirements from our charter documents at our annual meeting later this month. During 2023, we plan to make further progress on our ESG goals. For example, we will be expanding our rooftop solar in Turkey A, as well as investing in wind turbines, also in Turkey A, to power our facilities with renewable energy. With this investment, we expect to be able to reduce our global greenhouse gas emissions by nearly 20%, while at the same time reducing our operating costs. This is a great example of what wind energy can do for companies. Eliminate volatility of market rates, reduce the cost of energy, and therefore improve financial results, all while reducing greenhouse gas emissions. Now for a quick update on our global operations, including our service and automotive businesses. Please turn to slide seven. 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 operating efficiencies to drive annual productivity savings of over $20 million per year, which we have consistently achieved over the past three years. We have made significant progress on the restructuring plans in the first quarter. we were able to terminate our lease for Yangzhou, China on terms more favorable than we were planning on. And as of March 31st, we have no further obligations with respect to the lease. We have also reduced our head count in China to about a half dozen people that will carry out the administrative activities to wind down our legal entity over the balance of this year. We are also in good shape on the other structural actions that we took and are currently at a run rate to generate our targeted savings. Our wind blade facilities performed a plan in the first quarter. We produced 655 sets and achieved a utilization rate of 84%. We are working on a handful of volume changes with our customers, both up and down, but don't expect those changes to impact overall revenue guidance. In global service, sales were down year over year due to a reduction in technicians deployed to revenue-generating projects due to a combination of inclement weather, the completion of a large customer campaign in 2022, and and an increase in time spent on non-revenue generating inspection and rework. For the second quarter, we expect service sales to ramp up again, driven by normal seasonality and customer campaigns. We remain focused on driving profitability and expanding our services outside of the U.S. Things have continued to progress nicely in our automotive business. We expect to be able to move three-plus programs from development to production during the year, and therefore expect to have five-plus programs in production by year-end. These innovative programs are a combination of EV passenger vehicle parts, class A cabs and cab structures, and commercial delivery vehicles. We continue to explore strategic alternatives for this business to enable us to scale faster and are encouraged by the initial discussions and expect to have more information to share by the end of Q2 or early Q3. As it relates to our supply chain, the situation has been largely unchanged since our last call, and although it continues to be somewhat challenging, it's significantly better than during the last two years. We continue to expect the overall cost of raw materials to trend down compared to 2022, while logistics costs have generally returned to pre-pandemic levels. With our contract structure and shared pain gain approach, we expect to have a net benefit in 2023 over 2022. As we've discussed over the last couple of quarters, 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. Since we last spoke, the EU announced a deal to reach 42.5% renewable energy by 2030. Dedicated areas are to be set up where countries are required to approve new renewable energy installations within 18 months, and outside of those areas, timing will be limited to 27 months. Although it still needs to be endorsed by the EU Parliament and Council in order to become law, and that's expected to be no later than the second half of 2024, this would provide permitting relief for 100 gigawatts of wind currently stuck and permitting queues. Here in the U.S., we continue to wait for guidance on key areas, including domestic content, direct pay, the advanced manufacturing production credit, and transferability of credits. The latest we've heard is that we may receive guidance on some key remaining aspects as early as by the end of Q2, and others may be later than that. We'll wait and see. While we recognize the challenges the wind industry continues to face in the near term, we remain confident that demand for wind energy continues will strengthen once the current regulatory uncertainty is resolved, as well as being driven by the continued focus on energy security and independence globally. We believe TPI remains in a unique position with our strategically located footprint, along with strong partnerships with our customers and suppliers, to improve profitability in the near to mid-term and to expand our operations and therefore market share as demand begins to outpace capacity once wind installations begin to accelerate again. While the prospect of growing our capacity is exciting, we expect our wind revenue to eclipse $2 billion, yielding a high single-digit adjusted EBITDA margin and free cash flow as a percentage of sales in the mid-single digits over the next couple of years, and this is without expanding our existing footprint. Today, we're operating 37 lines and have 11 lines of capacity available within our existing facilities. This capacity consists of five lines in Newton, Iowa, four lines in Juarez, Mexico, and two lines in India. The lines in Iowa are reserved by GE, and the lines in India are currently reserved by Nordex. And although we have not formally announced the deal, the four lines in Juarez, Mexico are also spoken for, and we are working to finalize the contract for those lines by the end of Q2. We plan to have all of these lines formally under contract by the end of 2023 and in production at some point during 2024. As we exit 2024 and enter 2025, we expect to have at least 44 lines globally that are installed and operational. These 44 lines will provide us with approximately 3,600 sets per year, or 14 gigawatts of capacity. In the IEA's updated net zero by 2050 scenario, wind needs to reach over 400 gigawatts of installation per year, with approximately 80% onshore and 20% offshore. Therefore, the market would have to be almost five times larger than it was in 2022. So, clearly, 14 gigawatts of capacity will not be sufficient to meet the long-term needs of our customers. So, strategically growing our global capacity and footprint over the next couple of years is a discussion we are engaged in today with all of our customers. With that, let me turn the call over to Ryan to review our financial results.
spk01: Thanks, Bill. Please turn to slide 9. All comparisons discussed today will be on a year-over-year basis for continuing operations compared to the same period of 2022. Please note our prior year financial information has been restated to exclude the discontinued operations from our Asia reporting segment as we shut down our operations in China at the end of 2022. In the first quarter of 2023, net sales were $404.1 million compared to $343.5 million for the same period in 2022, an increase of 17.6%. Net sales of wind blades, tooling, and other wind-related sales, which excludes field services and hereafter all referred to as just wind sales, increased by 65.8 million in the first quarter of 2023, or 20.5%, compared to the same period in 2022. The increase in net sales of wind during the first quarter was primarily due to a 20% increase in the number of wind blades produced, as well as higher average sales prices due to the mix of wind blade models produced and the impact of inflation on wind blade prices. partially offset by foreign currency fluctuations. Additionally, our utilization in the first quarter of 2023 was 84% compared to utilization of 71% in the first quarter of last year. Field services sales decreased by $2.7 million in the first quarter compared to the same period in 2022. The decrease was due to a reduction in technicians deployed on revenue-generating projects due to a combination of inclement weather, the completion of a large customer campaign in Q1 of 2022, and an increase in time spent on non-revenue-generating inspection and rework. Automotive sales decreased by 2.6 million in the first quarter compared to the same period in 2022. The decrease was primarily due to a reduction in the number of composite bus bodies produced and a decrease in sales of other automotive products, partially offset by an increase in fees associated with minimum volume commitments. Net loss attributed to common stockholders was 37.3 million in the first quarter of 2023 compared to a net loss of 29.9 million in the same period in 2022. In the first quarter of 2023, our net loss attributed to common stockholders includes $15.2 million of preferred stock dividends and accretion, compared to $14.1 million in the same period in 2022. Adjusted EBITDA for the first quarter of 2023 totaled $8.4 million, compared to $6.1 million during the same period in 2022. The increase in adjusted EBITDA was primarily due to earnings on higher sales, lower startup and transition costs, cost reduction initiatives, and net favorable foreign currency fluctuations. largely offset by inflation and increased production costs due to a significant change in a customer's inspection criteria requirements. Moving to slide 10, we ended the quarter with $164.2 million of unrestricted cash and cash equivalents and $195.1 million of debt, which includes the net proceeds from the $132.5 million, 5.25% green convertible senior notes we issued in the quarter, which Bill talked about earlier. We used $87.1 million of free cash flow in the first quarter of 2023 compared to $86.6 million in the same period in 2022. Our use of cash during the quarter was for $37.6 million in payments of outstanding payables, severance, and other restructuring activities associated with the shutdown of our China operations. In addition, our gross contract assets grew $35.4 million due to an increase in unbilled wind blade production and timing of advanced payments. The quarter also included $8.1 million in payments related to our associate's annual cash bonus program and $6.3 million down payment to acquire wind turbines that will provide renewable energy for our manufacturing facilities in Turkey. We also had capital expenditures of $3.3 million during the first quarter. Moving on to slide 11, we are confirming sales and adjusted EBITDA guidance that we issued last quarter. Still a lot to play out over the year, but we are working on a handful of volume changes with our customers, both increases and decreases. They will likely net out sales closer to the bottom end of our guidance range with what we know today. In addition, I wanted to provide some color on our adjusted EBITDA guidance for 2023. Similar to sales, there's still a lot of things to play out during the year, in particular, our union negotiations with Turkey and foreign currency fluctuations, but we still feel comfortable with our guidance range in the low single digits. When we look at second quarter, most of our wage or merit changes kick in, so I expect the second quarter will likely be the low watermark for adjusted EBITDA margin. In the second half of the year, we expect incremental benefits from our productivity improvements and improving raw material and logistics costs to further take shape and offset most of the wage headwinds. Moving on to capital expenditures, we are revising our 2023 capital expenditures guidance from $25 million to a range of $40 million to $45 million. The increase in expected capital expenditures It is driven by the project we discussed in Turkey to purchase two wind turbines, as well as incremental capital needed to start up our two open manufacturing lines in India. As we think about the cadence of our overall cash flows throughout the rest of the year, we do expect our cash balance to remain above flat with the end of Q1. There will be some puts and takes by quarter, but generally it should be relatively flat. Now, we expect positive cash flows from adjusted EBITDA we generate and the recovery of the elevated levels of in-process contract assets. Offsetting these positive cash flows will be capital expenditures, income tax payments, interest payments, and as Bill alluded to earlier, paying down some higher interest rate lines of credit. I don't expect a lot of other working capital changes over the balance of the year, as our sales are projected to be flattish until the fourth quarter, which we currently expect to be our lowest sales quarter of the year due to seasonally higher holidays, which means less production days, as well as a couple of lines that will begin to prepare for transitions. So with that, I'll turn the call back over to Bill.
spk08: Thanks, Ryan. Please turn to slide 13. We remain very bullish on the energy transition and believe we will continue to play a vital role in the pace and ultimate success of the transition. We remain focused on managing our business through the short-term challenges in the industry and are excited about how we are positioned to capitalize on the significant growth the industry expects in the coming years. I want to thank all of our TPI associates once again for their commitment, dedication, and loyalty to TPI. And finally, I want to remind you about our upcoming annual stockholders meeting on May 24th and encourage you to vote in favor of all stockholder proposals, including a couple of key amendments to our charter to enhance our corporate governance practice, specifically proposals four and five, which if passed, will phase out our staggered board and eliminate supermajority voting requirements from our charter documents. I'll now turn the call back over to the operator and open the call for questions.
spk00: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up the handset before pressing the keys. To withdraw your question, please press star then 2. Your first question comes from Jillian DeMullen-Smith from Bank of America. Please go ahead. Hey, team.
spk08: Thank you for the time. Hope you guys are well. You bet. Thanks, Jillian. Good to speak with you.
spk04: Likewise. All right, so just digging in here a little bit, you talked about at least 44 lines in the prepared remarks here. Also last quarter you talked about ongoing finalization of some of those negotiations here. Can you talk about what you've been able to crystallize here in terms of visibility against that 44? And also perhaps even more critically, how you think about what that upside is to the 44? You alluded to it a little bit in your prepared remarks, but where would that come from? How do you think about the timeline for getting that visibility here?
spk08: Yeah, so first for the 44, we feel, although, again, we don't have necessarily final contracts on all of those lines, Julie, and we have the majority of signed memorandums of understanding as well as letters of intent. So we feel very good with those 44. Now, that 44, as we talked about last quarter, does not include currently the four lines that we have for Nordex and Matamoros. So, if for some reason we were to keep those lines, clearly we could move that 44 to 48. Our intent right now is not to, but, you know, time will tell. And then, you know, what you alluded to and what I alluded to is clearly there's going to be a need for more capacity in the market as, you know, as we get clarity on the IRA, we get more clarity and implementation in the EU. and we start to see installs accelerate. And so we're looking right now at our existing footprints. Do we expand on existing footprints? Do we look at different geographies? And as I mentioned, we're in strategic discussions with each of our customers as to where we can best serve them from a long-term perspective, not necessarily in the next year or two, but more from a long-term perspective.
spk04: Excellent. Thank you for all that commentary. And if I can pivot a little bit more financially oriented here, Look, I'm trying to read between the lines a little bit of what you're saying in terms of ramping the CapEx here specifically to buy your own wind energy as it turns out. It seems like a statement of confidence in your liquidity to say, look, we're going to invest today to decrease our future operating costs. Can you talk a little bit about where you stand today, your confidence in sourcing your commercial sources of financing today, and how you think about the ramp here at CapEx? This is the best way to describe it.
spk01: Hey, Julian. Yeah, hey, Julian. This is Ryan. I think with what we did with the convertible node, I think that provides us the ample firepower here as we move forward. I think that one of the things I've been focusing in on is our working capital. And so while it's okay to go out and get external capital when you need it, I also want to make sure we have an efficient balance sheet. And so as we think about moving forward, we're very laser-like focused in on that. I think there's incremental capability to go extract more value out of our balance sheet today. And you saw us raise CapEx, but we're not – lowering where our cash balance is at today. And so I think it's a sign of us indicating we feel pretty confident where we're at. And where we're at cash-wise, we're in a position today where we think the windows will open and close pretty quick with opportunities with our customers. And we do have some firepower on our balance sheet to make sure we're able to take advantage of that.
spk04: Yeah. Did you guys quantify how much your working capital requirements have increased overall, just as you think about this ramp?
spk01: No, we haven't quantified that. You know, I'd say generally speaking, as we look at our existing working capital and where we're at today, I don't think we have a – I think we will try to really push to offset any incremental needs with driving efficiencies through our balance sheet. I think that's the way I'd put it.
spk12: Okay. All right. Well, I'll leave that there. Thank you guys very much. Best of luck. All right. Speak soon.
spk11: Thanks, Julian.
spk09: Thank you. Your next question comes from Justin Clare from Ross MKM.
spk00: Please go ahead.
spk05: Hey, guys. Thanks for answering our questions. So I guess first off here, I wanted to dig into the Treasury guidance here. We have gotten some guidance from the Treasury, but we're still awaiting guidance on domestic content, the manufacturing credits, I was wondering if you could just talk about whether you're seeing your customers and developers waiting on the guidance before moving projects forward. Is this a significant hurdle to moving projects ahead here? And if we do get that guidance, could we anticipate an uptick in orders at that point in time?
spk08: Hey, Justin. Thanks for the question. I would tell you I think there are some developers that are maybe better capitalized and more confident in where that guidance will ultimately roll out. So it hasn't slowed them down that much. I think there are others that are a little bit more conservative and waiting to see. I think depending on how some of this guidance turns out may make or break certain projects. So I think it's a combination of things. So clearly there is some holdback. I think also, you know, the interest rate environment is creating some hesitation as you start to look at ROIs. I think although, you know, as we mentioned in the prepared remarks, the supply chain, at least from our perspective, is improving fairly significantly, and we expect to continue to see an improvement through the year, I think we're still dealing with, you know, inflationary impacts that are creating some challenges to some of the projects. So with that said, when we do get guidance, I absolutely expect to see, you know, orders begin to pick up. I don't know if you saw the article today with GE, but GE had a very positive article today on the U.S. market, notwithstanding, you know, the IRA and where that's going. Very bullish on the U.S. market, and I think we're in that same boat. So I do think once we have, you know, more clear guidance that you will see, certainly we'll see order books start to build. But I do see, you know, we are seeing some more, we're already seeing some of that already, even without the full guidance.
spk05: Okay, great. Appreciate all the color there. And then wanted to ask about, you know, assuming that you do sign contracts for your lines like let's say in india you get a contract signed by the end of q2 what's the time frame between getting the the contract signed and then starting up that facility and how long does it take to kind of get the full um operational capability and then you know if we look at the us and mexico Is that time frame similar? So if you were to sign a contract for your facility by the end of the year, what does that look like? And then if you could talk to, you know, how Mexico might operate as well.
spk08: Yeah, it's really a function of demand and when our customers want, you know, want the volume. It's not necessarily just, you know, if we're going back and forth on a contract, getting it signed versus not, we can start moving forward before we have a a finally signed contract, depending on what the, what the volume needs are for the customer. But I would tell you in, in, in both or in all three of them, well, India, Mexico, and, and Iowa, the startup will be much quicker than it would typically be because these are, you know, they're not, they're not greenfields. Iowa will be a little bit trickier just because it's, you know, we're going to have to hire the workforce again and a tight labor market there, but it's probably 18 months in Iowa and, kind of from start to finish. And I would say in Mexico and India, it's probably half that or a third of that, quite frankly.
spk12: Okay. Great. Thanks. I'll pass it on.
spk11: You bet. Thanks, Justin.
spk00: Thank you. Your next question comes from James West from Ebicola ISI. Please go ahead.
spk06: Hey, good afternoon, guys.
spk08: Hey, James. How are you?
spk06: I'm doing well, Bill. Bill, I saw those GE remarks as well, which were extremely bullish remarks on the U.S. market. And I'm curious, because they're talking about being sold out now for 23 versus half sold this time. I think last year was the commentary. How does that translate into your visibility. Is this a question of they're sold out now and other customers are getting sold out and you'll see the orders coming in pretty quickly? Or, I mean, I guess what's the timeline here to when your memorandums turn into contracts?
spk08: Yeah, well, with GE in particular, we expect those by the end of Q2 to turn those into formal contracts. Right. And, yeah, I mean, it's, you know, their visibility is great for our visibility, as you might expect.
spk12: Right, right.
spk08: You know, we have a lot of capacity for them in the U.S. So, you know, the better visibility they have, obviously, that's really good for us as well.
spk06: Of course, of course. Maybe a follow-up for me with the turbine guys having had, you know, difficult conditions the last year or two years and kind of rethinking, you know, some of their model. and trying to get their supply chains in order and dealing with inflation. Are they also talking to you about increased standardization of blades and trying to make the entire process easier, more efficient?
spk08: Yeah, I would say, James, it's less. I mean, they are obviously talking about standardization, talking about modularization. They're talking about slowing down NPI, new product introduction. But from a standardization, it's not as much standardization from a blade perspective across OEMs as it is standardization of how we build the blades in each of our factories and their factories, and maybe our competitors' factories when it's the same blade type. So it's about standardization across a single blade type across all of the manufacturing footprint, whether it's insourced or outsourced, as opposed to standardizing, you know, a Siemens blade runs on a Vestas turbine. Nothing like that.
spk06: Okay. Okay. Got it. Thanks, Bill.
spk11: Yep. Thank you, James.
spk00: Thank you. Your next question comes from Greg Wesakowski from Web of Research. Please go ahead.
spk03: Hey, Bill and Ryan. Good afternoon. How are you doing?
spk11: Good. How are you?
spk03: Yeah, doing fine. Thanks. First question is, appreciate all the guidance that you guys are giving with so many unknowns out there. You guys have already touched on this, but on the 11 available lines, I was wondering if you could recap or maybe get a little bit more granular around the cadence of those in terms of startup and the ramp to full operations and when from now to 2025 that could potentially be hitting P&L. Sure.
spk08: So I will start. I'll start, and if I get it wrong, Ryan will correct me. But on India, we're looking at likely starting by the end of this year, getting those lines ready to go by the end of this year. So you would see production ramping to full production in 2024. So by the end of 2024, entering 2025, you'd be at full ramp. In Iowa right now, it's probably starting to build our team in the back half of this year with startup production probably, maybe it's later in the year in startup production, probably mid-2024 at this point, and then hopefully getting to a point where we're at almost full ramp speed by the end of 24 going into 25. And then in Mexico, it's the end of this year we'll start But it's really, that one's pushed to the right just a little bit. So it's probably kind of a first quarter-ish startup production with being at full ramp by the end of the year. So, you know, I would expect, again, depending on volumes by region, customer, all things, if they were, you know, kind of everything was clicking on all cylinders, exiting 24, moving into 25, we'd be pretty much full ramp on all 44 of the lines. Did I get that right? Okay. Okay.
spk03: Got it. Thank you, Bill. That's very helpful. And then follow up is just on your on your contracts. Just wondering if you could talk a little bit more about the process for incorporating inflation into the contracts of labor, cost of materials, commodity pass throughs, etc. Would you would you characterize those conversations as being more sympathetic in nature now versus last year or a few years ago? And then is there any, is there an actual physical difference in terms between the new, new contracts that you guys are looking at or assigned in the last six months to a year versus the contracts from a few years ago?
spk08: Yeah. So there, there's a lot to unpack there, but I would say in general, I would say there's much more awareness, um, as far as, you know, like inflation and, you know, there's always been a focus on the bill of material. You know, that's 60%, 65% of, you know, total COGS is the BOM. So that's been where the focus has been, and that's where you would see the most shared pain gain. You know, price goes up, we share the price with them. Price goes down, they get some savings. But with some of the inflationary environments we've seen on wages and other things, as well as currency fluctuation, there's more attention being paid to that. By us and by our customers, some of the kind of the limits we've put on it probably look pretty good for our customers right now and not as good for us in some circumstances. So we're working on those as we re-up, either extend or renew or enter into new contracts. We're looking at some of that as well. We're still working through the details of the new contract format. Um, so it's a little, little early to say exactly how, uh, where we'll wind up with our customers, but clearly both sides are much more attuned to, you know, dealing with inflationary environments. Uh, we've been in a deflationary environment for so long until the last couple of years that it was usually pretty simple to do. Uh, but I'll tell you, there's a lot more, uh, focus on it and a lot more work being done around there, but a little bit early yet to tell you exactly how that's going to fall out.
spk03: Understood. Okay. Thanks Bill.
spk11: Yep, thanks, Brad.
spk00: Thank you. Your next question comes from Eric Stein from Craig-Hallan. Please go ahead.
spk02: Hi, Bella. Hi, Ryan.
spk08: Eric, how are you?
spk02: Hey, doing well. Thanks. So this might be tough to answer, but I guess I'll ask it anyway. So, you know, I know you've got the collaboration agreement with Festus, you know, kind of stepping the – I guess the relationship up to an extended and you're talking to all your customers about what the future may look like. So I'm just curious, is there a way to kind of describe what the interaction with Avestis is compared to some of your other customers? And is it possible that you could have, you know, some sort of a enhanced relationship with those other customers as well?
spk08: Yeah, I would, I would, I would tell you our, um, We have actually really good relationships with all of our customers, and they're a little bit different. Each one is a little bit different, but I would tell you that we spend a lot of time with them. And over the last year, we've transitioned a lot of what used to be more transactional to a lot more strategic meeting. So higher level, more frequency with our customers talking about not the issue of the day, but about the issue of two years, three years, five years, ten years down the road. And I would tell you that's happening with all of our customers. So, you know, we do have a little bit of a different contractual structure today with Vestas. But the way the relationships work are very similar between customers and that they are very collaborative. And especially now where I think, you know, it's been a tough couple of years, as we all know. But I think our customers are beginning to see what the potential is. and starting to look more strategically long-term at what their needs are going to be from a geographic standpoint. And so that's really forcing a lot of these more strategic discussions, which works great for both parties.
spk02: Got it. And so, I mean, basically, to put it differently, I mean, your other customers, the relationship is, I mean, it's migrating more towards, you know, kind of what you were talking about in that, And when you signed that agreement, I believe it was you announced on your third call last year.
spk11: Yeah, absolutely. Yep.
spk02: All right. Then maybe last one for me. I know it's been less important here over the last couple of years given activity levels, but I know that certainly speed of transitions, that that was a big focus. So as you come out of this and you look longer term, and you think about what the business looks like, I mean, maybe where do you stand in that, you know, the strides you've made and potentially the impact that has?
spk08: Yeah, I think we've made, you know, we've made really good strides over the last several years. As you indicated, that has been a focus. You know, I think at our last investor day, we talked about a 50% reduction in time and cost due to the transitions right after that COVID happened. Um, so it's been a little bit hard to measure that. Um, but, uh, I feel very confident in where we're at. Um, and instead of having kind of a global team that would go site to site, the focus is now is to really build transition teams at each of our locations, um, so that we can do multiple transitions in multiple geographies more effectively. And it's not like we have to stack them because we only have one team. So I would tell you, we were, we're building that talent pool. making sure that in each region we have the qualified folks that are experienced with the transition, and that will only help to enable us to do more transitions at the same time, if that's the case, but also do them more cost-effectively. Okay, thanks.
spk11: Yep, thanks.
spk00: Thank you. Your next question comes from Graham Price from Raymond James. Please go ahead.
spk13: Hi, good afternoon. Thanks for taking the questions. For the first one, I was just wondering if we could get an update on carbon fiber and epoxy resin costs in particular. I know from your comments it sounds like material costs overall should be trending lower throughout the year, so just wanted to get a little color on that.
spk08: Yeah, we're in a pretty good position with both carbon fiber as well as epoxy. Indices have come down on the epoxy resin over 22. Now, we're still not at pre-pandemic levels, but we are better than we were in 2022, and we see some more improvement through the balance of the year. There is adequate capacity in the world today, which is helping, and as well as with logistics. And when I talk about logistics being back to pre-pandemic levels, I'm talking about inbound as opposed to outbound. But from an inbound logistics standpoint, with the capacity in China, it gives, you know, kind of opens up China again a little bit for us from a raw material sourcing standpoint because the logistics costs have come back down. So from that standpoint, a lot of capacity and the pricing is pretty solid. And carbon fiber, similar. We've seen – now it's still – still higher than it was from a capacity standpoint. We had, you know, we had problems last year a little bit with that, but capacity seems to be fine this year. It's still elevated in cost from where it was pre-pandemic, and that's primarily because it's such an energy-intensive process to produce it, and with energy costs where they're at, especially in Europe, that's continuing to weigh on those costs, but overall in pretty good shape from that standpoint.
spk13: Okay, got it. And then for my second one, I was just wondering about currency exposure in Turkey. Obviously, the lira continues to be basically in a free fall, so I was wondering how that impacts your profitability.
spk01: Yeah, so from a foreign currency perspective, it You know, I think the lira, we'd prefer it to be even more of a free fall with the inflation pressures we've had there. I think we talked about this on our last call that Turkey raised the minimum wage by 54.6%. And certainly that's something we're contending with right now because we're not seeing the same reaction in the lira in its currency. And just as a reminder, our functional currency in Turkey is the euro. And so for us, as the dollar weakens against the euro, that's actually a good thing for us. And as the lira weakens against the dollar and the euro, that's also a good thing. As we bear manufacturing costs and local labor dollars in the lira and also production expenses in local lira, as that weakens, that's a good thing for us. So as we look forward, we're certainly hoping that the currency fluctuations – that they mirror that of what the pressures are seeing inflation right now. Because, you know, our first quarter was impacted. You know, we're already experiencing some of that inflation pressure in the first quarter and didn't have the same reaction with the lira.
spk10: Got it. Got it. Understood. Thank you. Thank you.
spk00: Thank you. Once again, if you wish to ask a question, please press star then one on your telephone keypad. We'll pause for a moment for any further questions to register.
spk09: To ask a question, please press star then one.
spk00: Thank you. There are no further questions at this time. I would now like to turn the conference back over to Mr. Bill Cywick for any closing remarks.
spk08: Thank you again for your time today, as well as your continued interest in support of TPI. Look forward to speaking to you again next quarter.
spk11: Thank you.
spk09: Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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