TPI Composites, Inc.

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.

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

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.