TPI Composites, Inc.

Hello, and welcome to the TPI Composites third quarter 2023 earnings conference call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Jason Wegman of Investor Relations. Please go ahead, sir.

Thank you, operator. I would like to welcome everyone to TPI Composites third 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 Cywick, TPI Composites President and CEO.

Thanks, Jason, and good afternoon, everyone, and thank you for joining our call. In addition to Jason, I'm here with Ryan Miller, our CFO. Today I'll discuss our results and highlights from the third quarter, our global operations, 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 the challenging global wind market and economic climate, our operational execution in the third quarter was in line with our expectations, but our overall results were negatively impacted by an incremental warranty charge and charges related to the unexpected pro terra bankruptcy. The third quarter was highlighted by strong cash performance as we ended the quarter with $161 million of unrestricted cash due to our continued focus on balance sheet efficiency and cost controls. We are confident that a liquidity position will enable us to deal with the near-term challenges the industry is facing and provide us with the runway required to execute and attain our long-term financial targets. We also made progress during the quarter with our customers on several fronts to gain visibility into volume and capacity needs in 2024 and beyond that are part of our pathway to those long-term targets. Therefore, we expect to announce final signed contracts by the end of the year for a number of extensions, startups, and transitions. Please turn to slide six. To summarize our operations for the quarter and the blade business, although we continue to work through some challenges in Mexico, our blade facilities in India and Turkey continue to perform exceptionally well. Globally, we produce 666 sets, or 2.9 gigawatts, with a utilization rate of 85%. As anticipated, our global service business is down year over year due to a reduction in technicians deployed to revenue-generating projects due to the warranty campaign we are working on. For the full year, we expect revenue to be down about 40% year over year. Things continue to progress nicely in our automotive business. However, we now anticipate automotive's 2023 full-year revenue to be down from 2022 primarily due to lower Proterra bus body sales because of their bankruptcy. It's important to note that the reduction of sales to Proterra does not have a meaningful impact on TPI's go-forward EBITDA and cash flow given that the bus volumes forecasted by Proterra were never achieved and the program was operating at about breakeven. In addition, the automotive business is also experiencing lower than expected sales in other automotive products due to our customer supply chain constraints and delays in new product launches. With that said, we are planning to launch three new automotive production programs in the fourth quarter. These programs include large structural panels and a full battery enclosure for two Class 8 commercial truck customers and a high voltage battery pack thermal barriers for a light duty truck. Our customer diversification initiative is paying dividends as these three launches are each with a different customer with two of them being new to TPI. In addition, the products being launched show our investment in innovation and new manufacturing technologies as aligned with the needs of the automotive market. We are continuing to explore strategic alternatives for the automotive business and are encouraged by the progress we have made and expect to have more information to share by the end of the year. As for our supply chain, the situation continues to be significantly better than during the last two years. The overall cost of raw materials has continued to trend down compared to 2022, while logistics costs have returned to pre-pandemic levels. We expect to see additional cost savings in 2024, given the excess capacity for many of our inputs and a slowdown in demand in China. However, we will need to keep an eye on the events in the Middle East and the potential impact that may have on petroleum prices, which could impact the cost of certain feedstocks as well as transportation costs. Over the course of the past few years, we have seen numerous government policy initiatives aimed at expanding the use of renewable energy, including the passage of the Inflation Reduction Act in the U.S., and several policy initiatives in the EU that are expected to simplify regulations, speed up permitting, and promote cross-border projects to accelerate climate neutrality in Europe. We expect that the new government policy will accelerate long-term growth in the wind industry, Despite these favorable long-term policy trends, we don't expect an increase in demand until 2025, while the wind industry awaits clarity on the implementation guidance related to key components of the IRA and clarity around more robust policies in Europe. In addition, permitting, transmission, transmission cues, the ability of the broader wind industry supply chain to ramp volume, rising interest rates and inflation, and the cost and availability of capital are further factors limiting the timing of the wind market recovery. Specific to TPI, we currently expect to have six lines in startup and four lines in transition during 2024. As our customers prepare for stronger expected demand beginning in 2025, which will impact utilization and output during 2024. Furthermore, we expect demand from one of our customers to be down in the near term as they consider their existing inventory levels and contemplate changes in geographic demand, which are expected to result in lower volumes from the underutilization of certain lines and a reduction in overall lines from that customer. So while we do not expect 2024 to be a year of growth for TPI, we do expect to make significant improvements to our EBITDA and EBITDA margins. Today we are operating 37 lines, including the four lines in Mexico for Nordex that we will transition back to them in the middle of 2024. With the transition of lines to larger blades, the startup of new lines, and completion of the Nordex contract in Mexico, and a reset of lines with Vestas, the current plan is to exit 2024 with 36 dedicated production lines. During 2025, we'll be working through additional startups and transitions and expect to have all of our capacity under contract, resulting in 39 lines of production as we exit 2025. With all that as a backdrop, we continue to stand by our mid- to long-term sales, adjusted EBITDA, and free cash flow targets. With our current manufacturing capacity of nearly 15 gigawatts, We expect our wind revenue to eclipse $2 billion, yielding a high single-digit adjusted EBITDA margin and a free cash flow percentage in the mid-single digits over the next couple of years. Now, with that, I'll turn the call over to Brian to review our financial results.