TPI Composites, Inc.

Good afternoon and welcome to TPI Composites' third quarter 2024 earnings conference call. At this time, I'd like to turn the conference over to Jason Wegman, Investor Relations for TPI Composites. You may begin.

Thank you, Operator. I would like to welcome everyone to TPI Composites' third quarter 2024 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. Good afternoon, everyone, and thank you for joining our call. In addition to Jason, I am here with Ryan Miller, our CFO. Please turn to slide five. Our third quarter was a big improvement over the first half of the year as we were able to post positive adjusted EBITDA and operating cash flows driven by the actions we've taken to restructure our portfolio and transition 10 lines to next generation workhorse blades. It's also nice to get back to growth mode as our sales grew 23% sequentially over the second quarter of this year and 3% over the third quarter of last year. We believe our strategic positioning with our key customers will enable sustained long-term growth. We continue to engage in productive discussions with our customers to understand their priorities and collaborate on mutual success. As quality remains paramount, we have continued to maintain a measured and controlled approach to increasing production on new lines in Mexico to ensure a smooth transition. We remain confident in our ability to meet customer demand and anticipate finishing the year on a strong trajectory for 2025. Discussions with customers on further expansion of our footprint continue. We've agreed with GE Brnova to reopen our Iowa plant in mid-2025 to support their two-megawatt platform, which has proven to be a popular option for repowering. Discussions with other OEMs are progressing based on expected U.S. market expansion, where we have recently secured additional U.S. manufacturing capacity, as well as to serve the burgeoning onshore wind market in India, as well as the Turkey A market, given the recent announcements by the Turkey A government to increase its wind capacity threefold to 30 gigawatts by 2035. Although the details on local content are still being finalized, it is anticipated that much of what will ultimately get installed in Turkey A will either require blades that are manufactured locally or will provide additional incentives for locally produced blades. We see this development as a potential positive for our long-term operations in Turkey A. From an operational perspective, sales for the quarter were $380.8 million. And while impacted by slower than originally planned production ramps, we were in line with our expectations and full year guidance. Adjusted EBITDA of $8 million in the quarter marks our expected return to positive EBITDA. However, it was lower than expected due to several factors. First, our measured approach to transitions and startups to ensure adherence to increased quality standards for new blades and complex blade models extended our startup and transition timelines leading to about $15 million in lower sales, along with higher startup and transition costs at two of our facilities, which impacted our adjusted EBITDA by approximately $5 million. This approach, however, ensures we can deliver increased volumes in 2025 and beyond more efficiently and profitably. Second, inflation in Turkey led to a $4 million negative impact. Third, we recorded a $7 million change in estimate for legacy warranty matters to account for updated information, revised inspection and repair procedures implemented during the quarter, and, of course, inflation. Finally, to support demand needs for the U.S. market in 2025 and beyond, we began investing additional resources to enable a 24-7 schedule at certain of our Mexico facilities. This will enable additional volume off the same number of lines with no or minimal CapEx which will drive lower per-blade costs and improve our long-term competitiveness. When looking at our ongoing operations, without the specific charges I just outlined, our adjusted EBITDA margin in the third quarter would have been north of 6%, showing progress towards our long-term EBITDA targets. Utilization in the third quarter jumped to 89% as seven of the ten lines in startup or transition achieved full rate production, with the remaining three lines expected to get there in the first half of the fourth quarter. Globally, we delivered 601 blade sets representing 2.5 gigawatts of capacity during the quarter. Please turn to slide six. As we move into the fourth quarter, all our regions are expected to be EBITDA positive with anticipated utilization rates over 90%. The fourth quarter is also expected to be our strongest free cash flow generation quarter of the year. Our continued focus on lean principles and quality management has enhanced our production quality and improve our cost structure, but we still have significant opportunities, so we'll continue to focus on eliminating waste and streamlining processes to achieve higher efficiency and reduced operating costs. Moving forward, we will continue to invest in innovation and technology, ensuring we strengthen our competitive edge and position TPI as the premier blade provider in the onshore market. Our supply chain continues to operate effectively with overall raw materials estimated to decrease year over year in 2025 by nearly 8%. While logistics costs have been somewhat volatile during 2024, given multiple global events, our procurement strategies have minimized any operational and financial impacts. We expect the same during 2025. With respect to the wind market, geopolitical events around the world have accelerated regional needs for energy independence and security. The global demand for clean energy continues to rise, driven by factors such as the growing need for data centers, semiconductor chip manufacturers, the adoption of electric vehicles, the electrification of buildings, and the desire to provide for this through net zero sources. 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 passing of the IRA 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. We expect these trends in governmental policy will enable long-term revenue growth in the global onshore wind industry. Notwithstanding the recent U.S. election results, we are encouraged by the near-term demand we are seeing from our customers and therefore anticipate continued revenue growth for TPI in the U.S. in 2025. We expect this growth will be supported by blade lines operating at near full capacity throughout 2025 along with the planned reopening of our Iowa blade plant by mid 2025. While the past nine months have presented challenges, we believe we are strategically positioned with the right customers and blade types to thrive in the US market for years to come. Although it is too early to assess the impact of the outcome of the US election, Many analysts believe that if President-elect Trump tried to roll back the current administration's climate agenda, including the IRA, in part or in full, U.S. wind and solar sectors will remain resilient due to a strong state-level support, including significant renewable manufacturing investment in red states, increasing private sector demand for power that will dictate an all-of-the-above approach to capacity deployment, and a relatively strong Republican support in Congress. Turning to Europe, long-term onshore market growth remains in sight. However, these markets are dealing with many of the same issues as in the U.S., namely inflation, permitting, transmission, supply chain disruptions, and labor availability. Historically, we have serviced the European market from our plants in Turkey A. However, the hyperinflationary environment that we have experienced in recent years in Turkey A is not expected to subside anytime soon, And although we can pass some of the incremental costs to our customers, these incremental costs make us less competitive into the EU as well as less profitable. Furthermore, while we have competed successfully with Chinese blade manufacturers for years, their recent aggressive push supported by the Chinese government to expand their capacity for Europe has added to the challenging competitive environment for supply into the EU. Unlike the US, which has implemented tariffs and generous tax laws to encourage nearshoring and domestic manufacturing, the EU has not yet taken as aggressive an approach to help level the playing field for component suppliers like TPI. Nordex, our largest customer in Turkey, has eight production lines scheduled to expire by the end of 2025. Additionally, they have two lines in India that expire at the end of 2024. Nordex has informed us that they will not renew the two lines in India. However, we have already replaced those lines with two lines for Vestas. While we are committed to our long-term relationship with Nordex and Turkey and elsewhere, it is uncertain whether or not they will extend their contracts beyond 2025 at this time. However, I would suggest that should the recently announced plans of the Turkish government play out as we expect, Demand for that capacity should be robust, and this would position Turkey A as one of the largest wind markets in the region. Given the market share enjoyed by both Nordex and Enercon, both companies stand to benefit from this development. Given the challenges experienced in the third quarter, along with the extended transitions and startups, we are reducing our adjusted EBITDA outlook for the year to a loss of approximately 2%. However, the fourth quarter is still expected to be EBITDA positive and the strongest free cash flow generation quarter of the year, leading us into what we expect to be a much stronger year financially in 2025. Our current thinking on 2025 in context of the adjusted EBITDA target we have discussed the last few quarters has evolved based on updated information and customer decisions made in the last few months. While we are still working through our annual plan for 2025, some of these customer decisions are creating some headwinds that are going to be difficult to offset in the near term. The two biggest challenges are related to inflation, particularly in Turkey A, and demand in both Turkey A and India from Nordics. While it's still too early to provide you with a lot of specificity and therefore formal guidance for 2025, we currently expect volumes for lines under contract in Turkey A to be down approximately 40% in 2025 compared to previous expectations. These factors have created a volume shortfall for us compared to what we had previously anticipated in 2025. We are working to replace that volume as well as exploring other strategic alternatives to maximize the value of our Turkey A operations. With that, I'll turn the call over to Ryan to review our financial results.