雅虎香港財經 TPI Composites, Inc. (NASDAQ:TPIC) Q1 2024 Earnings Call Transcript
TPI Composites, Inc. (NASDAQ:TPIC) Q1 2024 Earnings Call Transcript May 2, 2024
TPI Composites, Inc. misses on earnings expectations. Reported EPS is $-1.30218 EPS, expectations were $-0.72. TPIC isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, and welcome to the TPI Composites First Quarter 2024 Earnings Conference Call. At this time, I'd like to turn the conference over to Jason Wegmann. Thank you. You may begin.
Jason Wegmann: Thank you, operator. I would like to welcome everyone to TPI Composites First 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 Siwek, TPI Composites for resident and CEO.
Bill Siwek: Thanks, Jason. Good afternoon, everyone. Thank you for joining our call. In addition to Jason, I'm here with Ryan Miller, our CFO. Please turn slide five. I'm pleased to announce the publication of our 2023 Sustainability Report in March of this year. We remain committed to our publicly stated goals of fostering a zero-harm culture in achieving carbon neutrality by 2030 through 100% renewable energy procurement. Wind blades produced by us in 2023 are estimated to prevent approximately 346 million metric tons of CO2 emissions over their 20-year lifespan. We're advancing towards our 2030 goal of carbon neutrality, achieving an 18% reduction in overall market-based Scope 1 and 2 CO2 emissions. In Turkey, we invested in two wind turbines and additional solar panels.
Further, to enhance on-site renewable energy use, we signed a power purchase agreement in India. We reduced total annual waste generated by 12%. Our behavior-based safety program continued to yield safety results outperforming industry standards in our internal goals, and we have fully embraced our IDEA program and will recognize with numerous awards for our commitments to inclusion and diversity around the globe. In the U.S., our LEAP for Women program was recognized with a GRID Award for Best Affinity Group. In Mexico, we were recognized as a top employer. In India, we were recognized as one of the 100 best companies for women, and in Turkey, we were awarded the Silver Steady Great Employers Award for Achievement in Diversity and Inclusion.
Advancing our sustainability goals remains a priority in 2024. We're actively negotiating a purchase power agreement in Mexico to ensure 100% renewable energy for our facilities there. Additionally, we're working to expand on our recent PPA in India. These investments go beyond environmental benefits. They also make strong economic sense, contributing directly to the improvement of our financial performance. Please turn to slide seven. With the guidance we provided during our 2023 fourth quarter earnings call, sales and adjusted EBITDA on the first quarter of 2024 were lower than in the prior year due to the timing of production line startups and transitions across several of our facilities. However, they were slightly ahead of our plan, so we are still on track for the full year.
Let me remind you that we expect to go back to positive EBITDA margins and positive free cash flow in the second half of the year after we get through the process of ramping up the 10 lines that are in startup or transition in the first half of the year. I'm confident in our ability to achieve mid-single-digit adjusted EBITDA margins in the second half of the year, given the excellent operational execution we are seeing today in most of our plans. The $23 million adjusted EBITDA loss in the first quarter included $22 million related to startup and transition costs, $9 million of unanticipated losses from the Nordex Matamoros plant due to temperature and humidity issues as well as decreased volume requirements, and we recorded an $8 million charge to account for the inflationary impact of completing pre-existing warranty claims.
Without these items, our adjusted EBITDA margin would have been over 5% and that's at a 67% factory utilization level. I'm not expecting these items to impact us in the second half of the year, which is why we will return to solid margin performance in the third and fourth quarters when our utilization climbs well above 80%. Activities to transition the Matamoros plant back to Nordex are in full swing and we are on track to return to the facility by June 30 as planned. Our use of cash in the quarter was primarily to fund our startups and transitions and was aligned with our expectations. We believe our quarter-end cash balance of $117 million, along with access to existing credit facilities, and the significant impact of the strategic refinancing with Oaktree provides us ample equity to navigate current market conditions and ultimately expand to meet our customers' growing needs as we target a return to positive cash flow in the second half of the year.
Please turn to slide eight. Turning to our wind business performance, our blade facilities in India and Turkey continue to be profitable, delivering 241 blade sets representing 1.4 gigawatts of capacity during the quarter. Most of our Mexico operations performed well, even while going through numerous transition startups and volume adjustments. Overall, our operating performance is benefiting from our renewed focus on lean, embracing lean practices and ensuring they are part of our day-to-day culture will enable us to deliver greater value to our customers while optimizing our cost structure, maximizing productivity and manufacturing the highest quality blades in the industry. Moving on to our field service business, as anticipated, our global service revenue declined year-over-year.
This reflects a temporary reduction in technicians assigned to revenue-generating projects due to the warranty campaign announced last year. We expect our technicians to return to normal levels of revenue-generating work by mid-year. Despite continued progress building the automotive segment's order pipeline and operational execution, and notwithstanding growth in non-Proterra revenue, Q1 revenue fell year-over-year due to the Proterra bankruptcy. The growth in non-Proterra revenue was largely due to the launch of a new product line for our largest passenger EV customer. While we've made significant investments in expanding our automotive business over the past years and continue to see strong growth potential for composite products and electric vehicles, we're prioritizing capital allocation towards the wind business.
To ensure our automotive segment has the resources and support to execute its growth strategies, we've been exploring strategic alternatives and expect to finalize a transaction by the end of the second quarter. Our supply chain execution and cost performance remain very stable. Raw material costs have decreased compared to this time in 2023, with further savings expected due to excess manufacturing capacity in China. Logistics around the Red Sea situation remain well-managed with no operational or significant cost impacts to date. Now, with respect to the wind market, we are seeing the beginnings of an EntraWin [ph] rebound driven by ambitious government action, including the Inflation Reduction Act in the U.S. and the E.U. Green Deal and Repower E.U. policies, in response to the need for greater energy independence and security to address climate change and to meet the increase in global electricity demand, fueled by factors like generative artificial intelligence and data centers, EVs, and the electrification of buildings.
Excluding China, expectations are for global onshore installations to hold steady in 2024, with the growth inflection point in 2025 followed by continued expansion throughout the decade. And the U.S. BNEF is projecting onshore wind installations in 2024 of 8.4 gigawatts and to be nearly 20 gigawatts per year by the end of the decade. While favorable long-term policies like those in the U.S. and the E.U. provide optimism and have helped to accelerate orders for our customers, we still don't anticipate increase wind installations in our primary markets to fully materialize until 2025. The industry still awaits some critical details on implementing key components of the Inflation Reduction Act, such as the domestic content adder, prevailing wage and apprenticeship clarifications, 45Z, and the transition from PTC and ITC to the new tech-neutral version.
Also elevated interest rates, inflation, the cost and availability of capital permitting hurdles and transmission bottlenecks are also contributing to near-term delays. There are, however, encouraging signs that the U.S. and the E.U. are addressing permitting and transmission bottlenecks. FA Wind recently announced that permits for projects in Germany soared to a record high in the first quarter of 2024, nearly 40% higher than the same period last year. This progress is largely attributed to new laws and regulations that streamline the permitting process, including granting renewable energy projects overriding public interest status. In the U.S., the Department of Energy released a transmission interconnection roadmap, I2X, to tackle challenges in connecting renewable energy to the grid.
This roadmap aims to streamline the process by 2030, focusing on faster approvals and more consistent costs while maintaining grid stability. Additionally, the White House Council on Environmental Quality has finalized a rule to reform, simplify, and modernize the federal environmental review process under the National Environmental Policy Act. The new rule will build on more than $1 billion from President Biden's Inflation Reduction Act to expedite federal agency permitting. Technical advances are also being made. Recent research shows re-conductoring existing transmission lines with advanced conductors can double capacity on existing rights of way in just 18 to 36 months. Now, before I turn it over to Ryan, our financial outlook hasn't changed over the past couple of quarters as we still expect 2024 to be a year of transition.
We're currently running 36 production lines, including those for Nordex and Matamoros, which are on track to transition back to them by the end of the second quarter. We are progressing nicely on the start of some transitions, all of which will impact production volume and utilization in the first half of the year, but significant improvement is expected in the second half as these lines achieve serial production. Despite lower utilization in 2024 compared to 2023, we still expect strong improvement and profitability as we have addressed the operational challenge faced in 2023. As such, we are reconfirming our 2024 revenue guidance of $1.3 billion to $1.4 billion with an EBITDA margin between 1% and 3%. In 2025, we continue to expect a significant step up in profitability with EBITDA exceeding $100 million, putting us back on track to achieve our high single-digit EBITDA margin target in 2026 and beyond.
With that, I'll turn the call over to Ryan to review our financial results.
Ryan Miller: Thanks, Bill. Please turn to slide 10. In the first quarter of 2024, net sales were $299.1 million compared to $404.1 million for the same period in 2023, a decrease of 26%, net sales of wind blades, tooling, and other wind-related sales, which hereafter I'll refer to as just wind sales, decreased by $98.7 million in the first quarter of 2024, or 25.5% compared to the same period in 2023. Blade sales this quarter were negatively affected by startup and transition activities at our Mexico and Turkey facilities, expected volume declines based on market activity levels, and a decrease in average sales prices due to changes in the mix of wind-blade models produced. This decrease was partially offset by favorable foreign currency fluctuations and an increase in tooling sales in preparation for manufacturing line startups and transitions.
Field service revenue declined by $1.1 million in the first quarter of 2024 compared to the same period in 2023. Our first quarter is typically a low point for service revenue due to seasonal weather patterns and the nature of the work performed, and this year was also impacted by the warrants campaign announced last year. We expect a full transition back to revenue generating activity by the second half of this year. Automotive sales decreased by $5.3 million in the first quarter of 2024 compared to the same period in 2023. This decrease was primarily due to a reduction in bus body delivery due to Proterra bankruptcy partially offset by an increase in sales of other automotive programs and the launch of a new product line for our largest passenger EV customer.
Adjusted EBITDA for the first quarter of 2024 was a loss of $23 million compared to the adjusted EBITDA of $8.4 million during the same period in 2023. The decrease in adjusted EBITDA for the first quarter of 2024 as compared to the same period in 2023 was primarily driven by lower sales, higher startup and transition costs, and changes in estimate for pre-existing warranty claims partially offset by favorable foreign currency fluctuations. Moving to slide 11, we entered the quarter with $170 million of unrestricted cash and cash equivalents and $510 million of net debt. As planned, we had negative free cash flow of $47.3 million in the first quarter of 2024 compared to negative free cash flow of $87.1 million in the same period in 2023. The year-over-year improvement was primarily driven by the absence of payments tied to the closure of our operations in China and the growth of contract assets in the first quarter of last year.
The net use of cash in the first quarter of 2024 was primarily due to our EBITDA loss, capital expenditures and interest in tax payments. As previously communicated, we expect the second quarter to be the low water mark for cash. We've had much success improving the efficiency of our balance sheet over the past couple quarters and we will remain focused on preserving cash and optimizing working capital to ensure we have the resources to execute key initiatives and restart idle capacity moving forward. A summary of our financial guidance for 2024 can be found on slide 12. There are no changes to our original financial guidance provided earlier in the year and I want to reiterate that the results from the first quarter for sales, adjusted EBITDA and cash flow were in line with our plans.
We continue to anticipate sales from continuing operations in the range of $1.3 to $1.4 billion for the year. We also continue to believe 2024 will be the tail of two halves. In the first half, we will be ramping up 10 lines that are either in startup or transition. We expect the first half's volume to be a fair amount lower than the second half and the first quarter will be lower than the second quarter. As we work through these transitions and startups, we are generating modest losses and consuming cash. In the first half of the year, we are still expecting our adjusted EBITDA margin to be a mid-single-digit loss. The first quarter was likely our low point for profitability this year and we should improve somewhat in the second quarter as volumes ramp to serial production.
Our adjusted EBITDA margin improves to mid-single digits in the second half of the year and we expect to be generating positive cash flow. For the full year, we anticipate capital expenditures of $25 to $30 million. These investments are driven by our continued focus on achieving our long-term growth targets and restarting our idle lines. We continue to be confident in our liquidity position, which has improved significantly since we refinanced the Oaktree preferred shares into a term loan. We believe our balance sheet, along with the improvement in our liquidity and operating results, will enable us to navigate another transition year and will also allow us to invest to achieve our mid- and long-term growth, profitability, and cash flow targets.
With that, I'll turn the call back over to Bill.
Bill Siwek: Thanks, Ryan. Please turn to slide 14. The numerous government policy initiatives aim at expanding the use of renewable energy, the need for energy independence, and security and growing OEM backlogs give us confidence in the wind industry's short and long-term growth. We are an integral part of the EntraWin growth story, and we remain focused on managing our business with an acute focus on reinforcing lean principles to enhance our operational and financial performance. We are committed to partnering with our customers by aligning our factories to support their next-generation turbine models, while also actively evaluating new geographies and sites to meet their expected needs in the future. The process of startups and transitions is progressing well, and we remain confident in our full-year financial expectations as we are planning a return to mid-single-digit adjusted EBITDA margins and positive free cash flow in the second half of 2024.
Long-term prospects for TPI remain strong, and we are ready to get back to adjusted EBITDA north of $100 million in 2025. Finally, I want to thank all of our TPI associates for their continued commitment, dedication, and loyalty to TPI. I'll now turn it back to the operator to open the call for questions.
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