Release Date: February 20, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• TPI Composites Inc (NASDAQ:TPIC) reported a 17% year-over-year increase in fourth-quarter revenue, driven by improved operational performance and utilization rates of 91%.
• The company generated strong free cash flow of $83 million in the fourth quarter, ending the year with $197 million in unrestricted cash.
• TPIC's restructuring efforts, including divesting the automotive business and shutting down the Nordex Matamoris plant, have positively impacted financial results.
• The company is ramping up production lines in Mexico to support 24/7 operations, responding to strong customer demand for the US market in 2025.
• TPIC is implementing Blade Assure, a new manufacturing initiative aimed at improving the quality of wind turbine blades, which is expected to enhance operational efficiency and product quality.

Negative Points

• Adjusted EBITDA for the fourth quarter was below expectations due to factors such as a targeted reduction in wind blade inventory and a $6 million change in estimate for legacy warranty matters.
• The company faces challenges in the EU market, including competition from Chinese manufacturers and hyperinflation in Turkey, which pose risks to operations.
• TPIC's underutilized factories in Turkey and India are a financial drag, with continued inflation in Turkey impacting production costs.
• There is uncertainty in the wind market due to potential tariffs and regulatory changes in the US, which could affect future demand and operations.
• The company's financial guidance for 2025 indicates a projected EBITDA margin of 2-4%, with underutilization and inflation in certain regions acting as headwinds.

Q & A Highlights

• Warning! GuruFocus has detected 7 Warning Signs with TPIC.

Q: Can you discuss the impact of recent policy changes, particularly regarding the IRA and permitting? A: (CEO) We haven't felt a direct impact yet. We're focused on maximizing production for the US market. Discussions about federal permitting are ongoing, but no direct effects have been observed so far.

Q: What is the financial impact of transitioning to 24/7 operations in Mexico? A: (CFO) We've invested around $4 to $5 million in transitioning three of our four factories in Mexico to 24/7 operations. Most of this investment will pay off in the second half of the year with increased volume.

Q: How should we think about utilization rates throughout the year? A: (CFO) The first quarter is typically our weakest, with utilization around 70%. We expect mid-80s utilization for the year, with the second and third quarters being the strongest.

Q: Is the demand in North America primarily driven by repowering opportunities? A: (CEO) While repowering is a factor, we're fulfilling orders from previous years. Demand for 2025 remains strong, and we haven't seen any significant drop-off.

Q: How are tariffs affecting your operations and customer relationships? A: (CEO) Our contracts typically place tariff responsibilities on customers once blades leave our factories. We're in discussions with customers about potential tariffs, but it's business as usual for now.

Q: What are the next steps for expanding manufacturing capabilities in the US? A: (CEO) We're ramping up our Iowa facility and considering further expansion based on policy certainty. The second facility is planned for 2026 and beyond, contingent on policy developments.

Q: Can you explain the drag on margins despite high utilization in Q4? A: (CFO) The drag was due to underutilization in Turkey and India, inflation in Turkey, and investments in 24/7 operations. Excluding these, margins were around 5%.

Q: Will the restructuring in Turkey lead to positive EBITDA in 2025? A: (CFO) Yes, we expect positive EBITDA from our Turkish facilities despite challenges, thanks to prudent actions and planned headcount reductions.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.