TPI Composites, Inc. (NASDAQ:TPIC), a leading independent manufacturer of composite wind blades, has navigated a challenging transition year in 2024 as it aligns its global manufacturing footprint to support its customers' next-generation turbine models. Despite near-term headwinds, the company remains well-positioned to capitalize on the robust long-term growth prospects in the renewable energy sector.

In fiscal year 2023, TPI Composites reported annual revenue of $1,455,183,000, a net loss of $201,779,000, and negative operating and free cash flows of $80,972,000 and $117,109,000, respectively. These results reflect the company's strategic investments to expand its manufacturing capabilities and address operational challenges faced in 2023.

The first quarter of 2024 saw TPI Composites' revenue decline 26% year-over-year to $299,062,000, as the company worked through a series of manufacturing line startups and transitions across its global facilities. This transition process, which impacted both volume and utilization, resulted in an adjusted EBITDA loss of $22,982,000 for the quarter. However, the company remains confident in its ability to return to mid-single-digit adjusted EBITDA margins and positive free cash flow in the second half of 2024 as these startup and transition activities are completed.

Business Overview

TPI Composites is the only independent manufacturer of composite wind blades with a global manufacturing footprint. The company operates in four geographic segments: the United States, Mexico, Europe, the Middle East and Africa (EMEA), and India. TPI Composites' primary business is the production of wind blades, tooling, and other wind-related products for leading original equipment manufacturers (OEMs) in the wind energy market. The company also provides field service, inspection, and repair services, as well as products for the automotive industry.

Navigating Operational Challenges

The first quarter of 2024 was marked by significant startup and transition activities across TPI Composites' global manufacturing network. The company had six manufacturing lines in startup and four lines in transition during the quarter, which impacted both production volume and utilization. These startup and transition costs, along with operational challenges at the company's Matamoros, Mexico facility, weighed on the company's financial performance in the quarter.

Specifically, the Matamoros facility, which TPI Composites took over from Nordex in 2021, experienced a 27% decrease in wind blade production due to environmental conditions, including extreme cold temperatures and humidity issues. This, combined with reduced volume requirements from the customer, resulted in an additional $9 million in losses at this facility during the quarter.

Furthermore, the company recorded an $8 million charge to account for the inflationary impact of completing pre-existing warranty claims. Excluding these one-time items, TPI Composites' adjusted EBITDA margin would have been over 5% in the quarter, despite the 67% factory utilization level.

Positioning for a Stronger Second Half

TPI Composites expects a significant improvement in its financial performance in the second half of 2024 as the startup and transition activities are completed, and its manufacturing facilities achieve serial production levels. The company is targeting mid-single-digit adjusted EBITDA margins and positive free cash flow during this period.

The company's confidence in the second-half outlook is bolstered by the excellent operational execution it is seeing in most of its plants, as well as the favorable long-term trends in the renewable energy market. TPI Composites is actively working to transition the Matamoros facility back to Nordex by the end of the second quarter, which should further improve its profitability.

Renewable Energy Market Tailwinds

The renewable energy market, particularly the onshore wind industry, is poised for robust growth in the coming years, driven by favorable government policies and the increasing global demand for clean energy. In the U.S., the Inflation Reduction Act and in Europe, the EU Green Deal and REPowerEU policies, are expected to accelerate the expansion of renewable energy and drive increased demand for wind turbines.

Excluding China, global onshore wind installations are expected to hold steady in 2024, with a growth inflection point in 2025 and continued expansion throughout the decade. In the U.S. alone, BloombergNEF projects onshore wind installations to reach 8.4 gigawatts in 2024 and nearly 20 gigawatts per year by the end of the decade.

While these favorable long-term policy trends provide optimism, the wind industry is still awaiting critical details on the implementation of key components of the Inflation Reduction Act, such as the domestic content adder, prevailing wage and apprenticeship clarifications, and the transition from the Production Tax Credit (PTC) and Investment Tax Credit (ITC) to the new tech-neutral version. Additionally, elevated interest rates, inflation, the cost and availability of capital, permitting hurdles, and transmission bottlenecks are contributing to near-term delays in the industry's recovery.

Nonetheless, there are encouraging signs that the U.S. and EU are addressing these challenges. In Germany, permits for renewable energy projects soared to a record high in the first quarter of 2024, nearly 40% higher than the same period last year, largely attributed to new laws and regulations that streamline the permitting process. In the U.S., the Department of Energy's Transmission Interconnection Roadmap aims to tackle challenges in connecting renewable energy to the grid by 2030.

Automotive Business Optimization

While TPI Composites has made significant investments to expand its automotive business over the past several years, the company is now prioritizing capital allocation towards the wind business. To ensure the automotive segment has the resources and support to execute its growth strategies, TPI Composites is exploring strategic alternatives and expects to finalize a transaction by the end of the second quarter of 2024.

Financials

As of March 31, 2024, TPI Composites had $116,850,000 in unrestricted cash and cash equivalents and $510,000,000 in net debt. The company's balance sheet, along with the improvement in its liquidity and operating results, is expected to enable it to navigate the transition year and invest in achieving its mid- and long-term growth, profitability, and cash flow targets.

For the full year 2024, TPI Composites is reconfirming its revenue guidance of $1,300,000,000 to $1,400,000,000, with an adjusted EBITDA margin between 1% and 3%. The company expects a significant step-up in profitability in 2025, with adjusted EBITDA exceeding $100,000,000, putting it back on track to achieve its high single-digit EBITDA margin target in 2026 and beyond.

Conclusion

TPI Composites is navigating a challenging transition year in 2024 as it aligns its global manufacturing footprint to support its customers' next-generation turbine models. Despite near-term headwinds, the company remains well-positioned to capitalize on the robust long-term growth prospects in the renewable energy sector, particularly in the onshore wind industry.

The company's confidence in its ability to return to mid-single-digit adjusted EBITDA margins and positive free cash flow in the second half of 2024, coupled with its strong liquidity position and the favorable long-term trends in the renewable energy market, suggest that TPI Composites is poised for a strong recovery and continued growth in the years ahead.