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Operator: Good afternoon, and welcome to TPI Composites’ Fourth Quarter and Full Year 2022 Earnings Conference Call. Today’s call is being recorded. We have allocated one-hour for prepared remarks and Q&A. At this time, I’d like to turn the conference over to Christian Edin, Investor Relations for TPI Composites. Thank you. You may begin.

Christian Edin: Thank you, operator. I would like to welcome everyone to TPI Composites’ fourth quarter and full year 2022 earnings call. We’ll 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 was 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.

In addition, please note that our financial statements now include a discontinued operation. In December, we committed to a restructuring plan to rebalance our organization and optimize our global manufacturing footprint. In connection with this plan, we ceased production in our Yangzhou, China manufacturing facility as of December 31, 2022, and plan to shut down our business operations in China. Our business operations in China comprise the entirety of our Asia reporting segment. This shutdown will have a meaningful effect on a global manufacturing footprint and consolidated financial results. Accordingly, the historical results of our Asia reporting segment has been presented as discontinued operations in our consolidated statements of operations and consolidated balance sheets.

As we discuss year-over-year comparisons, please note, we will refer to the combination of continuing operations and discontinued operations. With that, let me turn the call over to Bill Siwek, TPI Composites’ President and CEO.

BillSiwek: Thanks, Christian, and good afternoon, everyone. Thank you for joining our call. In addition to Christian, I’m here with Ryan Miller, our CFO. Today, I’ll discuss our fourth quarter and full year results, our global operations, including our service and automotive businesses, then cover our supply chain and the wind energy market more broadly. Ryan will then review our financial results, and then we’ll open the call for Q&A. So please turn to Slide 5. For the fourth quarter, we delivered total sales of $461.8 million and adjusted EBITDA of $40.8 million. We finished the year strong in a very challenging environment and I’m extremely proud of our over 13,000 dedicated associates that made this possible. Our fourth quarter adjusted EBITDA margin of 8.8% demonstrates that a relentless focus on safety, quality, delivery and cost, can deliver strong financial results even in a difficult operating environment.

For the full year 2022, we delivered net sales of $1.76 billion, a slight increase over 2021 and adjusted EBITDA of $73.6 million or 4.2%, while delivering approximately 12.6 gigawatts of blades. Considering the challenges the industry faced in 2022, we are pleased with our execution and results while taking many steps to set us up for long-term success. Now a quick summary of some of our successes and key actions in 2022. We extended 2 lines with ENERCON in Türkiye through 2025. We extended 10 lines with GE in Mexico through 2025. We also signed an agreement with GE that enabled us to secure a 10-year lease extension of our manufacturing facility in Newton, Iowa. Under the agreement, GE and TPI will be developing competitive blade manufacturing options to best serve GE’s commitments in the U.S. market with production expected to start in 2024.

We are also in discussions with GE for a long-term partnering agreement to provide more capacity and flexibility to GE, along with higher utilization of our manufacturing capacity. We announced a long-term global partner framework agreement with Vestas that aims to provide flexibility along with more capacity for them, while enabling better facility utilization for us in the geographies that we serve Vestas. We have agreed to a deal with Nordex to effectively extend 4 of 6 lines in Türkiye through 2026, the other 2 lines will be extended through 2024. And in addition, we’ll add 2 new manufacturing lines in India, while limiting the losses from the 4 lines in Matamoros over the remaining term of that contract. With all the commercial activity during 2022 and thus far in 2023, we now have a total potential net revenue covered by long-term contracts for our wind business nearing $10 billion.

We grew our service revenue by 68.8%, while entering several new international markets. The growth of our services business remains a priority, and we expect 20-plus percent growth from our continuing operations in 2023, which obviously excludes China. We grew our automotive business by nearly 18% year-over-year and now have 4 serial production programs with an OEM customer, 7 development programs for Class 8 cab structures and last-mile delivery vehicles, along with orders for prototypes of delivery vehicle and battery pack components. Notwithstanding the commercial success we had in 2022, we expect sales to be flat year-over-year given expected lower volumes from our bus customer. With our recent commercial success and the solid foundation we built in our automotive business, we are evaluating strategic alternatives to enable us to accelerate the growth of this business.

Finally, during the fourth quarter, we announced and recorded material restructuring and impairment charges with respect to closing our China operations and additional headcount reductions in our other manufacturing facilities and corporate functions. We expect these actions to result in structural cost savings of approximately $20 million to be realized in 2023 and beyond, while continuing to focus on operational efficiencies to drive annual productivity savings of over $20 million per year, which we have consistently achieved over the past 3 years. Moving on to Slide 6. We see 2023 as a transition year, while the industry awaits formal implementation guidance related to key components of the IRA in the U.S. and clarity around more robust policies in the EU, such as the recently proposed Green Deal industrial plan aimed at speeding up the expansion of renewable energy and green technologies, while building on previous initiatives, such as the European Green deal and REPowerEU.

In 2022, nearly 45% of all our blade shipments were into the Europe. So it is an important market for us, and we expect the implementation of the Green Deal industrial plan and the growing need for energy security and independence in the EU to accelerate our growth in the region. Now for a quick global operations update. Our plants in Juarez, Mexico, Türkiye, India and China performed ahead of plan in the fourth quarter and for the full year. Operations in our newest facility in Matamoros are still challenged from a cost and profitability standpoint. As we discussed last quarter, we were working with our customer to reduce the impact and we have come to an agreement that will limit our losses in this facility through the end of the contract.

Overall, however, our blade operations have performed extremely well. As it relates to our supply chain, the situation continues to be challenging, but significantly better than the last 2 years. As we look out into 2023, we expect overall pricing for raw materials that we source to be down compared to 2022. With our contract structure and shared pain-gain approach we expect to have a net benefit in 2023 over 2022. Turning to Slide 7. Given a bit more stability in the industry especially as it relates to supply chain and contractual arrangements with our customers, we’re issuing formal guidance in 2023. We expect net sales of between $1.6 billion to $1.7 billion, with sales from continuing operations to be up high single to low double-digit percentage compared with 2022 as blade sales are increasing, primarily due to increased demand in the U.S. as well as ASPs being up approximately $2,000 per blade.

We expect our adjusted EBITDA margin from continuing operations to be about flat with 2022 as structural cost savings and margin flow on higher sales volume and improved utilization in the range of 85% to 90% will be offset by wage adjustments and inflation that cannot entirely be passed on to our customers. This guidance includes the negative impact of approximately 250 to 300 basis points of adjusted EBITDA margin for contract-related costs in excess of revenue related to our Nordex, Matamoros, Mexico facility. Please note that this guidance is for continuing operations. For discontinued operations, we expect no sales and expect an adjusted EBITDA loss of approximately $2 million. Lastly, we expect capital expenditures of about $25 million in 2023, which is an increase over 2022 as we expect to start investing in infrastructure for the U.S. market in the second half of 2023.

While we recognize the challenges the wind industry continues to face in the near term, we remain confident that demand for wind energy will strengthen as we move closer to 2024, given that we will likely have a final IRA guidance, more clarity around the implementation of the EU’s Green Deal industrial plan, as well as the continued focus on energy security and independence globally. We believe TPI remains in a unique position with our global footprint in key strategic geographies along with strong partnerships with our customers and suppliers to grow profitably as the demand for wind begins to accelerate again. Turning to Slide 8. With that said, over the next couple of years, we expect our wind revenue to eclipse $2 billion, yielding a high single-digit adjusted EBITDA margin and free cash flow as a percent of sales in the mid-single digits, this without expanding our existing footprint of approximately 44 lines globally, which excludes the 4 Nordex lines in Matamoros.

We expect to have these 44 lines fully dedicated by the end of 2023, which will give us about 3,600 sets per year or 14 gigawatts of capacity. With that said, let me turn the call over to Ryan to review our financial results.

Ryan Miller: Thanks, Bill. Please turn to Slide 10. As Christian mentioned earlier, in December of 2022, we committed to our restructuring plan to rebalance our organization and optimize our global manufacturing footprint. In connection with this plan, we ceased production at our Yangzhou, China manufacturing facility as of December 31, 2022, and we are in the process of shutting down all our business operations in China. So as a result, the historical results of our Asia reporting segment have been presented as discontinued operations in our financial statements. All comparisons discussed today will be on a year-over-year basis for total continuing and discontinued operations compared to the same period in 2021. We are making these comparisons in total as we operated the China business for the entirety of 2022 and believe investors’ expectations are aligned with total results, including continuing and discontinued operations.

For the 3 months ended December 31, 2022, net sales from continuing and discontinued operations totaled $461.8 million as compared to $389.5 million for the same period in 2021, an increase of 18.6%. Net sales from continuing operations for the 3 months ended December 31, 2022, increased 15.2% to $402.3 million as compared to $349.2 million in the same period in 2021, primarily driven by higher average sales prices due to the mix of wind blade models produced and the impact of inflation on blade prices. An increase in volume at 2 of our Türkiye manufacturing facilities and an increase in volume at our Nordex manufacturing facility in Matamoros, Mexico. Note also that sales in 2021 were negatively impacted by an adverse cumulative catch-up adjustment.

These increases were partially offset by a decrease in volume at our facility that shut down at the end of the fourth quarter of 2021 and foreign currency fluctuations. Net sales from discontinued operations for the 3 months ended December 31, 2022, increased 47.8% to $59.5 million as compared to $40.3 million in the same period in 2021, primarily driven by an increase in volume prior to ceasing production at the end of 2022. Net loss attributed to common stockholders was $57.8 million for the 3 months ended December 31, 2022, compared to a loss of $93.3 million in the same period in 2021. For the 3 months ended December 31, 2022, our net loss attributed to common stockholders includes $15.2 million of preferred stock dividends and accretion compared to $6 million in the same period in 2021.

Adjusted EBITDA from continued and discontinued operations totaled $40.8 million for the 3 months ended December 31, 2022, compared to a loss of $28.3 million in the same period in 2021. Our adjusted EBITDA margin from continuing and discontinued operations increased to a total of 8.8% in the 3 months ended December 31, 2022. As compared to a loss of 7.3% in the same period in 2021, primarily due to an adverse cumulative catch-up adjustment recorded in 2021. A favorable cumulative catch-up adjustment recorded in 2022, favorable foreign fluctuations, reduced start-up and transition costs and improved operating cost efficiencies that compared to prior period. These benefits were partially offset by cost challenges at our Nordex facility in Matamoros.

Turning to Slide 11. For the full year 2022, net sales from continuing and discontinued operations totaled $1.76 billion as compared to $1.73 billion in 2021, an increase of 1.5%. Net sales from continuing operations for the year ended December 31, 2022, increased 3.4% to $1.52 billion as compared to $1.47 billion in the same period in 2021, primarily due to higher average sales prices due to the mix of wind blade models produced and the impact of inflation on blade prices. An increase in volume in 2 of our Türkiye manufacturing facilities and an increase in volume at our Nordex facility in Matamoros. Note also that sales in 2021 were negatively impacted by an adverse cumulative catch-up adjustment recorded in 2021. These increases were partially offset by a decrease in volume at our facilities that shut down at the end of the fourth quarter of 2021 and foreign currency fluctuations.

Net sales from discontinued operations for the year ended December 31, 2022, decreased 9.5% to $235.6 million from $260.2 million in the same period in 2021, primarily due to a decrease in volume due to the timing of transition lines in early 2022 at our Yangzhou facility prior to ceasing production at the end of 2022. Net loss attributed to common stockholders was $124.2 million in 2022 compared to a net loss of $165.6 million in 2021. Our net loss attributed to common stockholders includes $58.9 million of preferred stock dividends and accretion in 2022 compared to $6 million in 2021. Adjusted EBITDA from continuing and discontinued operations totaled $73.6 million as compared to $2.4 million in 2021, and our adjusted EBITDA margin from continuing and discontinued operations increased to 4.2% as compared to 0.1% in 2021, primarily due to an adverse cumulative catch-up adjustment recorded in 2021, a favorable cumulative catch-up adjustment recorded in 2022, favorable foreign currency fluctuations, reduced start-up and transition costs and improved operating cost efficiencies.

These benefits were partially offset by the non-restructuring related operating costs that were associated with the manufacturing locations where production has stopped and cost challenges at our Nordex facility in Matamoros. Moving to Slide 12. We ended the quarter with $143.2 million of unrestricted cash and cash equivalents and $61.2 million of debt, including both continuing and discontinued operations. Our free cash flow for the 3 months ended December 31, 2022, was $15.5 million. Our free cash flow for the year ended December 31, 2022, was a use of cash of $81.8 million, primarily due to increases in working capital driven by higher accounts receivable and a settlement of legacy warranty claims. Costs in excess of revenue at our Nordex facility in Matamoros, income tax payments and capital expenditures, these were partially offset by earnings from our core wind business.

As Bill mentioned earlier, as our industry awaits formal implementation guidance related to the IRA in the U.S. and more robust policies in the EU, we are focused on what we can control. Specifically, this means managing the safety of our employees, delivering a quality product on time to our customers and maintaining an efficient cost structure. As we look to 2023, we are committed to delivering structural cost savings of at least $20 million to be realized in 2023 and beyond, while continuing to focus on operational efficiencies to drive annual productivity savings of over $20 million per year. With that, back to you, Bill.

Bill Siwek: Thanks, Ryan. Please turn to Slide 14. We remain very bullish on the energy transition and believe we will continue to play a vital role in the pace and ultimate success of the transition. We remain focused on managing our business through the short-term challenges in the industry and are excited about our position as a preferred global solution provider. Our mid-term goal is to build a $2 billion-plus revenue win business with our existing footprint, while achieving high single-digit adjusted EBITDA margins and mid-single-digit free cash flow as a percent of sales, while maximizing our opportunities to scale our automotive business. I want to thank all of our TPI associates once again for their commitment, dedication and loyalty to TPI. I’ll now turn it back to the operator to open the call for questions.

Operator: Thank you. Our first question is from the line of Justin Clare with ROTH MKM. Please go ahead.

Justin Clare: So I guess, first off here, I was wondering if you could just help us understand your expectations for the operational lines that you are going to have at the start of 2023 and then at the beginning of 2024. I think you’re starting here at 37% and then starting in 2024 with 44 lines. Is that like 5 lines in Iowa that are expected? And then I think maybe 2 in India with Nordex. If you could just help us walk through that would be helpful.

Bill Siwek: Yes. So the additional 2 in India relate to Nordex. We have lines in Mexico as well as in Iowa. So what we said was we’d have all 44 dedicated, which doesn’t necessarily mean they’ll be operational. We’re still working with GE on the timing of the Iowa lines as to how many and when we would operationalize those. So my point was we’d have all 44 lines that we have dedicated, but operational still remains to be seen.

Justin Clare: Okay. Got it. That’s helpful. And then just on Iowa, can you help us understand where you are in the process of getting contracts signed there? And do you need to wait for guidance from the Treasury on the manufacturing credits or domestic content before you would move forward with getting kind of firm contracts signed?

Bill Siwek: Well, that’s really up to our customer, right? So clearly, we’re working with the customer and it’s GE, obviously, but having clarity on domestic content, having clarity on the advanced manufacturing production credit, certainly will be helpful. And so there’s nothing preventing us from anything at this point. It’s just a matter of finalizing GE’s needs and demands and then determining when we start.

Justin Clare: Okay. Got it. And then just one more. We’ve heard that Mexican steel suppliers are lobbying to get Mexican steel qualified as domestic content under the IRA. So just wondering if it’s possible that blades manufactured in Mexico might qualify as domestic content, essentially is that a possibility that you’re aware of?

Bill Siwek: I mean, I guess anything is possible, Justin, not aware. There was some early discussion about that possibility, not sure where that’s at this point. So I’ll leave it at that.

Operator: Our next question is from the line of James West with Evercore ISI.

James West: Bill, curious, you mentioned some incremental CapEx towards the end of this year. Is that part of the contract or contract and the facility with GE? Or is that CapEx for additional facility expansions potentially on maybe the East Coast where we’ve already seen some big awards or about some big awards come through?

Bill Siwek: Yes. It’s primarily Mexico and a little bit in Iowa. It doesn’t have anything specific to the East Coast in that number.

James West: And when would you — I guess the follow-up then is when would you, I know you kind of move along with your customers and it’s more up to them. But when would you expect something on the East Coast to be — it’s probably already in discussion but to be announced or breaking ground?

Bill Siwek: Yes. That’s a good question, James. We’ve been saying next quarter, next quarter for a while. So I’m going to give up on the next quarter. I will tell you, we’re still obviously in discussions. You see what happens on the East Coast things, stop and start a little bit, they moved to the right. So still active with our customer in discussions with options there. But as far as dates are hard to say at this point.

Operator: Our next question is from the line of Julien Dumoulin-Smith with Bank of America.

Julien Dumoulin-Smith: Good afternoon, team, well done. So just a couple of things here real quickly. When you talk about timeline here for getting that clarity by year-end ’23. Again, I know it’s a little bit of rehash we would just ask now, but really with respect to IRS. I mean, is this going to be down to the wire in the back half of the year that you’re going to get that clarity given needing to get the clarity from IRS and translate that forward, et cetera? Or do you think you expect this more on the front end? And then related here, just trying to think ahead a little bit to what that implies for ’24. Obviously, you have this long-term view on there. You’ve got some mid-year presuming ongoing cost reductions. What does that imply for ’24, both in terms of the cost savings annualized, ’23, ’24 as well as just coming back to that the commentary here on contracting time line and needing IRS.

Bill Siwek: Yes. I think, Julien, thanks for the questions. I guess the best guess that I have is probably by mid-year. We have better guidance from Treasury on the IRA. I know they’re releasing pieces of it as we go. But the last I’ve heard from some of the people that are a little bit closer to it back in D.C. is probably middle of the year. And as far as the ’24 question, we talked about the $20 million structural savings that we anticipate that we plan on carrying that forward year-over-year. And we have been pretty successful of identifying productivity savings each year at each of our facilities. That number has been in the $20 million range over the last 3 years. So I would expect that you’ll see the bulk of that carry forward into ’24.

And again, we’re already seeing some early signs of good volumes in ’24 from our customers. We’re seeing some pickup at the back half of ’23 as it relates to the U.S. market. So I’m optimistic that as we get through the guidance by the middle of the year, hopefully, that back half of ’23, more likely though, beginning in ’24, we’ll start to see the impact of that. And again, put those savings in our pockets as well.

Julien Dumoulin-Smith: Got it. And can you just describe quickly here in terms of the margin improvement here to the bottom-line, obviously, that you’ve got potentially some retooling dynamics playing out. Just how do you think that cascading forward here, realizing the walk, say, from the ’23 adjusted EBITDA margin expectations forward here considering a little bit pace.

Bill Siwek: Yes. I think stability, a footprint that is more fully utilized than we’ve had in the past. And when I say stability, I mean stability and policy. You look at what we’ve been able to do from a productivity and cost savings year-over-year. It’s a lot of hard work but it shows that even in a difficult market, you can drive margin in the right direction, doing the right type of thing. We’ve demonstrated we could be at that level or higher in the past, Julien. And I think with, again, policy clarity, capacity constraint and better utilization we can get there in that ’24 timeframe.

Operator: Our next question is from the line of Eric Stine with Craig-Hallum.

Eric Stine: So obviously, market is still tough, but more optimum it seems that on 2023. I’m just curious, I mean, versus last call, has that outlook improved incrementally or is it basically the same as it was that it’s back half and that 2024 is really the year? And then just curious if that changes the read-through to minimal start-ups and transitions in ’23?

Bill Siwek: Yes. So I think it’s actually improved, Eric, since the third quarter call. Volumes have improved for us a bit, especially in the U.S. market. So again, we’re seeing a little bit of a precursor, I think, of what we could see in ’24. So that’s good news. Yes. So I mean, I remain optimistic. I do think in ’24, we’re more likely to see another pickup in volume, still a little bit concerned about the European market about how fast that picks back up just with some of the challenges there. And that is an important part of our sales side as well. But yes, I feel it has improved since our third quarter call. So I remain bullish on ’24 and beyond, but I feel obviously better about ’23. We’ve provided guidance this year where we did in last year and that certainly indicates the stability and the confidence we have in our operations and where our customers are headed.

Eric Stine: Yes. That’s helpful. And one thing, and correct me if I’m wrong, but the 2 lines in India with Nordex. I think that is a new item. So maybe just confirm that. But I’m just curious, I mean, can you remind me of the operations in India and obviously you’re closing China and as OEMs kind of rationalize there, where supplies are coming from, what you see as the overall opportunity in India to add more OEMs there?

Bill Siwek: Yes. So it is Nordex, and we’ll now have 4 lines for Vestas and 4 lines for Nordex in that 8-line facility. So that facility will be completely full, which is great. India is an interesting market. I think with logistics costs starting to come back down and with some of the cost inflation we’ve seen in other markets, I think that that will bring India back into a more competitive position than maybe it’s been over the last year or 2 with shipping costs. So we still see it as a very good manufacturing hub for the rest of the world. I think the India market is a tough market to crack for our customers just because of the pricing that they’re seeing in that market, but it will remain a good manufacturing hub for us, especially as shipping costs continue to come down a bit from the last couple of years.

Eric Stine: Got it. Maybe last one for me. Just switching gears to transportation. I mean, can you just talk a little bit on what strategic alternatives might look like some of the avenues that you might look at to accelerate the growth there?

Bill Siwek: Yes. I mean it could be strategic partnerships. It could be strategic alliances. We’ve been a bit capital constrained there given the wind market challenge. So looking for alternatives to potentially capitalize that in a different way than we have in the past. But our team has done really an outstanding job of turning that business around, if you will, and really developing from a commercial standpoint, a lot of opportunity there. Much of it’s been converted already and will continue to convert. So we see an opportunity here to start to actually get rewarded for the value we’re creating and try to accelerate that opportunity that we see in the EV space.

Eric Stine: And just to confirm, the flat revenues year-over-year, that really is due to a number of positives being offset by lower volumes, I mean, I would assume ?

BillSiwek: Yes, I think it’s that. And there are still some supply chain challenges in the automotive space, as I’m sure you’re aware of. And so we’re being relatively conservative on the volumes for 2023 given what happened in 2022. So it’s a combination of just conservative volume on the automotive side as well as a reduction in the bus side.

Operator: . Our next question is from the line of Greg Wasikowski with Webber Research.

Gregory Wasikowski: So talking about the high single-digit adjusted EBITDA target eventually, so I imagine that’s mostly driven by wind. Obviously, but thinking about automotive and field services and how they contribute generally speaking, would classify those as being more of a lift to that margin target or potentially a drag on that target?

Bill Siwek: Both should actually be a lift, quite frankly. I mean, the margins we’re looking at in automotive are pretty attractive. And in service, they’re not as high as you might see with some of the — our OEMs because today, it’s primarily just blade service. So it’s a little bit different from a margin perspective, but both of them would be a lift on that, quite frankly.

Gregory Wasikowski: Okay. Great. And then staying on services and the momentum into 2023. So is it ultimately less dependent on — is that business less dependent on the policy clarification, or any sort of macro uncertainty that maybe is giving pause on the wind side of the business? Have you seen maybe some services end up getting punted as well, either from CapEx or OpEx reductions, what have you? Or is that kind of just its own beast, the momentum heading into 2023?

Bill Siwek: Yes. From our perspective, it’s really its own beast. Now clarity around some of the — in the U.S. around repowering could have impacted some, but that’s really not what we’re doing. So it’s really its own beast. It’s more impacted by overall economic conditions than it would be or the legislation that’s out there. And really, the governor for us is being able to hire and train qualified technicians. That’s the challenge for us and for the industry.

Operator: Our next question is from the line of Pavel Molchanov with Raymond James.

Pavel Molchanov: Let me follow up on what you mentioned about manufacturing in Europe. If the Green Deal industrial plan ends up moving forward, would you consider establishing a direct manufacturing presence in the EU versus Turkey as it is today?

Bill Siwek: Pavel, we’ve talked before about evaluating other geographies. We’ve looked at other locations in Europe for onshore before there are offshore opportunities there, too. So I think the short answer to that is yes, we would consider that.

Pavel Molchanov: Understood. And when you talk about also on the European perspective but more from the demand side of the equation. When you talk about headwinds, given that we just went through a period of record high gas prices, energy shortages, it would seem like demand ought to be as strong as ever in the European market or am I missing something?

Bill Siwek: No, you’re not. I think the demand is there, Pavel. There’s been some temporary market reform and gas caps and things that have been put in place that have created uncertainty for investors as to what’s going to happen the next time, we have a spike in prices or there’s another issue. So I think you’ve got the uncertainty created by maybe less than perfect market reforms that they put in place temporarily. And then, you’ve got the continuous issue of the permitting and siting, which has been an issue in Europe for quite some time and remains that way. So it’s not that there’s not demand. It’s the permitting and siting challenges as well as some of the market reforms that they’ve put in place that have created some, I would say, short-term uncertainty with the investment community.

Operator: Our next question is from the line of Jeff Osborne with Cowen & Company.

Jeff Osborne: Two quick questions on my end. I was wondering on the IRA credit, that’s around the clarity that you’re waiting for, but just how you’re entering the philosophical discussions you’re having with your customers around sharing that. Is the goal potentially to share more of it and protect margins and have fewer changes throughout the duration of the contract. Can you just talk about the puts and takes on how you’re approaching the payments?

Bill Siwek: Yes. It varies a little bit by customer to be frank with you. But we go into the conversation that the advanced manufacturing credit is ours. We’re making the investment. And then, that will factor into the overall pricing of the blade. So the blade price should be better, should be more competitive to our customer. So you could argue that a portion of it goes to our customer and a portion of it goes to us. And that’s really how we see it. But it’s not like we go into the conversation and say it’s 50:50. Now there are other conversations where customers may want more of the credit. But again, that becomes more of a discussion on percentage of credit and then how we would price the blade, if that impact is the case. So a little bit of a combination of a couple of different discussions we’ve been having. Does that make sense?

Jeff Osborne: That does. I appreciate it. And then I had a question on the sort of mid-term guidance that you gave of the high single digits EBITDA. I think sort of pre-COVID, the narrative was more 11%, 12% EBITDA margins at the factory level and maybe 10%, 11% at the corporate level. And so I just wanted to understand the high single-digit narrative. Is that really just due to China slowing down, or is it the Mexico wage inflation? I was hoping maybe you could quantify what the inflationary environment has been on labor, in particular in your area. I think closer to the boarder is a bit more acute than sort of centralized. But can you just walk us through like what’s maybe changed in the past 3 years because I think you would answer that question differently a few years ago.

Bill Siwek: Yes. I think we’re being a little bit more conservative just in general. We are in an inflationary environment, understanding the pressure our OEM customers are under to deliver as well. And so it’s a combination of those things. But to your direct question, Mexico, we have seen 20, was it, I guess it was about 20% minimum wage increase this year for effective on January 1. And then in Turkey, it was a 55% increase. Again, some of that gets offset by currency movement, but we are seeing some pressure there. Not all of that gets passed on to our customers. So that does have a little bit of a margin drag on us as well. So we’ve got to continue that’s why we have such an emphasis on productivity. And that’s about how do we drive productivity so that we can offset some of those inflationary charges that we can’t pass on to our customers and maintain or continue to expand margin.

Jeff Osborne: Got it. And that makes sense. Just a quick follow-up. Remind me, labor, what’s that 30%, 40-ish percent of cost?

Bill Siwek: In Mexico, it’s like 10%-ish, maybe a little less depending. So it’s a relatively small piece of the overall pie. But like we saw, we don’t want to see it continue like that like we saw in China, right? China, the labor cost got to the point where they were less competitive than they had been in the past.

Operator: Our next question is from the line of Julien Dumoulin-Smith with Bank of America.

Julien Dumoulin-Smith: Just super quick here on liquidity and just cash burn this year. And again, obviously, given your comments on EBITDA and CapEx. But just a few other moving pieces. How are you thinking about that through the course of this year specifically here? I mean how much of a deceleration in burn are we going to see as you look at those items? And especially as you think about that continuing EBITDA comment for dedicated lines versus utilization, what could that cash outlook look for like next year, sorry.

Ryan Miller: Hey, Julien. This is Ryan. Just kind of walking through the sequence of cash for the year. I think you’ll see us burn some cash in the first quarter. That’s primarily going to be some of our shutdown activities in China that will be driving that. And then it will be kind of flat lined out from there. We’ve guided to kind of low single-digit EBITDA, expect that to be partially offset with our CapEx but over the year, we are growing, too. Our continuing operations actually grow. That will put a little working capital strain on us. So I kind of think a bit of a burn of cash in the first quarter, primarily related to those China activities and throughout the remainder of the year, we’ll have earnings that will be offset by a little bit of working capital pressure CapEx.

Julien Dumoulin-Smith: Got it. Okay. So nothing too sizable, I hear from you guys. The large items, on EBITDA and CapEx.

Bill Siwek: Right. Yes. No, we feel like we’re in a pretty good position ending the year where we did at $143 million of cash and then where we’ll be, as Ryan suggested, a little bit of burn in Q1 and then level it out, but in pretty good shape from a liquidity standpoint.

Julien Dumoulin-Smith: Got it. All right. Excellent. And just super quick if I can. The other dynamic, I know you talked about dedicated lines versus utilization and there’s a dynamic here of when we get this discovery. How are you expecting that to play itself out here? I mean even with IRS in hand, et cetera, I mean it still feels as if and if you look at next year, the outlook, for instance, clearly biased towards ’25 and ’26. How do you think about ’24 here very specifically here? I know a lot of folks coming out from a different perspective but I’m not sure the orders are really kicking off in that year versus the subsequent couple of years.

Bill Siwek: Yes. I know, it’s a fair question. If you think about it, we’ve got a factory in Mexico that’s sitting idle right now. We’ve got the factory in Iowa. So I see ’24 as a fairly heavy start-up year, if you will, as it relates to those 2 factories. So I think you’ll see really good utilization in our other factories, but we could effectively have 9 lines of start-up just in those 2 factories in ’24. So to your point, I think with what we have under contract today or kind of dedicated today, you’ll see pretty high utilization next year, and then we’ll have to fold in those factories that will be restarting next year.

Julien Dumoulin-Smith: Got it. No, no, absolutely. That’s what I was trying to understand is how that dynamic flows here. But I wish you guys the best of luck here.

Operator: Thank you. As there are no further questions at this time, I would like to turn the floor back over to Bill Siwek for closing comments.

Bill Siwek: Thank you, operator. And thank you again for your time today and continued interest in TPI. Look forward to our next call. Thank you.

Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.