TPI COMPOSITES: BREATHING FRESH AIR INTO WIND ENERGY INDUSTRY
TPI Composites, Inc. (NASDAQ: TPIC) is the only independent manufacturer of composite wind blades for the wind energy market with a global manufacturing footprint. The Company enables many of the industry’s leading wind turbine original equipment manufacturers (OEM) to outsource manufacturing a portion of their wind blades through its global footprint of advanced manufacturing facilities strategically located to serve large and growing wind markets cost-effectively.
TPI Composites, Inc. (NASDAQ: TPIC)
Market Cap: $451.99M; Current Share Price: $10.64
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The Company
TPI is a key supplier to OEM customers in manufacturing wind blades and related precision molding and assembly systems. The Company has entered into supply agreements according to which it dedicates capacity at its facilities to customers and manufactures wind blade sets. This collaborative dedicated supplier model provides TPI with contracted volumes that generate revenue visibility, drive capital efficiency, and allow the Company to produce wind blades at a lower total delivered cost while ensuring dedicated critical capacity for customers.
TPI also provides field service inspection and repair services to OEM customers, wind farm owners, and operators. It leverages its advanced composite technology and history of innovation to supply high-strength, lightweight, and durable composite products to the automotive market. The Company supplies Proterra, Inc. (Proterra) with Proterra Catalyst® composite bus bodies under a supply agreement that expires in December 2024.
TPI’s business operations consist of four geographic operating segments – (1) the United States (U.S.), (2) Mexico, (3) Europe, the Middle East and Africa (EMEA), and (4) India. In December 2022, the Company committed to a restructuring plan where it ceased production at its Yangzhou, China manufacturing facility and plans to shut down business operations in China.
The following key catalysts seem to point toward the Company’s growth:
- Promising Industry Outlook
The Company aims to capitalize on the electric sector’s decarbonization and the vehicle fleet’s electrification. TPI expects that in the long term, global demand for renewable energy, and wind energy in particular, will continue to grow due to a multitude of factors, such as increased cost competitiveness of wind energy compared to fossil fuel-generated electricity; increased demand from corporations and utility providers for renewable energy; and recent international policy initiatives designed to promote the growth of renewable energy.
There is also a large and growing global service market opportunity. Specifically, in the wind blade industry, the Company can benefit by offering services like Engineering & Preventative Maintenance, Inspection & Analysis, Repair & Improvements, and Recycling.
Additionally, as the global vehicle electrification trend continues, reducing the weight of these vehicles is critical to expanding range and/or providing more room for additional batteries, or reducing the number of batteries and TPI’s composite products can help to shed weight and add strength to such critical components.
- Advanced Composite Technology and Production Expertise Attract a Strong Customer Base
The Company has developed significant expertise in advanced composite technology. It uses high-performance composite materials, precision molding and assembly systems including modular tooling, and advanced process technology, as well as sophisticated measurement, inspection, testing, and quality assurance tools, to produce over 84,000 wind blades since 2001 from continuing and discontinued operations with a strong, long-term field performance record in a market where reliability is critical to customers’ success. TPI’s high-grade products and impeccable service have enabled it to create a strong customer base of industry leaders.
TPI can customize each manufacturing step using continuous improvement principles, from raw materials to finished products. The Company can systematically design the entire manufacturing process, achieving better quality control and increasing production efficiencies. The Company produces high unit volumes of near-aerospace grade products at industrial costs.
TPI’s production expertise has led to better quality products and improved customer satisfaction, while its technological advantage acts as an effective barrier to entry.
As of today, the Company is a leading outsourced wind blade manufacturer. Since 2016, the Company has increased its market share exponentially through the continuation of outsourcing, growth, and leverage of its global footprint, expansion of services, and opportunistic expansion.
Going forward, the Company intends to implement the following elements into its business strategy:
The Company can expand its global footprint even further by focusing on the above objectives.
- Financial Performance
TPI’s wind blade and precision molding and assembly systems manufacturing businesses accounted for approximately 92%, 94%, and 95% of total net sales for each year ending December 31, 2022, 2021, and 2020, respectively. Thus, the Company’s excellent financial performance over the last few years can be significantly attributed to its collaborative dedicated supplier model that drives competitive economics.
The Company’s ongoing supply agreements are also important as they provide substantial revenue visibility. As of February 22, 2023, TPI’s wind and automotive supply agreements provided for minimum aggregate volume commitments from customers of approximately $1.4 billion and encouraged customers to purchase additional volume up to, in the aggregate, a total contract value of approximately $2.7 billion through the end of 2025.
Due to the above factors, TPI has established a dependable sales growth track record. The Company’s top line has grown steadily at a 15% CAGR since becoming public in 2016.
For Q1 FY23, sales growth continued – Company revenues totaled $404 million for the three months ended March 31, 2023, an increase of 17.6% over the same period last year. Adjusted EBITDA was $8.4 million for Q1 FY23, an increase of $2.3 million over the same period last year.
For FY22, net sales from continuing operations and net sales from discontinued operations totaled $1,758.3 million as compared to $1,732.6 million in FY21, an increase of 1.5%, primarily due to a $50.3 million increase in net sales from continuing operations, offset by a $24.6 million decrease in net sales from discontinued operations.
TPI Composites Key Performance Indicators have shown considerable growth over the last few years, such as sets/line, MW/line, and MW per set.
By the end of FY22, the Company had extended several supply agreements and entered into new partnerships that should help it maintain its upward sales growth. Specifically, the Company
To ensure enough capital to pursue growth opportunities, the Company issued $132.5 million of 5.25% green convertible senior notes in Q1 FY23. On March 31, 2023, the Company had unrestricted cash, cash equivalents, and short-term investments totaling $164.2 million.
For FY23, TPI provided revenue guidance in the $1.6 billion – $1.7 billion range and Adjusted EBITDA Margin % from Continuing Operations in the low single-digit range. However, over the long-term, the Company targets annual wind revenue of more than $2 billion and Adjusted EBITDA Margin% in the high single-digit range.
TPI’s existing manufacturing capacities, the need for energy independence and security, and supportive policy in both the U.S. and Europe seem to indicate that the Company will be able to achieve its long-term financial objectives and maintain its profile as a global industry leader. Hence TPI remains a Company worth watching out for.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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Reference:
https://www.sec.gov/ix?doc=/Archives/edgar/data/1455684/000095017023017223/tpic-20230331.htm
https://www.sec.gov/ix?doc=/Archives/edgar/data/1455684/000095017023003810/tpic-20221231.htm
