Greetings, welcome to the TPI Composites Third Quarter 2021 earnings call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, [Operator Instructions]. Please note this conference is being recorded.

I will now turn the call over to your host, Christian Edin, Investor Relations at TPI Composites, you may begin..

Thank you, Operator. I'd like to welcome everyone to TPI Composites third quarter 2021 earnings call. We will be making forward-looking statements during this call based on current expectations and assumptions, which are subject to risks and uncertainties.

Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect, because of other factors discussed in today's earnings news release, and the comments made during this conference call or in our latest reports and filings with the Securities and Exchange Commission.

Each of which can be found on our website, tpicomposites.com. We do not undertake any duty to update any forward-looking statements. Today's presentation also includes 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 Phil Siwek, TPI Composites President and CEO..

Thanks, Christian, and good afternoon, everyone. Thank you for joining our call. In addition to Christian am joined today by Bryan Schumaker, our CFO. I will briefly review our third quarter results, including the strategic financing transaction announced today.

I will also cover our global operations, including our supply chain and the wind energy market more broadly. Bryan will then review our financial results and financial -- financing activities in more detail, and then we'll open the call for Q&A. Please turn to slide 5.

Today, we announced that we signed a contract with Vestas to add 3 additional lines in Yangzhou, starting production in 2022, and we extended a 2 - line contract with Nordex in Turkey. These deals added approximately $150 million potential future revenue under contract.

I am also pleased to announce today that we have entered into a stock purchase agreement to issue in sale $400 million of Series A -preferred stock to investment funds managed by Oaktree Capital Management. Under the terms of the agreement, TPI will issue and sell $350 million of Series A to Oaktree, subject to customary closing conditions.

TPI also may elect, at its option to require Oaktree to purchase an additional $50 million dollars of Series A, upon the same terms and conditions as the initial issuance of Series A, during the two year period following the closing of the initial issuance.

Subject to the mutual agreement of TPI and Oaktree, Oaktree may invest in additional $200 million for follow-on capital. Oaktree, is an experienced investor across the power and energy value chains. And today's announcement is a strong endorsement of our strategy and growth prospects.

Oaktree 's investment will strengthen our Balance Sheet significantly and positions TPI to navigate a rapidly evolving market and operating environment in the near-term, while providing the flexibility to take advantage of longer-term growth opportunities. We will discuss the terms of the Oaktree investment in more detail later in the call.

Before I jump into our results and operations, it's important to note that we remain focused on operating our business safely while continuing to mitigate the impacts of COVID-19 and ensuring that we are prepared to deal with continued resurgences of the virus. And any of our global locations.

We have and will continue to adapt our operating procedures in order to enable our associates to work safely and continue to meet our customers demand. To summarize, Q3 was clearly disappointing from a financial perspective as market conditions continued to deteriorate, as most of our customers have already discussed publicly.

So although we delivered Net sales of $479.6 million, a slight increase over Q3 of 2020, we ended the quarter with break-even adjusted EBITDA. The takeover of The Nordex facility in Matamoros has not gone as planned and we have experienced significant delays in production while needing to upgrade the team.

We are in the process of transforming the operations into a world-class facility, like the facility we operate across the street. But it's taking more time and resources than originally anticipated. This was one of the primary factors for our poor financial results during Q3 and it will carry over into Q4 as well.

However, we expect to have the operations stabilized by the end of the year and plan to have a much more successful 2022 in this location. And whereas Mexico, we're in the middle of a transition to an innovative blade, and with innovation sometimes comes challenges.

In addition to delays, moving from design to prototype and finally to production, we encountered multiple delays related to specialized equipment and component parts. As a result, our volume for the quarter was negatively impacted, as our full year volumes.

As with our new operations in Matamoros, we expect these challenges to be behind us by the end of the year and anticipate reaching full production volume in that factory during 2022. In China, our Yangzhou factory was shut down for three weeks due to a small COVID outbreak in Yangzhou City.

We lost 10 sets in the quarter, but we expect to make those up in Q4. Supply chain and logistics challenges continue to plague the industry, and we were not immune from them in Q3. Certain customer-directed raw materials were in short supply, which caused production slowdowns in multiple plants.

Loss volume related to these shortages was nearly $0.80 in Q3, and will be just over 150 sets for the full year. Furthermore, raw material and logistics costs remained at elevated levels and had an overall impact in the quarter of approximately $20 million, and an estimated full-year impact of nearly $30 million.

With the announced suspension of production in our Iowa plant at the end of 2021, volumes at that plant were reduced to minimize production risks as we wrap up our current customer commitment in that location.

With these challenges and those facing the industry over the next year or so, our focus has been on managing our liquidity and raising additional capital to strengthen our balance sheet and to prepare for the next wave of significant growth in the industry.

Our announcement today of the strategic investment by Oaktree, will provide us with the additional flexibility to manage our business through these near-term headwinds. Turning to Slide 6, I will now give you a quick update of our global operations, as well as a market update.

During the third quarter, we did not have any lost volume at any of our facilities related to COVID-19 outbreaks or government mandates, except for the short interruption in Yangzhou. However, we did experience material, unexpected production delays in Turkey, Mexico, and China, because of shortages of customer directed and supplied raw materials.

We continue to evaluate our global footprint to ensure it is optimized for us, our customers, and the market. As we discussed last quarter, we are planning to consolidate our Chinese operations into Yangzhou to reduce cost, streamline activities, and meet the expected future demand of our customers.

Our Yangzhou facility is world-class and can handle both onshore and offshore blades. This prime location, is the ideal place to consolidate our China operations and efficiently serve our customers.

With respect to the facility in Juarez, that will become available in 2022, we are actively seeking to backfill the 4 production lines, with 1 or more customers, as we believe these operations will continue to be one of the best low cost options for blade supply into the U.S., in Mexico in the future.

Interest for this capacity is high, but timing is dependent on the U.S. market recovery and the final provisions of the build back better plan, if passed. We are not anticipating any production in this facility during 2022. Due primarily to continued uncertainty regarding the regulatory environment and the expected impact on U.S.

demand over the next couple of years, we do not currently have any planned volume for our Newton, Iowa facility in 2022. As a result, we are in the unfortunate position of needing to suspend manufacturing at the facility at the end of December 2021.

We have extended the facility lease through 2022 to give us and our current customer or others time to evaluate the final provisions of the proposed build back better plan to determine if the facility can be economically viable in the future.

With respect to our Global Service Business During the third quarter, we continue to focus on profitable global growth. Our team has been successful and securing new work from OEMs as well as asset owners.

To accelerate our growth in Europe, our plan is to open a training center in Spain in the fourth quarter to complement our Americas training center, we expect to have 3x top-line growth during 2021 and expect another doubling in 2022, all on an organic basis.

On the transportation front, our pilot production program for a production passenger electric vehicle manufacturer has been extended as we have demonstrated the ability to scale our production in a cost-effective manner on our high-volume composite production line.

This has also led to another pilot program with the same OEM that will kick off in Q4 of 2021. Additionally, we are continuing to collaborate with multiple OEMs on cabin body structures, along with other critical EV components. As I mentioned earlier, our supply chain, like every other supply chain, is continuing to face challenges.

As discussed on the last call, we have seen increased costs relating to resin, carbon fiber, and logistics.

While we can pass on a majority, and in some cases 100% of the cost increases to our customers, the portion we are not able to pass on has had a material impact on our margins and we expect that impact to continue through the balance of 2021 and through 2022.

After increasing by almost 80% globally year-over-year, resin prices were flat in the third quarter, but we did see a slight tick up in October, with the continued focus on margin expansion by our supply base. We do however, expect pricing to continue to be relatively flat in the first half of 2022 before beginning to drop in the second half.

Capacity constraints continued for carbon fiber with pricing up over 20% year-over-year. With demand exceeding supply in multiple industries, we expect pricing to increase in 2022, virtually all of which we can contractually pass on to our customers.

Overall, we expect to be able to hold the average bill of material costs, for customers for which we control the supply chain to a less than 2% increase over 2021 levels and expect to see commodity pricing begin to normalize in the second half of 2022 for many commodities. Logistics costs are also expected to remain high throughout most of 2022.

So turning to the overall wind market in Slide 7. Since our last call, the Build Back Better plan was introduced and includes a 10-year PTC extension, with prevailing wage and apprenticeship requirements. Importantly, the bill includes a 10-year direct pay provision.

Although our requires certain domestic content requirements, to be met to obtain a 100% direct pay. The BBB also includes an advanced manufacturing production credit of $0.02 per watt from 2022 through 2026 on U.S. manufactured wind blades, and then it is phased down through 2029.

As an example, the blades for a four megawatt turbine would receive an estimated $80,000 tax credit. As with the PTC, direct pay would be available. Other aspects of the bill that may help grow the wind market includes storage and transmission tax credits and grants, loans, and tax credits for hydrogen made from renewable energy.

In addition, there are significant grants, rebates, and tax credits to drive the acceleration of the decarbonization of the vehicle fleet for both electric passenger and commercial vehicles, and charging infrastructure, which we believe could help accelerate the growth of our transportation business.

Finally, the now past infrastructure investment and Jobs Act includes 550 billion in new federal investment and U.S. infrastructure to help tackle climate change by making investments in clean energy transmission and electric vehicle infrastructure.

Electrifying thousands of school and transit buses, and creating a new grid deployment authority to support upgrading the electric grid. This should be a further catalyst for renewables and EV growth in the U.S. Notwithstanding, the positive long-term impact in the U.S.

of the Build Back Better plan in the Infrastructure Investment in Jobs Act, we expect decreased demand during the remainder of 2021 and expect volumes and therefore blade revenue and adjusted EBITDA on a billings basis to be flat or slightly down in 2022, due to less than optimal capacity utilization, due to uncertainty in the U.S.

market and elevated raw material in logistics costs globally. Longer-term, we believe the future for wind energy will strengthen significantly, given the necessity to de -carbonize and electrify to meet the aggressive goals set by nations around the world to combat climate change.

In its roadmap to 0 emissions by 2050, the International Energy Agency expects that by 2030, 390 gigawatts of wind will be installed annually, or about 4 times more than the global record set in 2020.

We believe that we are uniquely positioned with our global footprint in key strategic geographies to grow our market share with the industry-leading turbine OEMs through this expected period of rapid growth. The next decade is both critical and a terrific opportunity for TPI.

Before I turn it over to Bryan, I would like to reiterate that, we remain focused on the health and safety of our associates, while executing on our operating imperatives and ESG goals. Which includes safety, diversity, inclusion, and driving to become in a carbon neutral by 2030. With that, let me turn the call over to Bryan..

1. A change in estimate for raw material costs in 2020. For example, in Q2, we expected certain raw material costs like, resin to start declining in Q4 of 2021. Now we're forecasting resin costs to stay constant throughout 2022 and our ASC 606 miles. 2.

We're contractually entitled to liquidated damage from our customers due to supply shortages of customer-controlled raw material. However, under percentage of completion accounting for these contracts required under 606, there was limited recognition of the liquidated damages in the quarter.

Finally, we were negatively impacted under ASC 606 for new lines contracted and existing lines extended the bill referenced earlier as the profitability assumptions built into our prior forecasts were impacted by adding the new lines and extending the old lines.

Moving to slide 12, we ended the quarter with $119 million of cash and cash equivalents and net debt of a $143.8 million. Since quarter end, our liquidity has been significantly impacted by the slowdown -- slow production ramp in our Matamoros facility.

That transition challenges we are facing in our whereas facility, shortages of customer directed and supplied raw materials and forecasted reductions of demand due to, sorry -- reduction due to reduced customer demand in Q4 of 2021 and 2022. Our leverage ratio was 2.98 James in Q3 or more than our maximum allowed ratio of 2.75.

We have obtained a 30-day waiver from the bank group, which we believe will allow us time to close the Oaktree funding. The commitment from Oaktree will strengthen our balance sheet, significantly during our rapidly evolving market.

The proceeds will be raised from a Series A preferred stock financing will be used to repay in full the amounts outstanding under our credit agreement. Turning to Slide 13. For 2021, our full-year guidance is, revenue of between $1.72 billion and $1.74 billion. Adjusted EBITDA of between $30 million and $40 million.

Adjusted EBITDA guidance for the year relative to the guidance we provided during the second quarter results relates to 3 main items we have highlighted on slide 14. First, as Bill walk through, we have experienced greater-than-expected delays and costs related to our Matamoros facility.

This account for approximately 15 million adjusted EBITDA impacting 2021. The second key item relates to our whereas facility and greater-than-expected cost and delays. This accounts for approximately 16 million of our adjusted EBITDA impact in 2021.

Lastly, approximately 16 million of our 2021 adjusted EBITDA guidance change relates to a non-cash accounting impact related to ASC 606. We don't expect any changes to our dedicated manufacturing lines and wind blade set capacity versus what we disclosed during the second quarter earnings call.

Utilization of approximately 76%, ASP of approximately a 165,000. We saw strong ASP in Q3 of approximately a 172,000, but the annual ASP is being impacted by the decrease in the number of blades produced in Q3 and the mix forecasted to be produced in Q4.

Non-blade sales of between a $120 million and $125 million, an increase of the low-end of $5 million compared to our previous guidance. CapEx of between $40 million and $45 million, had decreased to our previous guidance.

Startup cost of between $17 million and $20 million, this increase is due to the production ramp of the facility for a Nordex in Matamoros, as well as the transition and Juarez. And finally, we're now forecasting to incur a total of approximately $45 million of restructuring charges associated with global footprint alignment in 2021 and 2022.

With approximately $30 million forecast to be incurred in 2021, approximately 15% of the restructuring charges will be non-cash. I will now turn it back to Bill to go a little more in detail on our capital raising activities..

Thanks, Bryan. Turning to Slide 16. Given ongoing and near-term headwinds facing the industry, we have been focused on enhancing balance sheet strength and best position in the Company, to manage through a difficult operating environment and set us up for the long term.

As I noted earlier, we have entered into an agreement to initially sell $350 million of Series A preferred stock to Oaktree, and we may also elect at our option to require Oaktree to purchase an additional $50 million of Series A, upon the same terms and conditions as the initial issuance of the Series A during the two year period following the effective date of the agreement.

The outstanding Series A will have an 11% dividend, which may be payable in time for the first two years. Oaktree will also be receiving approximately 4.7 million warrants with a 5-year term issued at a per-share exercise price of a penny per share.

In addition to the 400 million upfront commitment, Oaktree may invest in additional capital of $200 million based on terms to be mutually agreed to. Turning to slide 17 through 19, please.

The Oaktree investment will significantly improve our Balance Sheet position, reducing net leverage from 2.98 times to a net cash position on a pro - forma basis as of September 30, 2021, with pro - forma total liquidity of 251 million, including 201 million of unrestricted cash.

This liquidity provides additional flexibility to manage our business through near-term industry headwinds.

Available liquidity and access to the potential incremental $200 million of capital from Oaktree can also provide us with flexibility to pursue growth opportunities, including by leveraging Oaktree 's global relationships, resources, and expertise. We view this investment by Oaktree as a strong endorsement of TPI strategy and long-term prospects.

With that Operator, please open the call for questions..

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Your first question comes from Philip Shen with Roth Capital Partners. Please go ahead..

Hi, everyone. Thanks for taking my questions. The first one is on the Oaktree deal.

In terms of the shares, can you talk through how many were issued and at what price?.

Yes. It will be 3 -- initially Phil, it will be $350 million of Series A preferred and 4.7 million warrants to purchase common shares at a penny a piece..

Okay. Got it..

Yeah..

Thanks for that Bill. Shifting over to the outlook for 2022. I know, you haven't provided -- pardon me, official guidance.

But I was wondering if you could talk through, how you expect revenue or volumes to trend and then how margins might trend as well as we get through the year?.

I think Phil, we said that, blade revenue would be relatively flat year-over-year and EBITDA on a billings basis would be relatively flat on a billings basis, if you will. Volumes are down a bit from a sets perspective.

We expect them to be down a bit in 2022, and that's a number of things, right? The Iowa facility, our -- one of our facilities in Juarez, which will finish production for our customer there in the middle of the month, and then just overall softening of U.S. demand out of our other plants..

Thanks, Bill.

And then from a quarterly basis, do you expect the cadence to be for trough metrics to maybe be in Q1 and then things to improve sequentially as we get through Q4 of '22 or do you expect either some sense of -- some degree of seasonality or some other factors that might perhaps make it not sequentially grow -- like that, or improving? Thanks..

We're not prepared to speak specific quarter-to-quarter quite yet, but I mean, if you look at the last couple of years, Q4 has historically been a little bit low. Part of that has been their PTC push.

You get you get things delivered by September 30 so they can get installed by Q4, but then there's a -- they take a breather in Q4, as far as production. So I would expect to see similar cadence, at least in Q4..

Okay, great. Thanks, Bill. I'll pass it on..

Yes. Thanks, Phil..

Next question James West with Evercore ISI..

Hey, good afternoon, guys. Hey Jim. Curious also on the capital raise here, particularly the incremental $200 million that's available and I think Bill, you highlighted for opportunities or opportunistically deployment.

Are there certain opportunities that are unfolding that, you may be able to act on near-term? Or is this more of a -- let's line it up so it's something does comfort?.

Thanks for the question James. I would say, there certainly are opportunities that are out there. With the dislocation in the industry over the next year or 2, there could be more interesting opportunities. So it's really not earmarked for any particular transaction, it's more of a -- it's more from an opportunistic standpoint.

Hopefully that answers your question, yes..

That makes sense. And then, as we think about a little bit longer-term, '23 to '25 should see a nice ramp up in the wind industry.

How are you guys thinking about capacity for that period and beyond? Would you add more capacity in '22 even though the market itself will be flattish? Would you need contracts to add capacity? I mean, how -- I guess -- can you help us think about how you guys are viewing --.

Sure..

That opportunity set?.

Yes, No. For -- I see -- unless there's a very specific situation adding capacity in a market where there's currently overcapacity, doesn't sound like a very good move from our perspective.

But to your point, as we get into '24 and beyond, if the projections of the -- of IEA and others are even half right, There's going to -- there's going to be a significant increase in installation and build.

And so clearly we're going to use this period where we think it's relatively flat, especially in the U.S., to put ourselves in the right position geographically, to make sure that we can capture more than our share of the market if you will, with our current and potential customers.

So again, I wouldn't expect anything in the very near-term, just given the market and the amount of capacity in the market today. Quite frankly, I'd love to get our plants back into the 90's, from the high 70's. So to me, it's fill our existing capacity, because we are in great locations geographically.

We cover the world very, very cost-effectively, so our goal is fill our existing capacity, and then we'll think about future capacity..

Okay. Thanks. Got to go. Thanks..

Yup. Thank you..

Next question, [Indiscernible] Belajar with Bank of America..

Hi. Good evening. Thank you so much for taking the question. Just wanted to quickly follow up on the point Philip made about EBITDA as you see for by '22.

When you say you see it mostly being flat on a billing basis, just wanted to understand if that meant the $55 million with or without the ASC 606 impact?.

Yeah, that is without it right now, because of the volatility that we're seeing right now with raw material costs and other things, it's just not worth forecasting at this point. So that's why we just gave the indication of on a billings basis. We think that makes more sense.

That's how we look at it, that's how Oaktree is going to look at it going forward, so it just makes more sense to do it that way rather than trying to manage the volatility we're seeing in the ASC 606..

Yes, that's a better reflection of cash-generation Ad-Hoc from our perspective, and being able to predict what our customers might do with volume or not and where raw material pricing is going makes it very difficult to accurately forecast 606 the way it works, especially with the nature of our contracts..

Got it. Thank you. And then did you stick to the new lines that you added with Vestas and two, with Nordex. What's the duration of that 150 billion contract? Is it 2FY22 or beyond..

Yes, for the lines with Vestas, it's beyond '22 and with Nordex it's through '22..

Got it, and then one last one for me and I'll pass it on. I was curious about any progress on the offshore firm. I know one of your customers announced offshore -- winning offshore work in the U.S. and deciding to work with their supply chain partners in the U.S.

So I know it's been '24, '25 timeframe, but anything for what it means for you in that timeframe?.

Yes, we're working at heart, Adhak. It is -- it's complicated on the East Coast, as I know you're well aware. With that, every State wants a blade plant, and then a cell plant, and a tower plant, and picking the right place. And of course, having a customer to do that, with this is important.

So we have -- we're spending a significant amount of time and energy on it, but that's as about as much as I can tell you at this point..

Got it. Thank you so much..

Yes. thanks, Adhak..

Next question, Eric Stine with Craig-Hallum..

Hi everyone..

Hi Eric, how are you?.

Hey, doing well. Thanks. So just on the Iowa plant and for obvious reasons, given the uncertainty, your expectations are pretty low for 2020. But in the -- I'm sorry, 2022.

But in the unlikely event that, an OEM decided whether it's GE or another one decided that, they wanted to bring on production there, maybe a rough idea of how long that would take to bring up in line and whether it's different.

If it's the one that is ending at the end of the year versus a new one?.

Clearly, if there's a pause if you will, and it's the same blade, the challenges our associates. Obviously, what we want to provide them with an opportunity to find other work if there's uncertainty with, whether it goes forward and that's what we're going to do.

But as far as the ramp up, if it's the existing line, it's really about being able to hire for the existing lines. It's really being about, being able to hire associates to ramp it.

So if you think about having to hire a workforce -- if again, if there's a pause in our existing workforce finds other work, then it's probably a 6-month process to do that?.

Yeah, and -- okay. And then maybe just -- I mean, with G&A, you've got the co-development agreement for advanced blades. Just any thoughts on maybe where the overall relationship stands -- that agreement stands in light of what's going on in Iowa..

Yeah. So as you know, we also manufacture blades for them in 2 facilities in Mexico, and we are producing a innovative blade in one of those plants.

So the relationship is still, is very strong, we continue to collaborate with them on that aspect and continue to build blades for them and plan to build blades for them for a very long time, so I would say the relationship is -- remains very strong as it has been for a long time, and we aim to keep it that way..

Okay. Thank you..

Thank you..

Next question, Laura Sanchez with Morgan Stanley..

Hi, thank you for your time. I want to follow up on the EBITDA question. I think it was after a second Q earnings, you had quantified what was a material benefit to EBITDA margins from the Siemens Gamesa line going away in Mexico, and from the GE lines, at the time potentially going away in the U.S.

And now that we know that, those contracts with GE are rolling off, can you tell us a little bit about the dynamics eating that benefit on improvement in 2022?.

Yes, I think. Thanks for the question, Laura, nice to talk to you. It is true -- it's accretive to our overall earnings with the shutdown at the plant in Mexico, as well as Iowa. I will tell you though, our Iowa plant is a fantastic plant. It's just, we're in a high cost area which makes it difficult to be competitive.

We'll see under this advanced manufacturing production credit whether that gives us some life there. We would like to have that happen clearly, but I think, Laura, it's really -- it's commodity costs that, we didn't expect to linger this long. It's the logistics challenges that we expect to carry through 2022. And quite frankly, it's demand and volume.

So you might have heard me earlier on an answer talking about the volume because of the softness in the U.S. market. And it's really when we're at lower utilization levels that, we expect in 2022, that can eat up that gain fairly quickly.

Now, we're working on making our business more variable to be able to better manage through some of the demand swings that, we've been seeing more frequently. I will tell you, since I've been around, I've never seen as many demand swings quarter-to-quarter, as we've seen over the last year -- last year and a half.

I think our business has become a little bit tougher to forecast because of our customer's needs and their end demand and just the uncertainty in the market. So that's probably -- that is the main reason for not seeing as much benefit in what we think our 2022 EBITDA will be, as a result of those closures..

Thank you Bill, for the color.

On the Matamoros and Juarez facilities that, are seeing challenges this quarter, I guess what gives you confidence in those issues will go away by the end of the year?.

Yes. So In Matamoros, we've replaced the entire management team there that we inherited. We have -- we are going to move between a 150 and 200 associates from Juarez to Matamoros when we finish production in the plant that's closing down, that should be literally in a week.

We have a very experienced and talented global team that, is residing in Matamoros right now to get it turned around. We've seen significant progress over the last several weeks from a cycle-time stand put and a throughput stand put.

And so, with the additional troops coming, if you will, from Juarez, as well as the team we have in place there now, as well as support from just our overall infrastructure in Matamoros, we're very confident that we get this thing turned around by the end of the quarter, and going into next year, we're ready to rock and roll at full production.

I mean, our customer is expecting it. We are going to run flat out there all year. And so, we're confident, and we're devoting the resources. As it relates to the Juarez challenge, again, this is a -- an innovative new blade that went from design to prototype to production. You tend to have challenges when you have a new innovative blade like this.

We've continued to work side-by-side with our customer there. We've -- we've figured out where the challenges are, from the production standpoint. We've got a solution for that.

And that solution, should be implemented towards the middle half or end of Q4, which gives us a lot of confidence that rolling into 2022, we will be able to hit the volumes that our customers are asking us for..

Got it. Got it. And last one on my end, you've talked about flat wind revenues in 2022, and I think you gave a reference on the service side of the business that, could double in 2022.

Any commentary on the transportation and the precision or the other revenues, non-wind related?.

Yes. So on the transportation side, we're still -- I think we've made a lot of progress over the last couple of quarters, with Jerry Lavine coming on board as our President of Transportation, refocusing the group, Really reevaluating and focusing our strategy and who are -- what our target markets are.

And we've already seen some success from it's from the additional pilot production with the existing EV passenger manufacturer that we are producing for to some really neat and interesting opportunities related to battery components.

Battery box components, if you will, as well as other structural cabs or components, whether they be cabs or other aspects.

So we're looking at where we -- we've got a joint development agreement on some very unique composite technology that, we think is going to be significantly more cost-effective to do what we do and provide a higher-quality and easier to assemble vehicle.

We remain bullish on what the opportunity is there, or be it is taking longer than we had originally anticipated. The traction we've gained over the last several quarters has been really significant. Again, the revenue numbers aren't going to be huge yet. We do expect next year to continue to be another investment year.

But at much lower levels than, we've seen over the last couple of years. And then rolling into '23, we expect to be profitable..

Thank you..

Thank you..

Next question, Stephen Gengaro with Stifel..

Thanks, good afternoon..

Hi, Stephen..

Hi.

So can you give us a sense from what you're seeing? I know you mentioned EBITDA, but when you look at 2022, how do you think about the different parts of free cash flow generation, or cash flow in general? How should we be -- how should we thinking about sort of the puts and takes? And given the transaction you announced tonight, I was just curious how you're thinking about 2022 cash flow..

So as you look at the announcements that we've had around the restructuring and the charges were taking, the majority hat is all cash outflow, about 85% of it. So we see that hitting us kind of late Q4 and into Q1.

So that's where we see the significant need of cash right now is kind of that time frame as over the next 6 months, as far as kind of the overall picture of next year, I mean, working capital in that we don't see big drags. On that throughout the remainder of the year. We're really focusing on limiting CapEx is we're not growing.

So we're trying to focus on a lot of that, but it's this next 6 months and the liquidity drain that we saw kind of from these other plants.

And then overall, how long does this shortfall come throughout 2022 and make sure we're positioning ourselves for the future?.

And I guess -- just to pile on a little bit, I think we talked about volume likely to be down next year from a set standpoint and lower-than-desired capacity utilization. When you have that in a business that is relatively -- there's a fair amount of fixed costs related to that.

You'll see some -- you're not going to see that significant free cash flow that we would like to see. So I think until we get back our capacity utilization up to the levels that, we would like to see in volumes become more stable quarter-to-quarter, that's when you'll start to see us, generating that free cash flow that, we all would like to see..

Great, thanks. And just as a follow-up, I think to an earlier question.

What are you seeing on the labor side? Are you -- how -- has that been -- how difficult has that been to managing? How are you thinking about the labor side going forward?.

Yes. It's a great question and it really varies a bit by geography. I would tell you though, for technical talent, there's a war. I mean, there is a war for talent out there and engineering talent, technical talent. We have a very good technical team. We have some of the best minds in the business and the best folks to build blades in the business.

And so they are in high demand. So we -- it's tough. It's tough to replace, if we lose. So the key is, to not lose them, right? So we focus a lot on our people programs, a lot on engagement and how do we make sure we keep our associates engaged, to understand what their needs are. So that's the name of the game for us.

I mean, we've dropped turnover year-over-year in the last few years by significant amounts, which quite frankly saves us a significant amount of money. But it's all about engagement and how we're dealing with them and giving them the right career path. So I will tell you for technical talent, it's very competitive.

Generally, at the more direct labor position, I don't think we see -- Iowa was a bit of a challenge from a workforce standpoint, just because the workforce is a bit smaller. But most of our locations, we don't really have a problem from that standpoint at this time..

Great. Thank you, gentlemen..

You bet. Thank you. Appreciate the questions..

Next question, Pearce Hammond with Piper Sandler..

Yes. Thank you for taking my questions.

Just curious with the setup that you now have with Oaktree and the potential for $600 million worth of investment as you steer out to next year, and thanks for the helpful info on next year, do you think this takes care of you kind of in all scenarios, from a liquidity standpoint, for next year?.

Yes. I would tell you, we think that the investment by Oaktree gives us significant or sufficient capital to weather the near-term challengers or the heads or the headwinds that I said, probably 3 or 4 times in my prepared remarks. But absolutely, we think we have more -- we have some cushion as well.

But certainly enough for the near-term challenges, and that cushion is, to the extent that downturn extends longer than most think it will. So we've spent a lot of time on what our working capital needs are, what our outlook looks like for '22 anticipating.

Our relatively flat '23, just from a planning standpoint, and that's how we sized the deal, and made sure that, we have adequate liquidity to carry us through this challenging period, specifically on the U.S. market over the next couple of years and positions us very well for opportunistic growth once the market turns..

Excellent, excellent. Thank you for the helpful answer. And then my follow-up. If you can provide any color, as to how the deal came about with Oaktree specifically versus other alternatives. Obviously, Oaktree is a very well-respected marquee-type investor. But just curious to see, if you could provide some color about how it all came about..

Yes. We spent a fair amount of time with our financial advisor. We used Lazard, little plug for them. But we spent a bunch of time with Lazard evaluating what our options were in, and I will tell you, the folks at Oaktree, get us.

They get our industry, they get renewables, they are excited about the energy transition, they've done a lot of investing in an adjacent space with array and shows in the like. So they really understand what our challenges are, what the industry challenges are, but also what the industry opportunity is.

I don't think we could have picked a better partner. We're really excited about the people we're working with and in the skills they bring, so that's it. I mean, it's experience in the industry, understanding our story, understanding our strategy, and then the people. I mean, people's important here.

And we're going to have to work closely with them for a long time, and they brought a great team to the table..

Thank you very much..

You bet..

Next question. Pavel Molchanov with Raymond James..

For taking the question up, giving your global operating footprint and even more global sales mix, you’ve often talked about being able to kind of reroute blades to different geographies just depending on where the demand comes from.

So given the softness you referred to in the U.S., can you give some examples of places where demand is perhaps better than expected, kind of an upside surprise?.

I would tell you. Turkey, next year is -- we expect it to be flat out and being asked for more, so I think that's good. India, remains pretty strong for us with the new, obviously new lines in China with Vestas is important. So we expect to have a good year there. So yes, and then in our plants that are really U.S.

centric, which would be the ones along the border in Juarez. Now, Matamoros. We're pretty close to a port so they can export from Matamoros if they choose to. But most of what we build today, comes into the U.S. market.

So those are the plants where -- with the exception of the Nordex plant, the volumes are a little bit -- we expect the volumes to be down a little bit next year just because of the U.S. market..

Okay.

And the strength in Turkey and India, is that domestic in Turkey and India? Or are these export opportunities, for example, going to UK, Germany, etc?.

Yes, I would say the vast majority of what we're producing in Turkey is being exported now. We do have lines for very strong players in Turkey, which helps. So there is a fair amount of domestic demand. But I will tell you the vast majority does get exported out, and I would say the bulk of that is to Europe.

I mean, Europe is our second largest market behind the U.S..

Okay. Thanks very much..

Thanks Pavel. Good talking to you..

Next question. Mark Strouse with JPMorgan..

Yes. Thanks very much for taking our questions. Bill, to the extent that your customers are sharing this with you, can you just talk about the -- I hate to use this phrase, but shovel-ready projects that are out there, just waiting for some visibility from Build Back Better.

Could they immediately start construction then? Or do we -- is that the beginning of what would be a more normal project cycle?.

I would tell you, Mark. I don't have really good visibility on specific -- now, I do want a few and those are the ones that, we're pushing hard this year to get delivered to a couple of different -- to its couple of different customers out of Mexico clearly. But we usually don't know exactly where the blades are going.

So I don't -- again, I have general data, but not very specific data with respect to the shovel-ready deal. So I apologize, I'm probably not the best person to answer that question..

Sure. Yes, understood. And then just a follow-up, technical question. The $0.02 per watt domestic blade manufacturing credit, if that passes.

Can you just talk about how that gets layered into your existing contracts? Would that be complete upside to TPI? Would that be shared with your customer? Would it require some kind of rewriting of your existing contracts?.

That's a great question. Technically, it goes to the manufacturer, which would be TPI. And I think that, would factor into again, try and to make the U.S. plants economically viable.

So if we got the credit, our customer can have a lower price, which would make it competitive with a blade brought from another geography if you will, right? If our customer guidance for some reason, then they could afford to pay us more for the blade and still have the margin.

The way I understand it right now and again it's still pretty fluid, but it would come to us as the manufacturer.

And then obviously if we want to keep those plants open, we've got to figure out what the right split is to make the blade cost, if you will, competitive with imports such that customer, whether it'd be GE or another customer would want to produce in the U.S.

Does that make sense? Did I answer your question?.

Yes, does. That’s very helpful. Thanks Bill..

You [Indiscernible]. Thanks Mark..

Next question. Greg Rostkowski with Weber research..

Hey, good afternoon, guys. Thanks for taking my questions. Just wanted to start with the follow-on amount, $200 million for the Oaktree deal. You guys already touched on this, I just wanted to put a finer point on it.

Is that mostly baked in for additional runway if needed, or maybe it like, an and/or type of situation thinking about CapEx opportunities for you guys, whether that be on the offshore side or maybe something in transportation? You just put a finer point on that?.

Yes. So as I mentioned earlier, we think what we've pulled down today is, adequate to get us through this rough patch in the U.S. market. And so the 200 is really not -- it really -- we're pulling $350 million of the $400 million. And that $50 million is the cushion where if, the downturn is prolonged, we've got access to that at our option.

The $200 million is different, right? The $200 million is, I mean, I think it shows a commitment from Oaktree to the industry and specifically the TPI. And what are what our strategic intent is. And so I think, if we -- if there is a opportunity then that's what the $200 million is for.

It's more for future opportunity whether it'd be growth or otherwise. And again, let's be clear, it would be on different terms, than the terms we have today. Mutually agreed upon terms. So it would be really not as a safety net for what we've got, because we're confident in the number we've got is what we need. It's really for growth opportunities..

Okay, that's helpful. Thanks for the clarification there.

And then on that point, is there a -- thinking about future growth opportunities, is there maybe an intention or a focus on one area and other whether that's offshore, it's kind of the leading opportunity there or is it we think a transportation as maybe an equal sort of opportunity, whether that be in terms of additional capacity or potential M&A, etc..

Yes. I think clearly, there could be some opportunities in the transportation space I think offshore to your point. Not an M&A, but more of a new build. I think that's an obvious use of capital as well. And it's a significant use of capital. I also think we've done all of our service where all of our service growth has been organic.

So that is -- that's an area that we would like to grow. I think there are -- there's a lot of activity in that space. Today, we service blades. The question is could we expand our offering to include more up-tower work in the sale (ph) itself.

So I think there are a lot of interesting opportunities to vertically integrate a little bit more, as well as over time, Horizontal is an interesting thing too if you think about the entire value chain within the renewable space..

Okay, very helpful. I'll take the rest offline. Thanks, guys..

Great. Thank you..

I will now turn the floor over to Bill for closing remarks..

Thank you, everybody for your questions.

Just we remain focused on managing our business through the near-term challenges facing the industry in today's financing agreement with Oaktree highlights our efforts to best position TPI to do so, with the focus on execution of our strategy to capitalize on long-term energy transition trends and opportunities.

So finally, I want to thank all of our TPI associates once again for their commitment and dedication during these challenging times. Thank you again for your time today..

This concludes the teleconference, you may disconnect your lines at this time and thank you for your participation..