Good afternoon, and welcome to TPI Composites First Quarter 2021 Earnings Conference Call. Today's call is being recorded, and we have allocated 1 hour for prepared remarks and Q and A. At this time, I'd like to turn the conference over to Christian Eden, Investor Relations for TTi Composites. Thank you. You may begin.
Thank you, operator. I'd like to welcome everyone to TPI Composites' Q1 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, in the comments made during this conference call or in our annual report on Form 10 ks filed with the Securities and Exchange Commission 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 Bill Siowick, TPI Composites' President and CEO.
Thanks, Christian, and good afternoon, everyone. Thank you for joining our In addition to Christian, I'm joined today by Brian Shoemaker, our CFO. I'll briefly review our Q1 results and activities, discuss The current operational status of our manufacturing facilities, including our supply chain, give an update on our global service and transportation businesses and then a quick update on the wind energy market. Brian will then review our financial results in detail and then we'll open the call for Q and A. Please turn to Slide 5.
We had a strong first quarter in which we delivered net sales of $404,700,000 a 13.5% And adjusted EBITDA of $13,100,000 or 3.2 percent of net sales, an $11,800,000 increase over Q1 of 2020. We started wind blade production in India for Nordex. We published our 2nd ESG report where we laid out specific goals related to safety, gender and racial ethnicity for Our Board of Directors and leadership teams as well as a pledge to become carbon neutral by 2,030 with 100% of our energy being procured from renewable sources. We remain focused on operating our businesses safely while continuing to mitigate the impacts of COVID-nineteen and ensuring that we are prepared to deal with continued resurgences of the virus in 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.
Turning to Slide 7, I'll now give you a quick update of our global operations as well as a market update. During the Q1, we continued to operate all of our facilities at normal levels. In China, production continued as normal. We are Still working on backfilling the 5 lines that were taken out of production at the end of last year. Stay tuned.
In India, production for Vestas continued uninterrupted and we started production on two lines for Nordex. The country of India is currently on two lines for Nordex. The country of India is currently experiencing a significant increase in COVID cases, but this is not currently having a material impact on Operations. We will continue to monitor the situation very closely, including the impact on our supply chain and work to protect our associates and their families as we have through the entire pandemic. In Turkey, production continued as normal, while we continued the transition of 3 lines during the Q1.
Turkey also experienced an increase in COVID cases late in Q1 and into Q2, so we are monitoring the situation very closely and continuing our measures to protect our associates and their families. There has been no disruption to our operation as a result of the spike in cases. And Mexico production also continued at normal levels. We are currently in the midst of a transition of two lines in Matamoros, and we plan to have 4 lines in transition in Juarez in Q2 with 4 more lines in transition in Mexico during 2021. In the U.
S, blade and transportation production has continued uninterrupted. We have already conducted multiple mass vaccination events for our associates in the business, we are continuing to build out the team in order to support the growing customer opportunities we have and are securing And now have approximately 250 technicians, an increase of over 30% since the beginning of 2020. Our training facility in Santa Teresa, New Mexico was up and recorded. From a transportation perspective, during the quarter, we continued to deliver parts for multiple passenger electric vehicle manufacturers. We are pleased with the progress and experience that we are gaining with the automated production line in Rhode Island to demonstrate cycle times, quality, repeatability, Scalability and cost for our customers and to expand our product portfolio with these advanced technology solutions.
We are now collaborating with 6 OEMs on cab and body structures and with 9 OEMs related to electric vehicle component parts. Examples of cab and body structures are buses, Class 8 cabs and delivery vehicles that enable light weighting, reduced upfront capital investments and are highly durable structures. Examples of electric vehicle components include underbody protection, battery enclosures recorded. We are continuing to build our transportation team and plan to continue to add leadership with deep automotive experience to accelerate the execution of our strategy. With respect to our supply chain, no issues materially impacted our production in Q1, but we have seen cost increases, some availability issues and logistics challenges over the last quarter.
In addition to fabrics, which include fiberglass and carbon and consumables, We experienced both price increases and supply constraints related to epoxy resin feedstocks due to the extreme cold weather This is in February, factory fires, plant closures and unplanned extended maintenance outages in China and Europe. We continue to manage through the congestion in the Los Angeles area ports and a global container shortage causing increases in logistics costs. Brian will speak to the financial impact in a moment, but as they have demonstrated during the pandemic and prior material Our supply chain team has done a phenomenal job of finding alternative sources, securing enough materials and finding new logistics routes to enable minimal disruptions to our operations and deliveries to our customers. We see early signs of supply constraints easing and opportunities to build out and add to our current technologies and capabilities and are excited about the opportunities we see to accelerate the growth and expand the breadth and strength of our business. As it relates to the wind market, since our last call, the Biden administration has made several significant announcements That could positively impact our business over the long term.
First, the proposed infrastructure bill has many components that have the Potential to help accelerate the growth of wind installations in the U. S. To highlight a few, first, the Energy Efficiency and Clean Electricity Standard would aim to achieve 100 percent carbon free electricity by 2,035. 2nd, transmission targeted investment tax credit that incentivizes the build out Separately, Senator Wyden reintroduced a bill with a technology neutral framework that would allow power producers to qualify for either a production tax credit or an investment tax credit for facilities with 0 or negative carbon emissions. Relating to off Shorewind, the Biden administration announced a government wide goal to install 30 gigawatts of offshore by 2,030.
Finally, as part of the climate summit, the administration announced The new goal for the U. S. To cut its greenhouse gas emissions in half by 2,030 as part of the Paris Climate Agreement. Other countries, including Canada, Japan, Brazil, the UK and South Korea increased their commitments as well, While the EU parliament and member states passed legislation requiring a 55% reduction in carbon emissions by 2,030 compared with 2019 levels and that's up from 40%. Since our last call, WoodMac has increased its onshore U.
S. Forecast As for 2021 through 2025 by approximately 19%, and that includes a 50% increase for 2022 alone. This forecast suggests that the competitiveness and strength of the wind markets continues to improve as we've been discussing for some time. While these policy announcements may not cause the short term installations to increase and in some cases we may see installations Pushed out due to additional potential time for developers and other stakeholders to recognize the benefits of incentives such as the PTC, These are clearly very strong positive signals as we look out over the longer term period. We believe the future for wind energy will continue strengthen given the initiatives and goals to promote the acceleration of the energy transition.
Our long term goals, including 18 gigawatts of capacity, 20% market share and $2,000,000,000 of wind revenue do not yet reflect the potential impact of the accelerating energy transition. We believe the long term opportunity for us in wind is significant, and we will update our targets as we develop better clarity through discussions with our customers, Creating imperatives and ESG activities to drive profitable growth and long term shareholder value. With that, let me turn the call over to Brian.
Thanks, Bill. Please turn to Slide 11. All comparisons made today will be on a year over year basis compared to the same period in 2020. For the Q1 ended March 31, 2021, net sales increased by $48,000,000 or 13.5 percent to $404,700,000 Net sales of wind blades increased by 12.7 percent to $379,200,000 This was primarily driven by an 11% increase in the number of wind blades produced year over year and an increase in the average selling price due to the mix of wind blades produced. Startup and transition costs for the quarter increased by $2,300,000 to $14,400,000 as we continue to ramp our India facility And transition lines to bigger blades in Mexico and Turkey.
Our general and administrative expenses for the quarter decreased by $600,000 to $8,900,000 and G and A as a percentage of net sales decreased 50 basis points to 2.2 percent of net sales. This decrease was primarily related to a decrease in travel and training costs due to COVID-nineteen and our continued focus on reducing costs. Before share based compensation, G and A as a percentage of net sales was 1.7% and 1.9% in Q1 of 2021 2020, respectively. Foreign currency loss was 3 point $7,000,000 in Q1 2021 as compared to foreign currency income of $1,000,000 in Q1 2020. Excluding disclosure is naturally hedged due to our euro denominated revenue contracts.
Approximately 22% of our revenue in Q1 2021 was denominated in euros. Our income tax benefit for the quarter was $7,100,000 as compared to $15,000,000 for the prior year period. This decrease was primarily due to our forecasted jurisdictional mix of income. We are forecasting our cash tax liability to be approximately $20,000,000 to $23,000,000 for 2021. Net loss for the quarter was $1,800,000 as compared to a net loss of $500,000 in the same period in 2020.
This increase was primarily due to the reasons previously described. Net loss per share was $0.05 for the quarter compared to a net loss of $0.01 Per share for the same period in 2020. Our adjusted EBITDA for Q1 was $13,100,000 or 3.2 percent of net sales with a utilization rate of 77% for lines installed at quarter end. This compares to adjusted EBITDA of $1,300,000 or 0.4 percent of net sales And utilization of 70% in the same period in 2020. We estimate that adjusted EBITDA was negatively impacted by $2,400,000 associated with COVID-nineteen related costs during Q1 2021.
Moving to Slide 12. We ended the quarter with $136,200,000 of cash and cash equivalents, net debt of $99,000,000 and have driven down our net debt Leverage ratio to less than 1.75 as calculated under our credit agreement. As you may recall, we We amended our credit facility last year to provide us with additional liquidity and increased flexibility with regards to our financial covenants to help manage through the COVID-nineteen pandemic. During the quarter, we terminated the adjustment period a quarter early due to our ability to drive our net leverage ratio down. Following the termination of the adjustment period, the adjustments to our total net leverage ratio covenants were removed, Interest rates were decreased and the minimum liquidity covenants and mandatory repayment triggers were discontinued.
During the quarter, we incurred $18,800,000 of CapEx as we continue to build out our India plant and transition lines in Mexico and Turkey. Turning to Slide 13. For 2021, we are reaffirming full year guidance that we provided in February. This is despite increased commodity prices, specifically resin and inbound freight costs that Bill mentioned earlier. The supply constraints and resulting resin price increases are due to a multitude of factors, including the extreme cold weather in Texas in February 2021, fires at resin manufacturing facilities in China And unplanned extended maintenance outages at resin manufacturing facilities in Europe.
Capacity is beginning to come back online, and we expect resin prices will begin to decline in Q3 2021. When we see rapid increases in raw material costs Like we did in late Q1 and into Q2, it can have a short term impact on our margins due to the timing of when we contractually reset prices with our customers. To put this into perspective, prior to any price adjustments with our customers, we saw resin prices increase over 30% from late 2020 To the end of Q1 2021, on average, resin makes up approximately 26% of Blade's bill of material. However, based on our contractual arrangements, we believe that our adjusted EBITDA for 2021 will only be impacted by with the majority of such raw material cost increases being incurred in Q2. As we look at our adjusted EBITDA forecast for the remainder of 2021, we expect our Q2 adjusted EBITDA will be slightly higher than Q1 and the majority of our adjusted EBITDA will be generated in Q3 and Q4.
These numbers could be significantly impacted by COVID-nineteen. With that, I will turn it back over to Bill to wrap up and then we will take your questions. Bill?
Thanks, Brian. Turning to Slide 15. The health and safety of our associates and their families as well as the communities in which they live remain our number one priority. We continue to take the necessary steps on the COVID-nineteen front to ensure the safety of our associates and safe working conditions in our facilities. We continue to aggressively work our wind pipeline, and we are pleased with the progress we have made in growing the team and opportunities in the global service space.
We continue to build on our momentum in the transportation with a number of exciting new collaborative development agreements. We remain focused on managing our liquidity to provide financial security and flexibility As we drive through the current environment and execute our strategy to capitalize on the acceleration of the energy transition. We are excited about the multiple We are evaluating to build out and add to our current technologies and capabilities to support the growth, breadth and strength of our business. Our overall mission to decarbonize and electrify remains unchanged. We will continue to optimize our global footprint while using leverage of our global scale For operating and supply chain efficiencies to continue to drive down costs, all while maintaining a strong balance sheet.
Given the broader wind and electric vehicle industry tailwinds, our position in the market and our relationships with our customers, we remain Excited for the future here at TPI. Finally, I want to thank our dedicated TPI associates for their commitment Thank you, And with that, operator, please open the line for questions.
Thank And our first question comes from the line of Eric Stine with Craig Hallum. Please proceed with your question.
Yes, good afternoon. It's Aaron Vahalla on for Eric. Thanks for taking the questions.
You bet. Good to talk to you.
You as well. Maybe first on outsourcing, given some of the things we've seen on the supply chain and just other industry dynamics, Do you think that that's going to strengthen the trend toward outsourcing here as we look over the next year or so?
Yes. I don't think we've seen anything that would suggest otherwise. So, we still have a pretty robust pipeline With a lot of activity, so yes, we haven't seen anything that would suggest the trend would slow or reverse in any way.
All right. Thanks. And maybe second on the EV side, thanks for the color on kind of the number of programs. Can you just maybe give a little more detail on how Those conversations have trended maybe in recent months. And how many more programs you might look to add as We kind of progressed towards that $500,000,000
goal? Yes. It's hard to tell how many we'll add going forward clearly, but Stations have obviously progressed very nicely. We've seen a lot of activity, a lot of interest, which is why we've added a number of development agreements over the last recorded. So I think it's been extremely active.
I think people are starting to understand The true value proposition of a composite structure, whether that be a body or a component with the strength and the lightweight nature of it, We're getting down to a place where we're working towards a cost parity model. I think once we get there, then you'll see some more traction.
All right. Sounds good. Thanks for taking the questions.
You bet. Thank you.
Our next question comes from the line of Laura Sanchez with Morgan Stanley. Please proceed with your question.
EBITDA for the quarter, it came in a little bit above the guided level. And you talked about the impacts from increased raw material costs. Recorded. And we also hear the OEMs talk about transportation challenges. So are there any factors offsetting these Challenges that allow you to keep 2021 guidance unchanged?
Yes. I think I'll jump on that one first, then I'll let Brian But I think we've got some pretty aggressive cost out goals in a number of areas that we're executing on. I think when we talk about raw material cost increases, and I think most of you remember, we have shared pain gain in our contract. So there is a bit of a sharing, but I think more importantly is our supply chain team just does an amazing job of locking in pricing On virtually all of our commodities with the exception of resin, and that kind of adjust quarterly, but almost everything else we're locking in a year in advance. So you may see market prices increasing on some of these commodities, but that may not actually impact what our pricing is.
So Although we will see a bit of an impact from resin as Brian suggested, most of the other commodities we've locked in pricing. So Any increase there is impacting us much less than it might otherwise.
Perfect. And a follow-up on that, about the seventy-thirty sharing mechanism, how often does And does that get reset or how does the accounting work?
Well, I'll let Brian handle the accounting. But from a contract standpoint, It varies a bit by customer. So some of our customers, it's 2 times a year. Some of our customers, it's quarterly. And then another customer we have where it's just an annual adjustment.
So it does vary across the board. So really you're On one customer, it's 1 year and everything else is generally quarterly or semiannual, but most of them are quarterly.
Yes. And then from an accounting standpoint, if you think of under the 606 that we talk about quite a bit, if you look at that, I mean, it gets Smooth out the margins over the life of the contract, so just keeping that in mind. But again, this piece of it, the $5,000,000 we believe will hit in Q2, 2 which will be the primary portion of it for the year.
Perfect. Yes, that's a good reminder. And last one on me and this is more Longer term, is there any potential do you see any potential in kind of being part of the big organization of the shipping industry? If I remember correctly, before you started manufacturing blades, you manufactured sail and powerboats. So I'm wondering if the ocean shipping industry would represent another market for you longer term?
We really I mean, we've interestingly enough, we've been approached on Some unique propulsion systems for ocean going ships as it relates to wind. But as far as the ships themselves, no, that's not something that we're focused on at this point.
Understood. Thank you for your time.
You bet. Thank you, Laura.
And our next question comes from the line of Greg Lewis with BTIG. Please proceed with your question.
Yes. Hi. Thank you and good afternoon everybody. I was hoping to get a little bit more color around the other revenue. You maintained the guidance of that.
So it looks like that's going to step up, just looking roughly Yes. It looks like all the revenue took more of a letdown transport was flattish. Any kind of color around that, knowing that you'd have the So the parts that probably on the transport side that probably picks up before the chassis
Any kind of way to think about
that through the next few quarters?
Yes. I mean, the guidance I gave earlier was about a third, a third, a third of kind of the overall total guidance that I gave. Now with that number Is in there is the field services. So you'll continue to see, I mean, that increases. We have a bigger focus on that.
So that's why we're Continue to focus and continue to drive that and growing it, so you will see that going up over the period of the year.
Okay. And so then as I think about Transport, realizing that it's still kind of in the incubation phase, When we think you mentioned the 6 OEMs, the bodies and then the components The parts, any kind of way we should be thinking about the growth of either I mean, are they going to kind of be in parallel? Or do we I think it could be something where one leads the other. And then as we think about that, should there be any differentiation around margin or should
that make kind
So you're asking whether cab or component will grab fast So grow faster and then whether there's a differentiation in margin, is that the question?
Yes.
Yes. Exactly. Greg, it really just depends on which grows faster. I mean, clearly, we've got opportunities in both. Some of the cap stuff takes a little bit longer to develop, as you might imagine, compared to the component, But it might be longer run.
So I think it's a little hard to say. We're obviously focused on both. So that's the answer as far as what the split may be or the speed of growth for each. And on the margin side, I think, as I mentioned, we're working the cost side pretty hard to bring it down to not only be a benefit because of the It might but also be more to cost parity. But we believe right now margins Should be relatively consistent across both and a part of it will just depend on volumes and what the CapEx requirements are from our customers, but at this point, it's a little early to tell, which will be a better margin, but we're working them To be consistent kind of with where our wind margins have been in the past.
Okay, great. Thank you very much.
Yes. Thank you, Greg.
Next question comes from the line of Graham Price with Raymond James. Please proceed with your question.
You spoke A bit last quarter about potentially consolidating your blades facilities in China. Just wanted to
I'll check-in and see if
there are any updates on that front. And I guess if the India COVID situation Kind of plays into that in any way.
Yes. So, we're still looking to optimize Our China footprint, we've got 3 facilities there now. And so we are continuing to look at what the optimal Situation for us is in China based on not only demand from our existing customers and other Western OEMs, but also As I think I mentioned in the last call, discussions we're having with some of the Chinese OEMs. So, we're still working on the optimization of the So that's where I would leave that. And as it relates to COVID, I mean COVID really no impact on what we're doing in China or as it relates to the footprint there.
I mean, we've had a COVID Hit us in China very first, but it's had the least amount of impact on operations there throughout the whole period. And so really no impact from COVID for us there. Got it.
Thanks. And then for my follow-up, Thinking specifically about sourcing balsa wood, any inflation concerns there, I guess in addition to the epoxy resin?
No, actually quite the opposite. We've seen a pretty significant drop in market price for For balsa since last year, if you recall last year, we had some challenges at the end of 2019 and into 2020 exacerbated by COVID. But we are in very good shape from a balsa standpoint and a balsa market at this point today.
Great, great. That's good to hear. That's it for me. Thanks.
Great. Thank you. Appreciate the questions.
And our next question comes from the line of Stephen Tangerine with Stifel. Please proceed with your question.
Thanks. Good afternoon, gentlemen.
Good afternoon.
So two things for me. The first, Can you help us a little bit with sort of the stair steps or the big drivers of the EBITDA And ramp in the second half versus first half, just kind of a bit what are the major components which move us Sharply higher in the back half of the year.
Yes, there's a few things going on, right? You have One is the cost that we talked about that we'll be impacting, which is minimal, but it's about the $0.05 that we referenced from the raw material increase. The other portion, I mean, you have India ramping up, so they'll continue to ramp up. We have 7 lines in transition right now The Q3, Q4 timeframe, so that's another big push that we're seeing. So we feel I mean, right now, I mean, it's starting to fill in that back half of the year And kind of where we're coming out to see that utilization going up to achieve those numbers.
Yes, I think that's the key is the utilization. If you look at the utilization numbers Going out in Q3 and Q4, you'll see numbers that are much higher than we experienced here in the Q1 for sure.
Okay, great. Thank you. And just as a follow-up, when we think about the opportunity offshore and I'm thinking Probably more U. S. Than international with this question.
When do you what's sort of the lead time on when you start to Set up relationships, contracts, book work with the OEMs for the offshore side. Just give me a sense for the timing.
Yes, it's right now. So, I mean, if you think about The time it takes to set up a new facility, secure the land, etcetera, etcetera. So we were in discussions today and have been for quite some time with OEMs on opportunities for offshore, specifically on the East Coast of the U. S. So That's happening now.
We would expect maybe announcements would probably be it's shifted a little bit To the right, but we're thinking early 2022 right now with production likely in 'twenty four timeframe. So there's quite a long lead time. There's a lot that has to happen between now and the time we by the time The turbines get erected in the water, so.
Great. No, thank you for the color, gentlemen.
You bet. Thank you.
Our next question comes from the line of James West with Evercore
So Bill, you laid out the recent policy changes within Washington and other places around the world that are kind of We're accelerating the energy transition and you guys have a number of lines that are also in transition and you just talked a minute ago about Preparing for offshore, but has this acceleration, this polyester driven Acceleration, has it caused you to start to think about even incremental lines from what you already have planned?
Yes. No, good question. And absolutely, I mean, I mentioned we're in discussions and having talks with customers and their Our customers' customers, etcetera. But absolutely, that's part of what we've been doing through the Q1 and into the second quarter is having Long term planning discussions with customers, understanding markets, where the growth is, where the needs are, where Capacity is today and where it needs to be tomorrow or over the next 5 to 10 years. So that's an active and ongoing exercise right now.
But if you look at size right now. But if you look at if the numbers That some people are putting out there come to fruition. I mean there's going to be more capacity needed in different parts of the world recorded. Or in our existing locations as well to certainly meet the demands of the market. I mean, there's talk of 3 times the number of The amount of installations just in the U.
S. Market, right? And it would need even more than that in Europe to hit their target. So Yes, the answer is we will be looking at that footprint over the next 6 to 12 months recorded and then deciding kind of where the next growth location may or may not be.
Okay. Good to hear. Then just maybe a follow-up on the resin cost issue. I know you expect that to come down in the 3rd quarter. Is that is the Supply already contracted, do you have good visibility on that?
So we have supply secured pricing is what can move. So the pricing moves quarterly based on some indices that we've agreed on with a couple of our strategic suppliers. So the price can move, but as you recall, as we reset with our customers, there's a sharing of that price increase or As prices come down, the price decrease, right? So
Okay, makes sense.
Yes.
Thanks.
You bet.
Thank you. Or
telephone.
Our next question comes from the line of Jeff Osborne with Cowen. Please proceed with your question.
Hey, Bill. I just had two quick questions on the EV side. So the 6 and 9 customers that you referenced, Are those people you're making prototypes or are those contracted volumes? What's the nature of that? So is Proterra in the 6% and 9% or no?
Yes. Proterra would be in there, and that's obviously contracted, right? And then there are the from a CAD standpoint, it's more development, if you will. Clearly, we've discussed the Navistar arrangement we have, so that's in there as well. But most of them are development that would that we anticipate It will lead to production down the road.
And on the component side, there are 2 of them where it was They were production parts for existing vehicles. And then we've got A bunch of stuff that's in again development phase with a number of OEMs. Got it. And again, I'm sorry, the plan is that, that development obviously would lead to production deals.
Got it. And I know years ago you had a DOE funded program with GM, if my memory is right. If something like that for door panels were to take off for, Say the F-one hundred and fifty making roughly 1,000,000 vehicles a year, what's the CapEx implications for this Sort of broader vision, because it seems like you're getting quite a bit of success in moving the ball forward here, but I wasn't sure is Rhode Island equipped to do this or Newton, Iowa, Where would this be done?
Yes. So we've got the pilot production line in Rhode Island right now that we are running Production parts off of, but no, that we couldn't do that type of volume out of Rhode Island. Our thought here is that If we were running components, like that, we would likely be co located, either in or near Our customers' plant, so I can't tell you what the CapEx would be today for 1,000,000 F-one hundred and fifty doors. I'd like to have the Opportunity to figure that out and we certainly would, but yes, but that it's Too early to tell what that would be, but clearly that's our plan would be to co locate or locate near where our customers are for those types of volumes for sure.
Makes sense. And the last question is, it's probably been a year since you talked about it, but I think you were working on with your customers' segmented blades In terms of larger form factors, is that something that you're still working on? Or can you give us an update on blades that would be assembled on-site At the location of deployment?
Yes. We are producing segmented blades today.
Our next question comes from the line of Greg Baskowski with Weber Research. Please proceed with your question.
Hey, good afternoon guys. Thanks for taking my question.
You bet. Good afternoon.
I'll start with Transportation, just a quick one. I'm curious if there's any overlap between those cab OEMs and the EV parts OEMs Or if they're all individual?
There are some there is some overlap. So we're looking at cabs as well as certain components For a couple of them, for sure.
Got it. Okay.
And then how should we think about the timeline for growth in this segment? I know we've Talked about longer term plans and targets over the next few years. But as you start to add more relationships and build your backlog, How should we think about that kind of conversion period? When we see you add additional OEMs in the mix for collaboration agreements or partnerships, Generally speaking, should we automatically be thinking 12 or more months before seeing any translation to the P and L? Or could it be Sooner than
that. It's I would just say, patience. And the reason I say that is These development programs do take a little bit longer to get to production than I think maybe was originally anticipated. So your point that 12 months, I'd probably say in some it could be 12, it's probably more like 24 months from As you get through a development process 24 to 36 before you get to production, especially if you're going through Testing phases and what have you with the cap structure specifically. So it is a long cycle for these development projects.
And so again, it's probably that 24 to 36 months before you start seeing meaningful revenue from a production deal Out of a development project we're working on today.
Got it. Okay. And then one more if I could. Just on labor, I'm curious if you've seen any labor constraints, either at TPI or somewhere Within your supply chain or your customer base, thinking particularly in the U. S.
Just as a result of stimulus checks and kind of favorable unemployment benefits. Just wondering if you've seen anything there at all?
In the U. S, it has it's Early on, in the early part of the pandemic, we had a few challenges in Iowa, but we've actually been in pretty good shape. Now We're always looking for skilled workers, but the answer short answer is no. We're not seeing significant Or impactful labor challenges, whether it be because of the unemployment checks or just because of the overall market. We're in pretty good shape at this point.
Got it.
Okay. Thanks a lot guys.
Great. Thank you.
Our next question comes from the line of William Griffin with UBS. Please proceed with your question.
Great. Good afternoon. Thank you. So I just wanted to dive into the second half EBITDA ramp implied in the guidance a little bit more. I appreciate that you gave a little bit of color earlier.
But just I think last quarter you were talking about 2nd Q3 being strong and then a little bit of a step down in 4Q. This new guidance seems to imply like a pretty significant shift out of 2Q and then Into the second half of EBITDA. So you quantified the $5,000,000 from higher costs, but as far as like the 7 lines transitioning, India ramping, that stuff I would think you would have known when you gave guidance last quarter. So just help us understand if you can quantify or just help Any additional color you can give to help us understand what's going on here that would
help? Yes. For the most part again, Q2 that pushed off into Q3 3 into Q4, some of the demand is also filling up in Q3 and Q4 that we spoke about, maybe being a little softer before. So that's also helping us out the back half of the year. So those are the key things that are kind of driving that from a utilization standpoint and building the factories to give us that confidence.
But For Q2 and why that's down, again, part of it's the raw material input cost we talked about, part of it is This demand slipping, so that's part of the 2 main factors there.
Well, it's a demand push to the right, right. So Does that make sense, Will? So when we on the Q4 call, we talked about back half of twenty twenty one Being a little still filling up, being a little bit soft. Well, that's firming up. And so that's why Q4 looks Better and then some of the volume from Q2 that we anticipated is getting pushed into Q3 customer request.
Right. I get that. Do you think utilization in the second quarter will be lower sequentially?
Not necessarily lower sequentially, it will be higher because you have more of India coming online. So that's why I mean overall adjusted EBITDA goes up a little bit. We just try to give you that kind of thermometer to tell you how it's progressing throughout the year.
Okay. Thank you so much.
You bet. Thanks, Will.
Our next question comes from the line of Phil Shine with Roth. Please proceed with your question.
Hey Hey guys, thanks for taking my questions.
Hey, Bill.
Hey. So Brian, I think when you were talking about the guidance In the sequence of EBITDA, you said the majority would be in Q3 and Q4. I know we've talked a bunch about that. But you also did say these numbers could be significantly impacted by COVID. So I wanted to explore that a little bit more and specifically with India's COVID Can you talk more head on about how are you guys preparing for that?
Or what do you think could Happen in the case of a possible shutdown in parts of the country. Is there a shutdown for Tamil Nadu, for example, being contemplated, which I believe is where Chennai is the capital. So just maybe talk through India and what the risk might be to that back half guidance as well? Thanks.
Yes, Phil, this is Bill. Just it's a typical caveat risk Factor right when you've got a global pandemic. So if something happens, you never know. So but specific to India, right now, we're okay. There is not although there are curfews and there are shutdowns both in Tamil Nadu and throughout India, History has continued to be open.
There is no travel there is no restrictions between districts like there was early in the pandemic, so we're fine there. And actually, the oxygen situation where we're at is actually easing up a bit. But nonetheless, it's Still very serious and we're watching it very closely. We're monitoring our supply chain there as well. So the risk is that we have Either an outbreak, which we're doing everything we can to prevent that, and we have to slow down production.
But at this point, We have not had an impact on production nor do we anticipate it unless something changes significantly here over the next few weeks.
Yes. The only thing I'll add is, in our prior call, we talked about kind of the $5,000,000 a quarter COVID impact being through Q2. With our run rate, we kind of gave about the $2,400,000 in Q1. We believe $10,000,000 will go through the full year and Because of what we're seeing in India and Turkey. So that's why we're still confident in those numbers we gave about the $10,000,000 it just will go through the whole year now instead of just the first half.
Okay. Appreciate that, Brian. Thank you, Bill. I think we talked through resin earlier. Can you talk about the logistics outlook?
Do you also see an improvement in Q3 there? Or is that just resin? And if not, what is the visibility on the improvement for logistics pricing?
Yes. I think the further down the road you get past the pandemic, not that we're past it, we're still in the middle That's a tougher one, Phil. I think I rely on our supply chain team and they've done a phenomenal job of Finding alternative routes and modes and methods to get materials where they need to go. I don't have a crystal ball on this one. I see it remaining tight through the balance of the year, but we'll continue to manage just the way we have over the last 12 to 18 months.
Okay, great. And I know that impacts the entire economy, so it's not isolated to you guys. Bill, in terms of the Passenger EV that was slated for possible serial production, you guys were looking for and we were looking for sometime in Q4 last year and then Q1 this year, can you talk about what the status is of that converting to actual live production? And what is the roadblock? Perhaps you can just talk through some color on that one.
Thanks.
Yes. So we have 2 different programs. The one that was the earlier program It probably will not go to serial production on this particular part. We're still working with The OEM and we've got options on other parts, but that particular part that we had spoke about will likely not go to serial production under with TPI. The other program we're working on, it's Tens of thousands of parts that we will be delivering between now and kind of the end of Q3, early Q4, And we'll see from there whether that goes to full serial production or whether it's just a pilot as well.
So The first one, again, still dealing with the OEM on other options, but for that particular part, we didn't go serial. Now we're working on another one that we'll see, but it's high volume. It's a high profile customer and so we're excited about the opportunity and we're executing on that right now.
Can you explain what the root cause was for the first program?
When The OEM went a different direction. I think, the part turned out to not need to be as Structurally significant as we originally anticipated it to be. And so as a result, Our cost was fine if the part would have remained as is and they needed that structural integrity, but it turns out they didn't need something as structurally Significant as what they originally believed, so they went with a different technology that was cheaper.
There are no further questions at this time. I will now turn the call back over to our speakers.
Thank you. And again, appreciate your interest in TPI Composites, and we look forward to our next discussion. Thanks again. Be safe.
That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.